Remarks to be delivered at the January 12, 2010 meeting of the Wichita City Council.
Mr. Mayor, members of the council:
There are several aspects of the proposed hotel in the WaterWalk development that I find troubling.
Perhaps most important to public policy, the city has now recognized that when it provides subsidy to one business, it may harm other businesses. As you may recall, I’ve spoken to the council several times on this topic over the past few years. I’ve been concerned about the effect on privately-owned businesses and the willingness of entrepreneurs to assume risk only to find themselves competing with a subsidized business. The city has shown little concern for this.
But now that a city-owned business — the Hyatt Hotel — may be imperiled, the effects of city subsidy on competition is now a concern. It’s only now that city hall is measuring the harmful effects of its actions.
This is a slap in the face of all businesses in the city that have faced competition from a city-subsidized competitor. In particular, there is a Holiday Inn and Suites just three blocks away from the proposed hotel. Will the city survey to see if this hotel will be harmed by a subsidized competitor?
Then, why are we settling for such a low rate of return on this project? Promoters of public investment in downtown Wichita like the Wichita Downtown Development Corporation are promising returns of up to 15 to one for future projects. The agenda report for this proposed public investment indicates a benefit to cost ratio of 1.77 to one for the City of Wichita.
Are these two indicators measuring the same thing? If so, why are we about to make an investment with a return of less than two to one, when much higher returns are promised after the planning for downtown revitalization is complete?
I’m also concerned about the economic viability of this project. If we want to have robust development that has deep roots, grounded in solid financials and free market capitalism instead of crony capitalism, we need to turn away from highly subsidized ventures like this proposal. Relying so extensively on public subsidy creates development with shallow roots.
An example of this is the problem the city is currently experiencing with the Broadview Hotel. This hotel was scheduled to be renovated by its new owners. The purchase and renovation were to be made possible by large subsidies by the city. Tax credits from the state were to play a large part, too. But last year when the state realized that it couldn’t afford these tax credits, it placed a lid on them, and now the Broadview renovations are on hold.
There are a few specific questions about this project that need answers. We need to see a development budget for this hotel. It appears that the cost will be around $100,000 per room. I’ve been told this cost is high for this type of hotel.
We also need to have more information about how much of their own money the developers are putting into this deal. Also, I think citizens would like to see the details of the ground lease and the parking arrangements.
Although the governor didn’t mention this last night, there’s movement in Topeka to limit or eliminate tax exemptions, including sales tax exemptions such as planned for this hotel. Is the city confident it can secure the planned sales tax exemption?
Hi Bob. Just to clarify one thing — other cities that have already experienced successful downtown turnarounds have shown that for every $1 of public investment there will be $10 to $15 of private investment. This is where the 15 to 1 ratio comes in that so many are referencing. So (1) this is different than the cost-benefit analysis you site and (2) it takes several years to get to the point where a city has “turned around” their downtown. Hope this info helps!
Obviously those that don’t do or have never done any kind of development or at a scale of this project, the complexities of such are difficult to grasp. Instead of blogging about a political agenda and philosophy on this particular issue, it might be better to the readers for a balanced analysis. Where is the analysis of “what are our choices”?
Philosophically, I don’t disagree that government should not be in the business of being in business, but that’s not the question here. The decision on Water Walk was made years ago and we have to consider the situation today. The reality is that the city has invested a significant amount of dollars into Water Walk. Again, it is what it is.
So what does that mean? Well, it means we, the city, has a significant amount of outstanding debt as it relates to Water Walk. Some of that debt is in the form of STAR bond financing which leverages state sales tax revenue. Some of debt related to a TIF district which leverage incremental increases in property taxes. How is this debt to be serviced?
One thing is certain, if Water Walk never develops, the citizens at large will certainly pick up the tab for its failure. Is that really what you want?
The only chance to minimize the risk to the public is for Water Walk to be successful. If a deal such as this one is brought to the table and it doesn’t expose or at the very least minimizes the risk to the city, then it should be approved.
Perhaps it is given the mindset of many in this community to want the city to fail so that they can sit back as arm chair quarterbacks saying “I told you so”. No doubt this is the case with many given their comments here and in the Eagle regarding the arena.
I suggest you provide your “analysis” of the choices facing the council instead of just pushing a worn political agenda that does little to serve the community on this issue at this moment in time. What is the cost to the public if the project isn’t approved? What is the cost to the public if the project is approved? What other viable solutions are there?
Pat I think Bob tries to be a reporter and as such, should he try to create analysis it would be the same as creating the news (the Eagle’s editorial board does plenty of that). On Feb 2nd we will be bringing a choice to the council.
A choice that will be far superior to the Fairfield Inn. Whether we will have detailed analysis is yet undetermined. Remember the City has had months to put this deal together with all the resources at its disposal. We have 10 business days only by the time you take out Monday’s holiday.
Pat’s comments are very condescending to the citizens of Wichita. I guess if you don’t have personal experience in development you don’t have the right to express your opinions. Furthermore, if you disagree with City officials, you either have a political agenda or are misinformed.
Beth, should disclose the developers that she represents downtown whenever she praises downtown development in the name of transparency.
Geez Carlos, it wasn’t intended to be condescending; however, as a former elected official I would have thought you would be more appreciative of my comments. As you should know, these deals are quite complex. I have no problem with the “public” being engaged on any given issue, but at least deal with facts, facts that most people have difficulty in getting their arms around because they “haven’t been there, done that”. It’d be like me telling you how to run an insurance agency and how to underwrite someone’s policy even though I haven’t had any training, knowledge or experience to do so. I certainly can offer an opinion, but what value does it have?
Craig, look forward to seeing whatever deal y’all bring to the table. Thank you for your comments.
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