Dallas Shouldn’t Pay for a Convention Hotel

The city has plunged too deeply, too quickly into financing and building a convention hotel.

Dallas desperately needs a convention hotel. Mayor Tom Leppert is right about that. But he has gotten sharply off track on how he plans to pay for it. By the time this is published, the mayor should have used the economy as an excuse to revise that plan. If not, he and the City Council should stop right now—today—before they over-commit the city to a financial albatross.

The mayor says Dallas needs to invest in itself. I agree. But there are good investments, and there are bad investments. The American Airlines Center is a classic example of a good investment: a public-private partnership where the taxpayers’ exposure was limited (to street improvements and $125 million in cash), where the odds of a good return on the investment were high (because the arena plays host to more than 200 events a year), and where the arena would anchor private development in a dilapidated area, adding to the tax base.

The convention hotel meets none of those criteria.

First, what started out as a public-private partnership has magically transformed itself into a fully funded public project that is presently calculated to total $550 million. There is no cap on the taxpayers’ exposure. If the financial assumptions are wrong, either on the construction side or on the operations side, Dallas taxpayers will foot the overage on one and the deficit on the other. The deficit could run for years. The city defends itself against this danger by saying the bonds will be issued by a separate entity, which will also own the hotel. We’ve seen recently on a federal level how long that fiction lasts. The city is on the hook, which means the taxpayers are.

Second, the odds of a good return on the investment are not high. The city is depending on a 2008 study by HVS, a hospitality consulting firm, that estimated occupancy for a convention hotel at 68 percent. As opponents point out, the occupancy rate for the seven major downtown hotels has not exceeded 60 percent in the last five years. (Opponents also point out that in 2004 HVS said a convention hotel was not financially feasible.) With the economy entering a recession, those are daunting figures. Let’s take a best-case scenario: say the opponents are wrong, and a convention hotel is so attractive that its occupancy hits 65 percent, above the historical average but below the city’s projection. Who makes up the deficit? We know who makes up the deficit.

Third, there is no plan and no promise that I have seen that the convention hotel will spur development and add to the tax base. If there were, one might be able to accept overages and deficits because of a demonstrable increase in tax revenues from the ancillary projects. But, no, what you see is what you get: a convention hotel.

The arena decision was hotly debated and voted on. The Trinity River project was sharply debated and twice voted on. But the City Council has rushed this project through with no public debate, little explanation, and no answers to the questions that have been raised.

The rush to break ground could produce a political disaster for this city. The opponents will get a charter amendment on the ballot in May. The city says that doesn’t matter; the hotel will already be underway before the vote occurs. But will the city manager even certify construction bonds knowing that a vote is coming? And what if voters approve the charter amendment by, say, 3 to 1? Legally, the vote might be ex post facto and therefore void, although there would be lawsuits aplenty to determine that question. But politically, can an elected City Council—can a mayor—go against an overwhelming majority of the voters? Would not this seriously, perhaps fatally, weaken Leppert’s grip on the city’s tiller?

I am delighted Tom Leppert is mayor. I don’t want him weakened. I want strong, vigorous leadership for this city. But leadership’s capital is trust.

The mayor should take a deep breath and start revising now. We need a convention hotel, yes. But we don’t need it to run the city aground.

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