On Tuesday, the Wichita City Council will consider an agreement with a hotel developer that, besides awarding the usual subsidies to politically-favored developers, breaks new ground in the use of subsidy. Additionally, the deal contradicts recent promises made by a top city official.
The proposed hotel, a Marriott Fairfield Inn and Suites Hotel, would be located immediately south of the WaterWalk Place condominium building, at the northwest corner of Dewey and Main Streets.
Site of proposed hotel at Dewey and Main Streets. View is looking northeast. WaterWalk Place is the large building at the left. The Intust Bank Arena can be seen in the distance.
Information from the city’s Office of Urban Development indicates these subsidies are proposed for the hotel developers:
- The city will provide a cash contribution of up to $2.5 million to help pay for building the hotel.
- The city will create a Community Improvement District to benefit the hotel. Community Improvement Districts, which are a creation of the Kansas Legislature last year, allow a district to charge up to an additional two percent in sales tax. The proceeds from the tax are used for the exclusive benefit of the developers.
- The project will use Industrial Revenue Bonds. The usual benefit of these bonds is the accompanying property tax exemption. But since the location of the proposed hotel is within a TIF district, this benefit doesn’t apply. Instead, in this case the benefit of the IRBs is that the hotel will escape paying an estimated $328,945 in sales tax.
- The city will lease the land under the hotel for $1.00 per year, for a term of 99 years. There is a provision that if the hotel performs very well financially, the city will be entitled to additional rent.
- The hotel will be able to use the WaterWalk Place parking garage for its clients. There is a provision to install a gate so that some parking spaces will be available only to hotel guests and condominium owners. The value of this parking to the hotel developers is huge.
There is a contingency. The city will conduct a study to determine the impact of the proposed hotel on the financial performance of the city-owned Hyatt Regency Hotel that is located nearby. If the study shows a negative impact on the Hyatt, the city “may rescind the Letter of Intent and halt development of the hotel.”
Analysis
This proposal is perhaps the most egregious example of corporate welfare to be proposed to the city council, and one that should be rejected. There are many areas of concern.
The Holiday Inn and Suites near the proposed hotel. Will the city conduct a survey to see if this hotel will be harmed?Perhaps most important to public policy, the city has now recognized that when it provides subsidy to one business, it may harm other businesses. This is something on which I’ve written extensively, and I’ve spoken to the council several times on this topic. I’ve been concerned about the effect on privately-owned businesses. The city has shown little concern for this.
But now that a city-owned business — the Hyatt Hotel — may be imperiled, all of the sudden the effects of city subsidy on competition is a concern. 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?
There’s also the credibility of the people involved in this deal. The new owner of the WaterWalk development, Jack DeBoer, was quoted in a Wichita Business Journal article in November saying “I don’t want any more money from the city.”
In the same month the Wichita Eagle quoted him saying “I’m not going down to City Hall with my hand out. I can’t. The city has put their money in it, and I’m happy with that. We’ve put a lot of our own money in and that’s OK. Now, time to deliver.”
DeBoer isn’t going to own the proposed hotel. But it’s part of the WaterWalk development that he owns.
More troubling is the turnaround by Wichita City Manager Robert Layton.
In October the Wichita Eagle reported: “Layton was clear earlier this week: No more city money is available for WaterWalk.” Other Eagle articles quoted Layton stating “We don’t have any other resources to put in.”
Now the city is proposing huge and unprecedented subsidies for this hotel.
The cost of this hotel needs to be questioned, too. The projected cost divided by the number of rooms comes out to around $100,000 per room. I’ve been told that this is very expensive for a hotel of this type. While not a cut-rate budget hotel, this Fairfield Inn won’t have a restaurant. In my experience, they don’t have bars or comfortable lobbies.
If we want to have robust development that has deep roots, grounded in solid finances and the discipline of free markets instead of crony capitalism, we need to turn away from highly subsidized ventures like this proposed hotel. Relying so extensively on public subsidy results in development with shallow roots. As an example, the city is currently facing a huge problem with the Broadview Hotel. This hotel was scheduled to be renovated by its new owners, the purchase and renovation 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 to be so lavish with tax credits and placed a cap on them, the Broadview renovations were put on hold.
There are many questions about this project that need answers, and I’ve submitted a few to the city. From a public policy standpoint, the problem is that citizens have a very short time in which to ask questions and receive answers. The document that details the proposal appears to have been created at around 5:00 pm on Thursday January 7. The city council meeting is on the next Tuesday morning. There just isn’t time for citizens and journalists to submit questions and get answers. Performing any independent investigation in such a short time is nearly impossible.
The developers who are in line to receive millions in subsidy, however, have been working with the city on this matter for much longer. There’s a reason why this work is done in secret: Citizens ought to be outraged at this deal. Better to give them little time to object.
Letter of Intent Relating to Development of WaterWalk Hotel 2010-01-12