Wasteful bloat — for Senate Finance Committee testimony, 2016-03-22

Senators: the City of Frederick’s Downtown Hotel and Conference Center project should not be referred to the Maryland Stadium Authority (MSA) for financing at this time. As presently constituted the project is a bloated mess, undeserving of $20 million of state supported bonds, let alone other government funds. SB1038’s provisions are completely at odds with the project as presented to the citizens of the City that assign losses to the developer. In complete contradiction of everything City officials have said SB1038 explicitly assigns losses to the City and its taxpayers.

MSA has already muddied the waters with a shoddy consultant report (Crossroads Consulting) that generates absurd projections of the hotel complex generating positive economic impacts to the tune of $26 million and they have made a five and six fold exaggerations of possible increases in state revenues. (The word “absurd” was used of the Crossroads much cited ‘impact analysis’ for Frederick by Heywood Sanders, professor of public administration, University of Texas San Antonio, author of “Convention Center Follies” and leading academic expert on economics of convention/conference centers.)

Senators, the people of the City and key City agencies need time to shear this project of wasteful bloat. The conference center has been doubled in size over that initially proposed in 2009. It contains multiple new restaurants, bars, a spa, beauty salon and other facilities in-house which are readily available within a few blocks, and will only encourage visitors to stay within the state-underwritten hotel. An indoor swimming pool, business center, meeting rooms and other ‘upscale facilities’ are fine when paid for by their users. But it is unconscionable to have such lodging frills gifted with state money as provided for in SB1038.

Plus the hotel portion of the project at 200 rooms is out of scale for the historic district of Frederick, and requires the bulldozing of a historic brick tannery, the last remaining record in bricks and mortar of a leading 19th century industry.

A CPA who has specialized in hotel economics, Matt Seubert says the project as proposed to the MSA is overlarge as an investment too, and over-risky. He says standard accounting metrics for valuing the complex based on consultant projections of revenues and expenditures put its value at opening as $36 million against its $65m to $70 million cost – a measure of the huge waste of the project. Seubert thinks that a rightsized hotel without the frills of so-called full service and with 70 to 80 rooms could be privately financed and not need state funding. It would better fit the historic district scale.

The move to refer this project to the state is a brazen attempt to bypass local permitting by presenting it as a state endorsed project, and a fait accompli.

The project has not yet been vetted by:

– the City’s Historic Preservation Commission for compatibility with the historic district,

– by the City Planning Commission for traffic and utility impact issues, or

– for the hazardous wastes generated by the 19th century tanning industry.

None of the several consultant studies conducted addresses the likely financial result of the public sector conference center portion of the project – because its sponsors are frightened of the public’s reaction to the prospect of ongoing losses.

MSA funding would be very disruptive of investment in the City as other undeveloped sites are held by businesses wanting to join the MSA gravy train. It will also set the bad precedent of gifting expensive facilities to one hotel operator and undercutting the competitive position of those who have put their own money at risk in hotel investments.

Conference centers around the country are a financial sinkhole, and you will do the people of the City and the State no service by endorsing this project. 2016-03-20

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