City’s downtown hotel project and Krimm/Young HB1474 are at odds

HB1474 being advanced in the state legislature by three Frederick County Delegates (four Delegates oppose the bill) refers the City’s proposed downtown Conference Center (CC) to the Maryland Stadium Authority (MSA) for state funding. One big problem: HB1474 is heavily at odds with the City project as described in (1) the Request for Proposals (City RFP 14J), (2) in the winning proposal by Plamondon Hospitality Partners (PHP) and in (3) the Memorandum of Understanding (MOU Dec 2015) approved by the City Mayor & Board December 3 and signed between the City and PHP.

The City’s hotel/conference center project won’t fit the legislative mold being cast by Delegates Krimm and Young, the sponsors of HB1474.

Consider the following discrepancies:

1. Public-private partnership (City) versus private hotel & public CC (HB1474)

The purpose of the MOU, says the Executive Summary “is to formally enter into a Public Private Partnership” (P3) with Plamondon to run the downtown hotel and conference center complex. (p2 of Executive Summary, Mayor and Board of Aldermen 11/19/2015 by Richard Griffin for M&BA Workshop)

HB1474 by contrast sees the hotel and the conference center as separate business entities — the hotel as being a purely private operation with the Conference Center the joint business of the City and the state Stadium Authority (MSA.)

2. Control of land

The City under the MOU proposes to provide a 99 year ground lease to Plamondon for the whole hotel/conference center complex, and the terms of the lease to Plamondon are spelled out – payment based on 40% of land cost, 6% constant for 25 years, 1.25% annual escalation thereafter

HB1474 says that for the Conference Center the City and the MSA will each have 50% leasehold interest as tenants in common and the site or leasehold interests will be pledged as security for the MSA bonds (p8.)

3. Responsibility

The City says in the MOU that Plamondon has responsibility for the Conference Center. Under a heading Ownership and Responsibilities it says: “Conference Center – Private Operation and  Ownership: Plamondon agrees to operate it as a public conference center in perpetuity” p7 of Executive Summary.

HB1474 by contrast says the City will “pledge to market, promote, operate or contract to maximize the facility’s economic return” and to “keep it in first class condition.”

4. City taxpayers on the hook?

The City has always maintained that City taxpayers are not on the hook for Conference Center losses and the Executive Summary to the MOU states: “the Project is to be privately owned and operated with all ongoing operational, maintenance, and capital improvement costs solely the responsibility of Plamondon.” (p8)

In contrast HB1474 states (p9) that the City of Frederick will “be solely responsible for all operating expenses of DFCF (Downtown Frederick Conference Facility) including operating deficits,” while saying the City will “keep” any operating profits. The City will be responsible for servicing the MSA bond debt, and if it goes into default, the MSA will have the right to take over the conference center from the City – according to HB1474.

HB1474 also establishes a Downtown Frederick Conference Facility Financing Fund which would handle Conference Center revenues and expenses including debt service (p11.) In a confused piece of legal drafting HB1474 has this conference center Fund administered by the MSA (p10,) rather than by the City, even though the City is held financially responsible. But if HB1474 is confused about division of financial responsibility between the City and the state it is at least clear that the finances of the Conference Center are a public sector or taxpayer responsibility.

Costs

The City has said that the cost of the state contribution to the capital costs of the project are a maximum of $17.8m based on what extra state tax revenues of $1.5 million a year will bond, and that they will only need to draw on $15m. HB1474 provides that the state Stadium Authority will contribute $19.8 million (p7 of the bill.)

On the cost of the Conference Center portion of the complex the latest City estimates put the cost at $11,681,172 (Preliminary Revised Budget – Sources and Uses Matrix, column 5.) The authors of HB1474 clearly anticipate a huge blow-out in its costs. Their bill provides (p7) that if the actual construction costs for the Conference Center are more than $31 million then the excess cost will be split between the City and the County proportionately, with the MSA off the hook for more of the excess.

5. Does the City or the state contract with Plamondon?

The City obviously thinks it is contracting with Plamondon. However if it gets involved with the state, under the terms of HB1474 the MSA and the state Board of Works will control the terms of any agreement for “acquisition, construction and operation of a hotel coterminous to and integrated with the Downtown Frederick Conference Facility; and a capital commitment for the hotel, and, as appropriate, for shared facilities.” (p10)

Under HB1474 private sector business responsibility is limited to the hotel, and its role at the conference center would be no more than as a service provider or contractor to the City and/or the MSA.

The City’s MOU with Plamondon provides for the company to take responsibility for the conference center’s operations as business owner, a far different arrangement than provided for in HB1474. Statements by City officials presume that Plamondon will operate the conference center “in perpetuity” and swallow any losses. But no investor-owned business will go on very long making losses.

HB1474 is more realistic in stating clearly that conference center losses are on the city, and on City taxpayers.

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