Hotel parking a big money loser for City — projected revenues don’t come close to servicing needed debt

The City has projections from consultants of the possible revenues and operating costs of a single level and a two-level parking garage under the proposed City-sponsored Plamondon hotel. Projected operating income is so small relative to the capital expense that with either of the subterranean, sub-hotel garages the debt service will be a major drain on future City budgets. 

The single level 160 parking space Option 1 gets base year gross income (revenue) of $352,000, but based on other City parking garage history will run up operating expenses of $242,000, so net income is $110,000 (we’re rounding to the nearest thousand-$s.) 

Option 2 of two levels with 236 spaces has revenue of $479,000 and operating costs the same as the single level design which leaves $237,000 as net operating income. COMMENT: The same operating costs is a bit strange, and needs explanation. Going from one level to two levels doesn’t double parking capacity, apparently because of extra space taken up in ramps in the two level version.

What’s better?

Operating profit per parking space Option 2 ($237,000/236=$1,004) looks better than Option 1 ($110,000/160 = $559) 

At $70,000/space construction cost ($# from previous project budgets) Option 1 at an annual net operating profit of $669 yields just under one percent (0.96%) return on capital cost while the two-level garage yielding $1,004/space produces a return on capital of 1.4%. Those kinds of yields make no sense given that money can only be borrowed at 3 to 5 percent, depending on whether the parking revenues alone or the full assets of the City are pledged as security. Also on a 20 year loan an average 5% of the principal has to be repaid each year. 

The City Parking Fund only works because costs of the above-ground decks has been in the region of $20,000/space versus the $70,000 underground at the Carroll Creek site. And the decked garages have been larger and there are economies of scale.

Another problem: the parking revenues under the hotel would be be heavily dependent on hotel guest numbers. Although proposed as a City operated public garage the pro-forma projections assumes  the hotel will need 120 spaces (110 for hotel guests and 10 for senior hotel staff.)  In the single level garage only 40 spaces are assumed occupied by daily public patrons. The hotel guests and staff provide $295,000 or 80% of the projected total revenue. 

The two-level garage gives the general public a bit more of a shot —116 spaces or about half the total. But the hotel guests and staff are expected to pay 58% of total revenue, the general public 42%. If the hotel struggles to attract clientele City parking revenues are down.

Meanwhile, the City’s financial consultant MuniCap, struggling to find a way to finance the $20 million of taxpayer funds for the whole hotel project has reduced the parking to 115 spaces — consigning all the parking to the hotel. 

No pro-forma for that. Or at least none they will release.

We have a project in motion again, bits and pieces changing so that consultants are working at cross-purposes, each modeling something that the work of another consultant has already rendered obsolete. The various consultant’s models don’t fit together. So stuff has to get done over.

SOURCE: The two documents called the “Downtown Hotel and Conference Center Parking Garage Pro Forma” has no date or author. They were provided by the City in response to a Public Information Act (PIA) request for access to any estimates it had of the expected financial performance of the garage in 2019. ‘Pro forma’ is defined a financial projection based on assumptions, and usually “refers to a statement of income and balance sheets that exclude non-recurring items.” (https://financial-dictionary.thefreedictionary.com/pro+forma)

A major shortcoming of a pro-forma is precisely that it excludes from consideration upfront capital cost

and servicing the debt and getting a return on capital. It also omits amortization of capital over the life of a project. It assumes the capital side of financing is dealt with separately, when in point of fact no business venture is possible without the raising of capital and provision of a return on capital. 

Plamondon’s take on parking — the more the merrier

Pete Plamondon sees the City’s parking decision this way: “In order to develop the best project, building as much on-site parking as possible is simply the right thing to do.” (His email of 2019.07.18 to Amy Rohrer of the Hotel & Lodging Association)  

Well. If we’re after “as much as possible” why not 500 spaces by building four levels under his hotel. And why not 625 by going down 5 levels. Chicago and New York have scores of underground parking garages like that. In terms of engineering and construction it is perfectly possible. 

Why wouldn’t that be simply the right thing to do?

Because local government is not, as Plamondon would have us think, a piggy-bank of unlimited funds for him to draw on. Because: (1) Frederick City parking has always operated on the principle that the system of parking garages should self-financing, and for that to be sustained it has to be discipline etc to invest in parking projects with the prospect of covering all their costs including, over time, their capital costs. And because (2) to the extent City parking isn’t managed in business-like fashion and cover its costs with parking revenues the City will have to find the revenues elsewhere in its budget. It will have to reduce other services to save on them, or it will have to impose extra taxes to fill the Plamondon parking piggy-bank.

Pete Plamondon

What’s clear from the Proforma projections is that however it is going to be financed the sub-Plamondon hotel parking at $70,000/space is bound to be a major drain on City resources. If the City Parking Fund is used exclusively for the Plamondon Parking piggy-bank then the City’s ability to develop other parking for the public will be seriously curtailed. Forget the discussed  (1) a northern deck at the Carmack-Jay site between W3rd and W4th streets, (2) rebuild of the old central Church St deck and (3) Parking Deck #6 next to the County Board of Ed offices by the southern gateway to downtown. 

Spending $10m to $15m to build Plamondon’s underground parking is $10m to $15m not available for other City needs, whether they are new City parking decks, or stormwater, roads, police, whatever. Surely Plamondon sees that. He insults the intelligence of elected officials and voters with airy claims that “as much as possible” is “simply the right thing to do.”

20191204

ADDITIONAL Dec 5

One reader disputes the 5% interest rate we initially assumed for a parking revenue borrowing for the Plamondon Hotel facility. We edited that to “3% to 5%” after looking at the matter more closely. Much would depend on the terms of any such borrowing. Would the City pledge as security only the Plamondon site parking revenues or all parking revenues, or the “full faith” of the City and its assets? The latest City financial reports show the City Parking system including five decks currently has outstanding bond debt of $13.7 million on which $477k interest was paid last year — an interest rate of 3.47%.

With only one level of parking and 115 to 160 parking spaces, realistically that’s parking for the hotel only. Its parking revenues would be closely linked to hotel revenues, and its risk would be similar to the hotel’s risk.

Regardless, the onus should be on the City to fully explain the financing proposed for their Plamondon hotel parking deck. Profit and loss ‘pro forma’ without a date, without an author and without any discussion of the assumptions is pathetically inadequate. As with the hotel itself, the expensive underground parking has to service capital. A ‘proforma’ projecting operating results tells you little about the overall financial viability of the project by itself. 2019.12.05

Posted in Uncategorized | Leave a comment

Plamondon sought help of hotel trade group to lean on Governor Hogan for $s for his hotel

Pete Plamondon sought the assistance last summer of the Maryland Hotel Lodging Association, the Annapolis-based hotel trade group to influence Governor Hogan to release state funds for his proposed hotel in downtown Frederick. We got a copy of an email and have responded to its misleading account. The text follows: 

Ms Amy Rohrer, President/CEO, Maryland Hotel Lodging Association, Annapolis MD 21401

Ms Rohrer

Amy Rohrer

I write as an old journalist following the ten year-old saga of the Frederick City Government and Mr Pete Plamondon seeking tens of millions of dollars from taxpayers on behalf of a hotel in the historic district of downtown Frederick, a few blocks from where I live. As part of my continuing investigation into this unfortunate hotel project I obtained a copy of an email addressed to you dated July 18, 2019 from Pete Plamondon with the Subject: Re Hogan. 

This is a misleading account as indicated by my interposed comments below.

From: Pete Plamondon Jr. <Pete@plamondon-cos.com

Sent: Thursday, July 18, 2019 2:30 PM

To: Amy Rohrer <amy@mdlodging.org>

Cc: Shelly Weir <sweir@ahla.com>; Abbey Kang <akang@ahla.com>; Troy Flanagan <tflanagan@ahla.com>; Cutler, Travis <Travis.Cutler@marriott.com>; Michael Henningsen <michaelh@plamondon-cos.com>

Subject: RE: Larry Hogan

PLAMONDON:  We have been involved in the development of a full service hotel/conference center project with the city of Frederick after winning a city led RFP process in 2014. 

SAMUEL: The RFP process run by a shadowy group of insiders was far from a fair and open procurement, more an inside ‘fix.’ The corrupt nature of this project is fully documented in my Submission to the Board of Public Works and Complaint to the Office of Legislative Audits. See link:

http://frederickhotelboondoggle.us/2019/03/submission-made-to-state-office-of-legislative-audits-and-board-of-public-works/

PLAMONDON: The city’s requirements was to include a 200+/- room four diamond full service hotel, with conference center space of approximately 15-20,000 square feet. Our site takes advantage of straddling the Carroll Creek Linear Park on what is now mostly vacant property.  

SAMUEL: The Plamondon site does not “straddle” the park. It is on the north side of the park only. The south side of the park is the lot owned by Ed Wormald who proposed it for a hotel but has been apparently stymied by the threat of a ‘competitor’ heavily underwritten with taxpayer subsidies. 

“(M)ostly vacant property”? The Plamondon site contains two substantial buildings deemed by historic experts to be of “unusual historic importance” — the Trolley Building and the Birely Tannery, the latter being the last remaining example of a 19th century leather tannery in the state, which Plamondon wants to flatten. Wormald’s site on the southside of the park by contrast is completely vacant. The Plamondon side with little free street frontage is awkward to access and unsuitable for a modern hotel precisely because of the need to preserve the Trolley Building.

PLAMONDON: We have worked jointly with the city and county officials to craft a potential 4 way PPP. The city and county have voted on their individual means of funding, and the project was seeking $5mm from the state’s capital fund.  These public funds would be 100% utilized towards land acquisition, site work and underground parking. 

SAMUEL: City and County officials are not experts in the lodging market. They have nothing to bring to a hotel ‘partnership’ except money extracted from unfortunate taxpayers. No other hotelier in Frederick County has had taxpayers buy them land, do their site work and build them underground car parking that is estimated to bring the City a mere 1.4 percent return on investment. The City’s financial consultant MuniCap recently provided estimates that Plamondon’s ‘full-service’ hotel will cost him only $158,000 per room versus the average nationwide cost for such hotels of $318,000/room (HVS construction cost number for 2017/18.) The difference is approximately the proposed taxpayer subsidy to Plamondon’s capital costs. Plus there’s the City carrying huge losses servicing debt on a parking garage for Plamondon’s staff and guests. 

PLAMONDON: Plamondon Hospitality Partners would be 100% responsible for the costs and operation of the hotel and conference center that would sit atop the garage. The garage would be owned by the city of Frederick.  Over the past three years, we have been to Annapolis to lobby for upwards of $12mm to build two levels of underground parking.  Two years ago, the general assembly was able to get the $5mm that is currently in the capital budget waiting to be scheduled by the Board of Public Works for a vote.  This would allow for only one level of underground parking. We have been stymied by our own delegation that is split 4-4 on its support. 

SAMUEL: Four Frederick County delegates support the Plamondon hotel boondoggle while another four see it as unfair, wasteful and a financial folly that taxpayers should avoid.  Public opinion in Frederick is overwhelmingly opposed to City/County financial support for this project (over 70 percent opposed according to one poll.)

Pete Plamondon

PLAMONDON: Another hotel owner in Frederick, Randy Cohen, who owns the 40 year old Clarion Inn along I-270 on the outskirts of downtown, hired Bruce Bereano as his lobbyist to fight our efforts towards the state funding.  He has been effective in coercing Sen. Michael Hough(R) the co-leader of the Frederick delegation to Annapolis, and Governor Hogan to block our efforts as he is upset that his “project” to raze his building and build a new hotel and conference center is not “eligible” for the public funding that our downtown Frederick project is being afforded.  

SAMUEL: People on both sides of this contentious and protracted project have hired lobbyists. Cohen’s lobbyist cannot “coerce” anyone as alleged by Plamondon. Also Senator Hough hardly needs to be “coerced” on this issue. He must be aware of the unpopularity of spending public money on Plamondon’s hotel. So it is to his political benefit to oppose it. He has spoken several times on the underhand manner in which it has been promoted. 

Gov Larry Hogan

PLAMONDON: Since Governor Hogan is not in a hurry to satisfy Democrats here or anywhere, and the Republicans are against us, this project, as designed,  is stalled. In order to develop the “best” project,  building as much on-site parking as possible is simply the right thing to do.

SAMUEL: Certainly “building as much on-site parking as possible” is the right thing to do for Plamondon when, like Plamondon, you expect to have taxpayers footing the bills at $70,000 per parking space. However taxpayers may think they have higher priorities for the use of their taxes than funding Plamondon’s hotel parking, its foundations, its delivery ramps, utilities, landscaping, its many consultants etc.

PLAMONDON: In the attachment, is a synopsis of the project.  Please note, that the “public side” of the chart is now out of date as some grant money has expired and we are now focused on a lesser amount for one level of parking rather than two. I have had at least three one on one conversations with the governor on this project, and while he agreed as to the merits of the project, he has repeatedly told me that he’d like to have at least one Republican vote in favor to make it a 5-3 vote. 

SAMUEL: I’ve also had one on one conversations with Gov Hogan, and he has told me he doesn’t think the hotel project deserves state money, and he has assured me “They won’t get state funds.”

PLAMONDON: Simply put, the three other republicans do not have the courage to vote against Sen. Hough, as they ran on one ticket last November and he is the rainmaker for campaign funding for the Republican Party in Frederick.

Senator Michael Hough

SAMUEL: Hough’s colleagues share his opposition to public funding and the shady manner in which Plamondon has tried to advance his personal interests at the expense of competitors and taxpayers. They gain voter support from standing against taxpayer money for Plamondon.

PLAMONDON: This “logic” simply blows me away as to how we are being held hostage by another hotel developer who is trying to kill our downtown project, that estimates an incremental $25mm in annual economic benefit to the County when it opens. 

SAMUEL: Plamondon’s project is being held hostage by its inherent shortcomings (awkward site, blighted neighbors, flood-plain location, possible hazardous waste, little street frontage, dependence on government funding etc) and by the ineptitude with which it has been managed for a full ten years now. No serious analysis suggests net economic benefits to Frederick County from this project. To the contrary, this speculative, unpopular project threatens to impose net costs on the county by way of an ill-conceived, over-large building on a poor site. Plus it assures wasted taxpayer money and unnecessary city and county debt. 

The $25 million of benefits cited by Plamondon is a PR fabrication. It is an estimate of the spending (and so-called ‘economic impacts’)  of Plamondon’s guests based on $179/night room fees, 72% occupancy and 230 rooms plus spillover spending of $234/room-night — all the patrons and their spending assumed to be entirely new visitors who would not come to Frederick but for the existence of Plamondon’s downtown hotel. Serious consultants have stressed that most of the possible Plamondon patrons will be people who would come to Frederick anyway and that Frederick is unlikely to attract many new group events. Therefore guests attracted to the Plamondon downtown hotel will be mostly at the expense of other hotels in the area. Spending impacts would simply be moved from unsubsidized hotels nearby to Plamondon’s subsidized hotel.

PLAMONDON: I’ve attempted to hit the “highlights” and I can provide additional information over the phone which would be a little easier than in an email.  Please let me know if you’d like any more “color” on what I’ve written.  By the way, this project has been identified by the Frederick County Chamber of Commerce for the last two years as its #1 economic development project. The CEO of the Chamber, Rick Weldon, would be able to provide more detail as it pertains to that point. As there is not full service hotel in the Frederick market, a downtown project would be the biggest game changer (other people’s words, not mine), since the PPP of the award-winning downtown Carroll Creek Linear Park and flood control project. 

SAMUEL: Both the City and the Country say that Frederick’s #1 economic development project is more lanes on I-270 and US15 in Frederick. Stop-&-go traffic and unreliable travel times between the DC metro area and Frederick are the greatest deterrent to visitors, not any lack of hotel capacity or meeting space.  Special taxpayer support is simply not needed for hotels. Investors will fund well-conceived lodging projects on their own, and do it efficiently and expeditiously. Just two blocks from Plamondon’s site the old Visitation Academy school and nuns’ housing is being developed into a boutique hotel by investors completely out of their own resources. There is no need for the divisive, prolonged panhandling in which Plamondon has engaged.

PLAMONDON: Respectfully,

Pete 

Peter H. Plamondon, Jr.

Plamondon Companies

(end of Plamondon email “Re Hogan”)

Ms Rohrer: It is time Mr Plamondon showed some respect for the citizens and taxpayers of Frederick and for the industry in which he works. Surely the hotel and lodging business overall is best served by an evenhanded government which eschews special 8-figure deals such as Mr Plamondon has been conniving with politicians to obtain for ten years now. 

If you strive to represent the whole lodging business in the state you must want government, state and local, that applies a single set of rules so that there is a level playing field for competition among your members. Mr Plamondon’s effort to gain special advantages to the tune of $20+/- million for himself alone to the disadvantage of other hotels and lodging providers and of taxpayers is profoundly wrong. It does not deserve the support he pleads for from your organization. It deserves your opposition.

I would like to know your response to this and will be happy to publish it in full.

Yours,

Peter Samuel

Posted in Uncategorized | Leave a comment

New boondoggle financing plan glimpsed — hotel a third bigger, op profit up 78%, still hoping for $5m State subsidy

MuniCap, the City’s financial consultant has radically enhanced its assumptions about the financial viability of the downtown hotel project in reports delivered to the City dated October 25 and November 5.  Net operating profitability, and hence market valuation — based on new data from the hotel developer Plamondon— at $43,776,000 is up 78% compared with the $24,535,000 of MuniCap’s valuation in 2014.

Second big news from the MuniCap documents is that $20 million of public funds is being sought and that MuniCap has only managed to figure out $11,700,000 of City and County borrowing, leaving the project $8.3m short. The MuniCap reports suggest the City might still be able to get $5 million in State funding. That is money which Governor Hogan has withheld.

The $20m of public funds being sought is an increase on the $17.5m public funds specified in the Amended and Restated MOU of July 2, 2018 which envisaged (Appendix B) state funds of $5.25m and city and county $12.25m. Without state funds and with the Plamondon ‘ask’ now up to $20m, local taxpayers are being asked for $7.75m more, 63% over the commitment expressed in  the 2018 MOU.

Hotel bloat

We guessed in an earlier report that without state money Plamondon might trim the size of his hotel, cut costs and reduce his ‘ask.’ Dead wrong. He’s grown it. According to the October 28 and November 5 MuniCap numbers, the mass of the hotel has grown substantially — to 230 rooms and 777 square feet (sf) per room from 207 rooms and 652sf/room in 2014. Total square footage of the hotel, and hence the building’s mass is increased 32.6%, almost a third larger — nearly 179,000sf vs the 135,000sf in the 2014 MuniCap projections.

 The MOU of 2018 has the hotel at 154,638sf. The RFP issued February 19, 2014 called for a hotel of “approximately 200 rooms” and according to the MOU provided for a building “ranging from 126,000sf to 141,000sf.” Contrary to the MOU there were no square footage numbers in the RFP, but that 126k to 141k was indeed the range suggested in studies in 2011, 2013 and 2014 which led up to the RFP. In applying for Level 1 approval by the Historic Preservation Commission in 2017 the developer’s applicant Fillat+ Architecture stated: “The hotel will have 183 guestrooms and suites.” (Letter by Peter Fillat to City’s Lisa Murphy, June 15, 2017.)

Formal certificate of HPC approval came through November 11, 2017 and says: “The approved building must be in accordance with the drawing set dated Oct 26. 2017.”

We visited HPC staff offices where they pulled the HPC17-491 file and checked the drawing set cited. It nowhere mentions the room total but the plans by floor show: Level 2: 60 rooms, Level 3: 65 rooms, Level 4:  58 rooms. That totals the 183 rooms cited by the architect Peter Fillat in his cover letter. 

Pertinent here: the Fillat letter provides the rationale for reducing the room number from the earlier 207 rooms to 183: “As a response to concerns over the original proposal the main height and mass of the building has been shifted to the center of the site so as to minimize its impact on the surrounding historic fabric. The building was also lowered by a story as a reflection of the design team’s sensitivity to this concern.”

 Since approval by the HPC the size of the hotel has been growing again . The July 2018 Amended MOU says 199 rooms (Appendix E, 

230 rooms proposed now versus the 183 rooms in the building approved by the City HPC is a growth of  25.7 percent.  The City HPC certificate approval letter states: “Any additions or changes to work must be approved by the HPC or for minor changes through either Administrative Approval or Staff Approval process.” 

Changes of a quarter in room numbers and a third in floor space are hardly “minor changes.” This post-approval enlargement surely reopens with elected officials and the public the contentious issue of whether the hotel is too large in scale for its location.  And it raises the question: How come the developer was able to pare back the hotel to 183 rooms for historic compatibility, but now wants 230?

Parking 115 spaces

The one thing pared back is parking. MuniCap says it’s now 115 car spaces versus 250 spaces in 2014. Further back it was once as high as 650 when the City’s Parking Deck 6 next to County offices was part of the project.  In HPC Level 1 approval in July 2018 it was 172 spaces for cars and, in properly progressive mode it specified 13 bicycle spaces. Since the parking was envisaged underneath the hotel the numbers have yo-yo’d up and down depending on whether one underground level was in favor or two. As recently as the July 2018 MOU there were “approximately 250 parking spaces” (Appendix E) which meets City code of 1.25 spaces per guest room (250/199). Suddenly it’s apparently OK to dive from 1.25 to 0.5 spaces/room (115/230)?

11 stories — a troll?

The 230 room number and 178,710sf appear throughout the MuniCap reports and there’s a footnote: “Provided by Plamondon Hospitality Partners.” In just one place in the two reports there’s an even more amazing item: “11” under “Number of stories.” 

Eleven stories?!?

The plans submitted to the Historic Preservation Commission and given their approval involved 5 stories — the high ceilinged main floor with reception and meeting rooms, three floors of guest rooms and a rooftop floor with indoor/outdoor space. Make that 6 levels if you count the parking floor and delivery/trash dock underneath. The prior scheme had an extra floor so was 6 stories, 7 levels. 

11 stories has a footnote ‘Based on assumptions by MuniCap,’ and only gets a single mention in each report, so it probably shouldn’t be taken seriously.

Or are 230 rooms/11 stories just numbers for Wall St to help sell TIFs?

Then there’s a cynical read!  The City and Plamondon may have no intention of stirring up the local hornets nest by trying to build 230 rooms, let alone 11 stories high. Maybe those numbers are for-Wall-St-only to boost hypothetical revenues and make the TIFs easier to sell. We’ll find out in due course.

Meanwhile MuniCap revenue projections and valuations need to be reduced by about a quarter if the hotel sticks to 183 rooms rather than the 230 rooms Municap uses. And costs should decline too.

It is important to note that MuniCap does projections based on assumptions specified by their clients and it is not part of this consultant’s work to verify or warranty the realism of the assumptions. So  MuniCap is not making forecasts. 

The old saw applies: Garbage in, garbage out.

Garbage assumptions produce garbage projections.

Operating profit assumption hiked 56%

The MuniCap projections of the hotel’s new-found profitability are based on:

— a projected average daily room charge of $178.90 (vs the assumed $170 in 2014)

— average room occupancy of 72% (up 9.1% on the 66% assumed in 2014)

Those base numbers produce gross income/room/year of $47,015 vs 2014’s $40,953, a 14.8% increase.

Then the increase in rooms (230 from 207 assumed in 2014) multiply the per-room revenues.

Much of the increase in net profitability comes from an assumption of virtually unchanged operating expenses per room ($29,478 now vs $29,691 in 2014). Figure that out? This at a time pay for low wage workers needed to do laundry and clean hotel rooms has been rising, and is likely to continue to rise with Maryland’s phase-in of a $15 minimum.

The new net operating income/room of $17,537 annually vs 2014’s $11,262. That 55.7% increase combined with the increased number of rooms (230 from 207) gives a 73% increase in the hotel’s net operating income $4,034,000 vs $2,331,000 a year in the 2014.

And there’s a new discount rate for income capitalization purposes. 

78.4% hike in hotel value, $45.3m vs $26.1m

Bottom line: the market value of the proposed hotel is now put at $45,346,000 versus 2014’s $26,140,000 — a 78.4% increase. 

Slightly offsetting the huge increases posited in the hotel’s financial potential is the downrating of the relatively small (7,733sf) retail enterprise associated with the rehab of the trolley building, and MuniCap’s write-off of parking in their recent projections. The retail is valued at $1,570,000 ($203/sf) but its cost, according to Plamondon, being nearly $700/sf totals to $5.4m.

MuniCap projections now put the whole project’s value (hotel, retail and parking) in the fifth year of operations, when it should be fully phased-in as $50,066,000 compared to $32,816,000 given in 2014, an increase of 52.6%.

Questions arise:

(1) How realistic is the assumed year-round average room fee of $178/night? Competing hotels get $100 to $125. Are enough visitors going to pay a 50 percent premium to stay downtown rather than at one of places off the Interstate.

(2) Average room occupancy of 72% looks high. According to hotel people a more normal occupancy rate year round is in the high 60s. 

(3) Capital cost of the hotel at $158,000/room or $36,340,000 (MuniCap quoting Plamondon) That’s way low, say hotel people. Hotel industry specialists HVS (see www.hvs.com) put the average capital cost of new Full Service hotels in 2017/18 as $318,200/room. At that rate a 230 room hotel should be costing, all-up, $73.2 million. Select-service hotels average $221,000/room capital cost at which 230 rooms would run to $50.8 million.  Not long ago the cost of the Plamondon  hotel was put at around $60m.

Plamondon’s downtown hotel has always been presented as a 5-star, full-service hotel. How then can he report the capital cost of the hotel at about half the average cost per room of that class of hotel  around the country? 

Answer: Only if (1) contrary to commitments to a classy ‘full service’ hotel he is planning to go down-market. We know one of the City-required frills of a full service hotel has quietly been dropped — the indoor swimming pool. Maybe others?

 or (2) he is counting on the City and the County to carry about half his costs.

Taxpayers to pay a big fraction of Plamondon’s costs

It seems likely that the major reason Plamondon is able to build for $158,000/room rather than the national average of $318,200 for a full service hotel is that his costs reflect the fact that City and County taxpayers are paying for the land, site preparation and cleanup, archeology, the foundations and the engineered podium, landscaping, street and utility work, car-parking, plus many of the ‘soft costs.’ 

So what MuniCap calls the costs of the hotel must be merely Plamondon’s costs, not the full hotel costs. MuniCap implies this by giving the parking element of the project $0 value. The last available hotel  ‘public infrastructure budget’ of January 22, 2019 put the then proposed 234 space, 2-level underground parking and ‘podium’ atop as costing $16,151,057 or just under $70,000 per parking space. In their 2014 report MuniCap assumed parking was in Deck #6, an elevated structure costing $21,900/space. 

Parking at the hotel dwindles — down to 0.5/guestroom

MuniCap in their October 2019 report put the parking at 115 spaces but don’t identify a specific parking construction cost, perhaps because it is not part of the hotel business and they assign it zero value. Assuming no diseconomies of smaller scale in going from 230 to 115 spaces 115x$70,000 = $8,050,000 is the new cost of the hotel’s parking. Other aspects of what the City and County are being asked to pay as part of the underground structure are major fixed costs  — land, podium, ramps, archeology, hazmat etc. So it is not surprising that when these costs are put on local taxpayers that the remaining costs for Plamondon are so far below the national average.

MuniCap #7A projections of City, County TIFs & hotel tax for $20 million for Plamondon hotel

The City financial consultant produces two city and county bond financing projections each assuming that $20 million of public money is needed to support construction of a 230 room Plamondon hotel downtown. The first report called #7A dated October 28, 2019 finances $11.9 million of the hotel project with the issue of 20 year bonds at 3.91% interest. Agent costs are substantial: a ‘premium’ of $585,000, issuance costs $491,000. Along with lawyers and consultant fees over $1.1m is to be spent simply to sell the bonds. Debt service is $735,000 in the first full year and goes up each year. 

Based on projections of assessed project value the tax increments on which the City and County bonds are to be offered for sale are estimated at City taxes of $326,000 and County taxes of $420,000 for a total of $746,000 in in 2024, the first year stabilized after five years of ramp-up and phasing in. Also for that year hotel revenues are put at $11.94m and hotel tax revenues of $597,000. Ground lease payments due tro the City from Plamondon are put at nearly $83,000. Total; tax increment is put at $1,426,000. Allowing a little margin for undershooting the projections (6.5% of the City and County taxes and 15% of the hotel taxes) total tax increment available is put at $1,336,000. That easily covers the $796,000 of debt service for that year if the assumptions of hotel revenues turn out to be sound. 

But MuniCap 7A signals problems in this plan in the first years of construction. Two bracketed numbers in red stand out in the table of grey type. There are shortfalls in funding there of half a $-million, three-quarters of a $-million in years 1 and 2. Year 3 is nearly a wash. But MuniCap has a note in red type at the bottom of the page” “Additional information need(ed) to confirm source of funds to cover shortfall during construction period.” (p23)

So, according to MuniCap #7A projection the hotel taxes and the City and County TIFs will raise only $11.9m of the upfront $20m needed. Plus significant annual funding will be needed during the construction to service the proposed City and County debt before revenues from the hotel flow to local government. “Other sources of funds” are needed says MuniCap which reminds Frederick officials that by-passing the regular appropriations process a couple of the politicians finagled $5 million from the state General Assembly, they thought. But  Senator Michael Hough and Governor Hogan seem to have successfully thwarted the effort to get Plamondon $5m of state funds.

Then Projection #8

A week after #7A, November 5, MuniCap ran another set of projections numbered #8. These defer debt service for three years until the hotel taxes and property tax increments hopefully start flowing — so they avoid the problem of servicing debt before the dedicated revenues flow. But three years of capitalized interest and a higher (5% interest rate) for this kinds of loan mean they go $9.34m into debt but only raise $6.52m of the $20m Plamondon wants by way of taxpayer support at the outset. That leaves $13.48m to be raised elsewhere!

Talk about high borrowing costs! The latest scheme manages to drum up $6,520,000 for construction (called ‘improvements’) but to do that it has to borrow $9,345,000 (rounding to the nearest thousand.)  The money borrowed has to pay insurance costs of $400,000, underwriter’s discount of $186,000, establish a reserve fund $825,000. But the really big drain is capitalized interest on deferred debt service: $1,413,000. Fully 30% of the borrowed money is siphoned off by the finance people, leaving only 70% for actual building.

Projection #8 omits ground lease revenues. Apparently under this scenario Plamondon would buy and own the land, and not be liable for ‘ground lease’ payments to the City as in scenario #7A, and earlier projections.

Conclusion — still no financing plan

The City and Plamondon are still struggling over how to finance this hotel. Even its size is not yet determined. Normally when there’s difficulty raising the money, people look to ways to scale back their project to reduce the cost. But here, apart from the parking, they are looking at making it larger, suggesting once again what a weird project this is.

Comment on TIFs: tax increment financing is a deeply flawed funding method. A tax increment is a slippery concept and prone to huge error in forecasting. Its advocates pitch it as a costless, risk-free way for government to subsidize building that investors and their bankers won’t fund. Looked at with any rigor it becomes clear that the tax increment as an addition to local government revenue that is free to be used to service project debt is an illusion. 

For starters, much of the clientele the downtown Plamondon hotel will consist of people who would have otherwise stayed at the Hampton Inn, the Clarion, Visitation Hotel, Hill House or other lodging in the area. So the hotel tax increments of the Plamondon hotel will be largely offset by hotel tax decrements (decreases) elsewhere in the City. Only to the extent the Plamondon Hotel gets clients who otherwise would not have come to Frederick at all is there really any addition to local tax revenues. Large group visits that had a choice of cities and wanted a historic downtown are probably the main source of visitors who but-for-Plamondon’s-hotel would not come to Frederick. 

That net tax increment is a very speculative and is certainly a whole lot smaller than the gross tax increment that the MuniCaps of this shady financial world treat as a reliable revenue stream to support project finance. 

Not only tax increments, but City/County spending increments

There’s a further problem with tax increment financing. New businesses like Plamondon’s downtown hotel generate not only tax increments but government spending increments. Sure, they pay some new tax but they also add to demand for local government services. They add to trash collection, they use water and sewer capacity, they beat up on local streets and constitute another establishment to be covered by police and emergency services. 

A concrete example: It is quite plausible that the Plamondon hotel might use its political influence to get a stronger police presence at the front of the hotel in Carroll Creek Linear Park to counter the growing presence of street people hanging out there. One or two more cops on the City payroll and, puff, the Plamondon tax increment is spent. It’s simply not there to service project debt, as the pitch for TIF says.

Any extra tax revenue is needed for the extra demands placed on local government services. So tax increments as a net positive for local government budgets, as a free revenue stream to pay down project debt are an illusion. 

And financing a project on an illusion is both unethical and imprudent.

TIFs don’t even boost development 

Studies show that adoption of TIFs is associated with slower economic growth. Researchers Dye and Merriman in The Effects of Tax Increment Financing on Economic Development: “We find clear and consistent evidence that municipalities that adopt TIF grow more slowly after adoption than those that do not.” This is apparently because TIFs tend to divert capital to less productive investments and push up local costs. Plus they put projects under the control of businessmen better at pulling political strings than at managing a business efficiently. Such businessmen tend to be more focused on cultivating their political friends than on their customers. 

BACKGROUND on MuniCap: based in Columbia MD, MuniCap is the go-to consultant for boondoggle financing. They phrase it more elegantly: “MuniCap, Inc. is a public finance consulting firm that specializes in developing and implementing creative approaches to funding public infrastructure, facilities, and services for real estate development. MuniCap has helped our clients successfully close on more than 294 public funding programs that have provided over $6.5 billion of public investment in development projects.”

2019.11.21

Posted in Uncategorized | Leave a comment

City & County attempting to make up for lack of State-$s but lawyers struggle

For the second time they’ve cancelled a scheduled Joint City/County Workshop of elected officials for ‘Discussion of proposed agreements regarding Downtown Hotel Project.’ Reason: a legal consultant advised against the draft MOU. We haven’t discovered the nature of the legal problems which torpedoed the draft agreements. We filed a Public Information Act request at the City for a copy of the outside legal counsel’s report that we hear caused officials to decide they had to call off presentation of the plan.

Today the City Attorney Saundra Nickols wrote us saying “The City has one document responsive to your request.” That is the outside legal counsel’s advice on the draft MOU. But Nickols writes: “This document was prepared by the City’s outside legal counsel for the City and is subject to the attorney-client privilege and is therefore protected from disclosure by GP 4-391 as privileged or confidential records.”

Behind closed doors City and County officials have been struggling with how to provide some $20 million of financial support for the Plamondon hotel project that the State government has fled from. For political reasons the scheme has to appear to represent no burden or risk to City or County taxpayers. ‘Appear to’ is the operative verb because in fact any funds raised for the hotel project could be used for more conventional City or County purposes — such as stormwater, roads, police buildings etc — so given finite local borrowing capacity it has to be a burden in fact. Similarly there has to be risk in City and County support. Construction in a flood plain with two centuries of industrial waste disposal on site has inherent risk, as does the paid-parking underground garage. Any hotel venture involves risk but this more so than most because of the burden of meeting City requirements that it incorporate non-paying meeting space, car parking and luxury facilities beyond what investors would fund on their own. City and County governments cannot sponsor a venture like this and then cleverly deploy words to banish real risk.

Tax increment financing (TIF) is likely involved, officials say. 

TIF fundamentally flawed

TIF debt logic rests on the misleading proposition that a commercial venture in a new building, a new hotel in this case, will likely generate an increase (or ‘increment’) in City tax revenues at that site, and that the new revenue stream in the years ahead will be a sound basis for new City borrowing to subsidize the project. But TIFs are actually unsound because (1) the new hotel business will likely attract some of its custom from established hotel businesses nearby so there will be at least a partial decrease or tax ’decrement’ nearby offsetting the increment at the new hotel (2) businesses generating increments in City and County revenue also tend to require increases in local government services in return for their taxes. So combining the offsets (1) and (2) little or no net tax increment is actually generated in the real world, and there is no solid basis for TIF financing. 

TIF is a smiley-face con.

In 2015 local elected officials were sold on the downtown Frederick project with the quiet assurance that the State would be carrying the bulk of the risk. Its promoters spoke confidently of how the State government via grants would help buy the land and pay for consultants while the Maryland Stadium Authority would put up most of the risk capital.  After the MSA gave the project the thumbs down, City officials placed their faith in MEDCO (Maryland Economic Development COrporation.)  But it, too, wanted nothing to do with the Frederick hotel. For several years the project was advanced in Annapolis not by going through the regular appropriations processes following full county delegation consideration but by shady closed door partisan deals in the legislature. The City got some grants awarded but then was unable to draw on them through failing to file the paperwork on time. Further deals in Annapolis were in the end thwarted by Governor Hogan and Senator Michael Hough. 

Proceeding without state funds puts local taxpayers at more risk if the City and County put up money.  The last project financing plan from December 2018 headed ‘Downtown Frederick Public Infrastructure Budget’ was for the project to use a total of $22.25m of public funds, of which the City and County would together put up $11.75m and the State $10.5m. If the project isn’t changed substantially local taxpayers will now be up for almost twice as much — in order to make up for the State’s withdrawal. 

Biggest public sector cost in  the December 2018 project budget is the underground parking — $16.15m. Located down in the Carroll Creek floodplain with centuries of industrial waste fill the construction of this is the riskiest part of the whole project. It makes no sense as car parking at nearly $70,000 per parking space (versus $15,000 to $20,000/space in a regular above-ground parking garage). The roof of the underground parking deck presents Plamondon with a dry ground-level ‘podium’ or platform engineered to carry the five story hotel above. The public ‘car parking’ so-called is really the public funding of Plamondon’s hotel foundations. 

The whole rationale for City sponsorship and public funding of the Plamondon hotel in 2015 was the claim that without public funds there would never be a hotel built downtown. That justification has been scuttled by the hotel now being built on the Visitation Academy site just two blocks away from Plamondon’s site without any City or County sponsorship or funds. 

2019.10.23

Posted in Uncategorized | Leave a comment

Boondoggle Team effort to gin up state funding flops — 3 letters & UPDATES

A push for a special meeting of the Frederick County Delegation to pressure Governor Hogan to provide state funds for the City’s decade-old downtown hotel project has flopped. Four Delegates led by vice-chair State Senator Michael Hough have said they won’t participate in a meeting proposed by Delegation chair Carol Krimm. 

Rick Weldon

Krimm proposed the special Delegation meeting on state funding of the hotel in response to a letter from the Chamber of Commerce’s president/CEO Rick Weldon writing on behalf of what he calls the Downtown Hotel Team. Weldon addressed a letter to Krimm asking her “to convene the Delegation for a special meeting” the purpose of which would be to hold a vote to ask Governor Hogan to schedule a Board of Public Works (BPW) vote to release $5 million of State funds appropriated by the General Assembly. (Copy of letter downloadable below)

Weldon said his hotel ‘Team’ needs “a dispositive and conclusive vote on which to take the logical next step in our advocacy efforts,” adding: “A definitive vote, including all of the current members (of the County Delegation) would allow the team to make a formal petition to the Board of Public Works to hold the vote on the $5m already allocated to the (hotel) project.”

The letter to Krimm on Frederick County Chamber of Commerces letterhead begins: “Dear Delegate Krimm, On behalf of the Downtown Hotel Team, I’m writing to you…” The letter is undated but was apparently sent on or about June 10. It is signed by Weldon and concludes: “On behalf of the following partners, we respectfully request that you schedule the vote as soon as practicable. We stand ready to assist with the logistics to facilitate the meeting, just let us know what you need.” 

The boondoggle bros listed

Under Weldon’s signature and credentials is a list of the ‘Hotel Team Members’ on whose behalf he purports to write.

It lists:

— Frederick County Government: County Executive Jan Gardner/Helen Propheter

— City of Frederick: Mayor Michael O’Connor/Richard Griffin

— Visit Frederick: John Fieseler

— Downtown Frederick Partnership: Kara Norman

— Plamondon Hospitality Partners: Pete Plamondon Jr

None of these signed the letter (UPDATE FOLLOWS) but by all indications Weldon spoke for them. Mayor O’Connor said earlier in the year he did not want state funding to be taken to the full Frederick County delegation. ADDITION: A spokesman for Mayor O’Connor said Wednesday he was fully aware of the letter and supported the effort to get the Delegation to vote. Delegation chair Krimm’s plan earlier this year was to work exclusively with Democrat officials in Annapolis, avoiding public debate, and bypassing Republicans. (The county delegation is split equally with four Democrats led by Krimm and four Republicans led by Hough.)

Senator Michael Hough in a letter June 12 (Download a copy below) tells Del. Krimm he doesn’t agree to a special delegation meeting because the legislative process for this year is completed and it is up to the executive branch to do what it does. During the legislative session, Hough writes, hotel funding proponents chose not to have a hearing or vote of the full delegation: “I have long told proponents of the project to follow the regular process (of) holding a delegation hearing before any funding is inserted into the budget…. Hearings are held prior to votes, not afterwards.”

No precedent for pressuring BPW

Hough writes Krimm that legislators “have never met to instruct the Governor on what should be on the BPW agenda.” He notes that Delegates were silent on the recent BPW meeting on toll lanes on 270 and the Beltway. 

Sen. Hough says his basic objection to state funding continues to be about “taxpayer dollars being used to fund a private hotel.” 

“Half the delegation is clearly on the record in opposition to current state funding in the budget for the downtown hotel,” Hough writes to Krimm. He notes that four members of the delegation (himself, Del. Dan Cox, Del. Barrie Ciliberti and Del. Jesse Pippy — the four Republicans) signed a letter March 19 to Governor Hogan asking him not to fund the City hotel project. (Download copy of letter below)

The Republicans in their letter to the Governor March 19 express “our strong opposition” to Democrat delegates’ maneuvers involving $6.5 million for the downtown hotel and conference center. 

This comprised a ‘pre-authorization’ for FY2021 of $1.5m gotten into the capital budget, and a ‘repurposing’ in HB1347 of $5 million of grant funds in the 2016 and 2017 capital budgets which the City failed to draw on. (The City has repeatedly failed to meet deadlines that it proposed itself when applying for state grants for the hotel.)

In the last legislative session the action on these two items totaling $6.5m for the downtown hotel was taken in the General Assembly, they write “without any prior public notice, hearing or discussion… and without any public knowledge of the facts…” The measures were never brought up or discussed at regular meetings of the whole County delegation, the Governor was told.

In conclusion, the four wrote Gov Hogan: “These proposals do not have the majority support or vote of the Frederick County Delegation.”

A vote would only show a dispositive divide

A “dispositive vote” in Weldon’s words would almost certainly show a delegation split equally between those supporting state funding for the City hotel and those opposed.

It is unclear what happens next. We’ve asked the Mayor, the County Executive and delegation chair C. Krimm, and will update the report with anything they care to say.

ADDITION: Rick Weldon told us Wednesday evening: “I was pretty confident that I understood how four GOP delegation members would react, but actually having them react was necessary to make a decision about how or whether to move forward once and for all. Let’s just say that I think we have what we need now to make that determination. These things are not accidental or unintentional.”

The Weldon Whopper

Rick Weldon’s Hotel Team letter to Carol Krimm peddles the misleading claim the project has been cleaned up by cutting earlier taxpayer subsidies toward the hotel and conference center: “All public monies will be used to construct public facilities.” 

That whopper is contradicted by the terms of the June 2018 Amended and Restated MOU, the current contract between the City and Plamondon. 

That 2018 MOU provides that public monies will be used for purchase of the hotel site and for site preparation including archeological studies, demolition, historic mitigation, clearing of the site, any hazardous materials remediation of the soil, all the utilities, road works, sidewalks, landscaping, and creekside work. This is all work specific to the development of the hotel.

Project development costs pre-May 2017 are shared 67% developer, 33% City, and from May 2017 on 78.2% developer, 21.8% City, the MOU provides.

The gold-plated garage down under

But the biggest subsidy for the developer is the City’s commitment to fund the parking garage underneath and the engineered podium or platform above. The parking garage will provide the parking spaces on-site which are required by City code to be provided by the developer. And the podium indicates that all this will be engineered to constitute the foundations of the hotel. The public is asked to fund all the difficult work down in the flood plain. The Hotel Team’s developer gets to build on top of the publicly funded ‘podium’ shown diagrammatically in the thick horizontal line.

Whether the parking garage is $11.55m for a single level and 160 parking spaces or $16.15m for 2 levels and 234 spaces it works out at around $70,000 per parking space (versus $25,000 or so in a structured deck) 

$70k/parking space makes no sense as a City parking garage.

Plus it’s relevant that the hotel site is just a block away from the seven-level East All Saints Parking Deck, a garage that is normally two-thirds empty. If the city wanted to build car parking for the sake of car parkers rather than to build the hotel’s foundations, they’d be eying North Market Street (perhaps the Carmack Jay site) not the hotel’s east side for more parking. 

COMMENT: A poorly located and gold-plated underground garage with an engineered podium atop is not a ‘public facility’ worth the name. It’s a political contrivance to dress up a boondoggle. 

DOWNLOAD LETTERS CITED

P Sam 2019.06.18

Posted in Uncategorized | Leave a comment

The governor’s take on the downtown hotel — it’s a boondoggle LETTER FREDERICK NEWS-POST

Your May 5 report (“Clock ticking on future funding for downtown hotel”) says that Mayor Michael O’Connor has not gotten to sit down with Gov. Larry Hogan to put the case for state funding of the downtown hotel project. The case against state funding has been put to the governor by a number of people. I for one have spoken twice with Gov. Hogan against taxpayer money for the hotel and followed up with written submissions and documentation via staff. This material has been copied to several departmental heads. The Office of Legislative Audits has received a formal complaint about the project, arguing that it deserves investigation of unethical and possible criminal activity associated with the city’s procurement of a developer.

So state officials are well aware of major irregularities in the city procurement. Frederick’s previous mayor, Randy McClement, chose as chairman of the city’s hotel advisory committee Mark Gaver, subsequently revealed as a major con man, convicted in U.S. District Court in Baltimore of $50 million in fraud, and now serving a 17-year term in jail. Convict Gaver set the pattern followed throughout the term of the McClement mayoralty for this city-controlled body, doing city business, operating behind closed doors without public notice or agenda or recorded votes. This was in flagrant violation of the State Open Meetings Act and the city’s own code requirement for competitive procurement. Documented with emails and consultant invoice time sheets are the fact that behind closed doors the city hotel advisory committee (1) dumped the competition-friendly, publicly announced and consultant-recommended two-stage procurement (site to be chosen first, open bidding by developers second) in favor of a single-stage bring-your-site procurement that limited competition to two (2) the single-stage procurement was a suggestion of the winning developer (3) city-funded consultants billed thousands of dollars helping one of the two supposed competitors (the winner) contrary to the terms of their engagement (4) the official RFP was a piece of theater since the winning proposal was received before the RFP was issued, and (5) the scoring of the two proposals was grossly biased.

In short, it was a corrupt fix worthy of the city of Chicago.

State officials have documentation on the fraudulent nature of the purported “competitive procurement” of the site and the developer. Many hundreds of hours of unpaid investigative activity, interviews, public information act requests, advocacy and analysis lay behind the case put to the state to withhold taxpayer support for the project. (See http://frederickhotelboondoggle.us/2019/03/submission-made-to-state-office-of-legislative-audits-and-board-of-public-works/.)

Gov. Hogan told me on the second occasion I spoke to him: “I know about this project. It is not going to get any state funds.” My guess is that he’d tell Mayor O’Connor the same thing.

Peter Samuel

Frederick

see in Frederick News-Post

https://www.fredericknewspost.com/opinion/letter_to_editor/the-governor-s-take-on-the-downtown-hotel-it-s/article_b1f21600-a2bd-586b-aa77-0762d4c13d94.html

NOTE: The first sentence lost a verb! It should have read as published here: “Your May 5 report… says…

Posted in Uncategorized | Leave a comment

HB1347 reviving $5m of state grants for hotel passes General Assembly in last minute crush of bills

Hotel boondoggle boosters have won another round in the battle for state funding in the last minute crush of bills at the end of the General Assembly session  in Annapolis. They managed to keep grants of $1 million and $4 million in HB1347, the bill titled Prior Authorizations of State Debt — Alterations.

The bill has the two hotel boondoggle grants along with about two dozen other projects, most a renewal past grants which otherwise would be forfeited under normal use-it-or-lose-it conditions.

The grants for the City-sponsored downtown Frederick hotel are now available to be drawn on through June 1, 2026 — an extraordinary admission of the glacial progress of this project. And notwithstanding that the site contains historic buildings and archeology deemed “of unusual importance” by City preservation staff HB1347 provides that “this grant is not subject to review by the Maryland Historical Trust” — which normally acts as the state’s regulatory agency in such cases. 

The City is required by HB1347 to “provide evidence that a matching fund will be provided” to the State grants and it has to do that by June 1, 2021.

Board of Public Works is still a major obstacle

The City is still in an uphill battle to actually draw on the funds because the project has to face the scrutiny of the Board of Public Works (BPW) which comprises Governor Hogan, Treasurer Nancy Kopp and Comptroller Peter Franchot.  Governor Hogan has told opponents of the City project (including me on two occasions) that he appreciates it is problem-ridden and has stated flatly: “It won’t get any state funds.”

As self-described, the mission of the BPW “may be summed up as protecting and enhancing the State’s fiscal integrity by ensuring that significant State expenditures are necessary and appropriate, fiscally responsible, fair, and lawful.”  https://bpw.maryland.gov/Pages/about-bpw.aspx

The taxpayer-subsidized hotel in downtown Frederick fails the requirements of the BPW on every score:

“necessary”: rationale for taxpayer funding until 2018 was that higher costs downtown meant that no hotel would be built without it. In 2018 investors announced their intention to convert the Visitation Academy, just two blocks away, to a hotel WITHOUT any taxpayer subsidy.

“appropriate”: taxpayer support for construction of a hotel is not appropriate since the a hotel is a private business undertaking

“fiscally responsible”: it is not fiscally responsible to build the foundations of a hotel in the form of a City parking garage at a capital cost of $69,000 per parking space where the normal capital expense is about $15,000 per parking space

“fair”: it is not fair to taxpayers to use taxpayer money on behalf of a private business and it is not fair to its competitors who raise all their own capital

“lawful”: several laws were flouted in City sponsorship of this hotel: seven years of violations of the state Open Meetings Act by the City’s Downtown Hotel Advisory Committee (DHAC), the City’s misuse of City consultants to assist Plamondon in preparing his submission, the conduct of a flagrantly unfair procurement which violated the City’s purchasing code, the fake competition and biased scoring of the procurement.

So on all five counts the BPW should refuse to release the $5m and any other State money for the hotel finagled through the General Assembly in closed door meetings. 

But it is a blow to have the General Assembly support such an undeserving project! Its supporters sneaky tactics worked. They avoided any public discussion by dealing entirely behind closed doors — going around the County delegation, avoiding the committee appropriations process and relying on the rush of end-of-legislative session busyness to get it through.

Danielle Gaines of Maryland Matters provides a sense of the atmosphere in which HB1347 was passed:

“While hundreds of bills will zoom across the desks of the presiding officers of the House and Senate on Monday as the legislature wraps up its 90-day session, much of the serious work of tying up loose ends will be happening off the floors, in hurried huddles of six senators and six delegates – plus any number of observers – negotiating last-day conference committee reports. About a dozen conference committees have been formed in the last several days of session. Others are certainly likely on the final day… (Maryland Matters 2019.04.08)

https://www.marylandmatters.org/2019/04/08/five-conference-committees-to-watch-on-sine-die/

The grants can be read within HB1347 here on pages 8-9 and 13:

https://legiscan.com/MD/text/HB1347/2019

in pdf form:

https://legiscan.com/MD/text/HB1347/id/1984322/Maryland-2019-HB1347-Enrolled.pdf

2019.04.09

Posted in Uncategorized | Leave a comment

Plamondon walks away from Downtown Hotel, says City’s inability to gain promised funding makes project ’non-viable’

Pete Plamondon Jr announced today his company is exercising its option to withdraw from its partnership with the City to build a downtown hotel and conference center in Frederick. He said that City officials had “gone the extra mile” in their efforts to gain the necessary public funding “but at the end of the day they have been unsuccessful in assembling the necessary public funds.”

Plamondon said he had submitted a Notice of Termination in accordance with the Amended MOU of June 21, 2018. This anticipated the possibility of the joint project being terminated by either party: “Prior to Financial Closing, either Party may terminate this MOU for any reason or no reason…” see MOUv2 at page 13, IX. (e) Termination. There is a 30 days notice period so the MOU is officially voided April 30.

Mayor Michael O’Connor said the Plamondon company’s withdrawal from the project was “disappointing but understandable.” At the end of the legislative session the City’s quest for $10.5 million of state funds had come to nothing, and the County delegation was split. In an attempt to avoid contentious argument among the delegation Delegation Chair Carol Krimm decided not to put hotel funding on the delegation agenda and privately approached Democratic appropriators asking them for $1.5 million. Again to no avail. The City also faces opposition to state funding from the Hogan Administration, which has the final say at the Board of Public Works which comprises the Governor, the Treasurer and the state Comptroller.

Mayor O’Connor was quoted in the Frederick News-Post previously: “This is the last session we’re going to go through this process. We will find out what we are going to get in the budget this year. We don’t intend to go after it after this year.”

The Downtown Hotel project was associated most with Mayor Randy McClement who launched it soon after he was first elected in 2009 and championed it during his two four year terms of office 2009 to 2017. The present Mayor and Board of Aldermen who came into office 15 months ago have continued to vote for the project and to give it lip service. But they have been noticeably cooler about the project than previous local elected officials.

Mayor O’Connor terminated the City-appointed chair of the Downtown Hotel Advisory Committee (DHAC) March 3, 2018, and said that he was appointing no replacement. And three weeks later (FNP 2018.03.24) he spoke about the lax management of the project saying: “what’s often been frustrating for me as I watched this from the perspective of the Board of Aldermen is, I’m not really sure someone is actually the quarterback of this project. Is it being driven by the mayor’s office, is it being driven by the major employers’ group with the Chamber of Commerce, is it being driven by tourism, is it being driven by Plamondon Hospitality Partners?…”

Pete Plamondon told reporters he appreciated the hard work and commitment of City officials and of the Downtown Hotel Advisory Committee which looked after the City’s interests. The DHAC had shown “great flexibility” in their handling of the procurement and a “willingness to work closely with the Plamondon team from the very beginning.”

“Our proposal was recognized early in the process as best-value for the City, well before the RFP was issued. It was a very cooperative relationship throughout the ten years we worked this project. It was our suggestion to the Hotel Team that they expedite the procurement by limiting bidders to those who already had a site. That greatly expedited the procurement and ensured two good competitors — Ed Wormald and ourselves.

“I felt a bad for Ed,” Plamondon said. “He really wasn’t in the race.”

The DHAC already had their proposal and the consultants Jones Lang LaSalle had helped them hone their submission more precisely to the City’s requirements.

“But Ed deserves everyone’s gratitude. The City and the County have very little borrowing capacity. As our lobbyist in Annapolis said: It was vital to present the appearance of competition in order for us to have the chance to crack open the rich state treasury.”

Mayor O’Connor said: “We almost did it. Several times the planets seems to be aligned. But we got only dribs and drabs, half a million here, three-quarters there, $5 million promised for a future year…..It never quite came together in a way that would allow us to do a financial close and award contracts, and build.”

Both the Mayor and Plamondon said the project suffered from bad luck. They cited the fact that Mark Gaver, the City’s first chairman of the Hotel advisory team turned out to be engaged in a $50 million fraud and went off to federal prison for 17 years. It was bad luck too that plans to get the Maryland Stadium Authority to sponsor the project never materialized. Maryland Economic Development Corp also declined to get involved int he Frederik project.

Both are rather Baltimore-focussed organizations, O’Connor said.

As for the Visitation Academy hotel and condos being built without public funds, department of Economic Development Richard Griffin said the City could claim some credit for this. The buzz generated by the City/Plamondon project attracted investors and focussed attention on the potential of hotels downtown. Visitation was a “great knock-on project that wouldn’t have occurred without the City’s work with Plamondon,” he claimed, adding: “Good things often happen in unexpected ways.”

2019.04.01

Posted in Uncategorized | Leave a comment

HB 1347 Please delete $5 million in grants for boondoggle hotel — an appeal to Senate and House appropriators

Dear State Senator/Delegate: 

Please delete the $1 million and $4 million grants for the Frederick downtown hotel in HB 1347 (pages 8 and 12.) see  https://legiscan.com/MD/text/HB1347/2019

The State of Maryland should not disgrace itself with support for this project. It is a corrupt, wasteful boondoggle whose first City ’point man’ Mark Gaver was last year convicted of $50 million of fraud and is now serving a 17 year jail sentence. Gaver was the first chairman of the City’s Downtown Hotel Advisory Committee (DHAC) notorious for its flouting over eight years of the State Open Meetings Act and for its corrupt behind-closed-doors procurement on behalf of City cronies. 

A detailed complaint about this project has been submitted to the Office of Legislative Audits and the Board of Public Works, available in pdf form at this link:

http://frederickhotelboondoggle.us/wp-content/uploads/2019/03/DowntownFrederickHotelOLABPWsubmission20190318.pdf

There’s also gross mismanagement. The first expenditure of taxpayer money was in 2009. Nine years later, a score of consultants, report after report, meeting after meeting, and millions spent, they haven’t produced even a site plan capable of meeting City codes. Earlier state grants have been forfeited for failure to meet deadlines for documentation. One grant the subject of proud press releases at the time was actually forgotten by the City!

Consider also in HB 1347 two extraordinary ’notwithstanding’ clauses in the text of the Frederick hotel grants. One provides June 1, 2026 as the new deadline for the City of Frederick. That says it all. They think they need seven more years to get their act together!  Another notwithstanding clause shields the chosen hotel site from review by the Maryland Historical Trust even though it contains two buildings deemed of ‘unusual’ historic importance — including the only surviving 19th century leather tannery works in the state.

This project is so contentious, it is reported, that the grants were not even brought up for open discussion at the meetings of the Frederick County Delegation of the General Assembly. As always the hotel project was advanced into HB 1347 behind closed doors.

Please, in the name of honest government and prudent spending of taxpayer money, put an end to all State support for this crony hotel project in downtown Frederick. It is disgusting and ridiculous.

Peter Samuel

text of email 2019.03.30

Posted in Uncategorized | Leave a comment

$5 million for hotel sneaked into a ‘prior authorizations’ bill HB1347 (corrected)

Hotel boondoggle supporters in the General Assembly have managed to sneak $5 million into HB1347, a small bill which is separate from the main budget bill. NOTE: This is a correction. Yesterday we reported a provision early in the bill for a $1 million grant, overlooking a grant for $4 million later in the bill.

Here is the relevant text:

HB1347 Bill Title: Prior Authorizations of State Debt — Alterations

Under Miscellaneous Grant Programs it reads 

Downtown Frederick [Hotel and Conference Center] PUBLIC PARKING AND INFRASTRUCTURE. Provide a grant of $1,000,000 to the Mayor and Board of Aldermen of the City of Frederick for the acquisition, planning, design, construction, repair, renovation, and reconstruction, INCLUDING PUBLIC UTILITY, ROAD, STREETSCAPE, AND PARK IMPROVEMENTS of the [Downtown Frederick Hotel and Conference Center] DOWNTOWN FREDERICK PUBLIC PARKING GARAGE NEAR THE SOUTHEAST CORNER OF EAST PATRICK STREET AND SOUTH CARROLL STREET, located in Frederick County. Notwithstanding any other provision of law, this grant is not subject to review by the Maryland Historical Trust. NOTWITHSTANDING SECTION 1(5) OF THIS ACT, THE GRANTEE HAS UNTIL JUNE 1, 2021, TO PRESENT EVIDENCE THAT A MATCHING FUND WILL BE PROVIDED. NOTWITHSTANDING SECTION 1 (7) OF THIS ACT, THIS GRANT MAY NOT TERMINATE BEFORE JUNE 1, 2026 (Frederick County)………$1,000,000

You can read it about midway through this 

https://legiscan.com/MD/text/HB1347/2019

The second grant of $4 million is phrased identically except for the larger amount of money proposed.

My comment: First it supports an unnecessary, wasteful, corrupt crony project that after nine years of putzing around still doesn’t even have a site plan that comes near to meeting City code, let alone traffic studies, an independent up-to-date feasibility analysis, detailed design or engineering. 

Second, the bill misrepresents the purpose of the project by calling it “Public Parking and Infrastructure.” The parking works out at $69,000 per parking space which is about four times the normal cost of structured parking. Such gold-plated parking would never be built as a normal City parking garage. What is being financed by taxpayers is the foundations of the crony-developer’s hotel. By taking a difficult floodplain site with a century of industrial dumping the City is taking on the cost and risks of hazmat handling, archeological digs and deep foundation piles and underground construction, presenting the crony-developer with an engineered platform for his hotel.

Third, the site has been described by the City Historic Preservation Commission as being of “unusual historic importance” and it makes a mockery of our downtown historic district to have a special provision exempting the boondoggle from normal review by MHT, the state historic preservation review body. 

Fourth, these grants sneakily bypassed the normal budget appropriations process. Plus they even bypassed discussion at the regular Frederick County delegation meetings on Friday mornings when the General Assembly is in session. Apparently, the boondoggle supporters in the state delegation went the backroom route because they were fearful that if they stuck to normal channels and were open to public comment a bunch of people would show up and talk about the waste and corruption behind the project. 

Fifth, contrary to normal use-it-or-lose-it provisions in state grants according to HB1347 the money for the boondoggle is to be available until mid-2026. Seven years!!!! That shows how much confidence the project’s own supporters have in the ability of City Government to push this project ahead in a timely fashion.  

If the City needs until June 2026 to get to a financial close when it can draw on the state’s million bucks the Hotel would not open until 2028 or 2029. And it was back in 2009 that the first City money was spent on this project. With this record of epic mismanagement by the City we must realistically expect sub-standard work, cost over-runs, corrupt contracting, and mis-spending. (Edits Thursday 18:40)

Posted in Uncategorized | Leave a comment