Competition is fine, but not when the new guy gets $25m to $30m of taxpayer $s, Mr Burgess

The hotel competition itself is fine, Mr Burgess. What is NOT fine is competition underwritten by upfront government subsidies to the tune of $25m to $30m plus the City accepting responsibility for the operating losses of the associated conference center. That is a destructive boondoggle — corporate welfare at taxpayer expense.

Such crony capitalism is unfair because it undercuts hotel businesses that are fully funded by investors, and it is destructive because it adds risk to any entrepreneur considering going it alone.

Plus we have better uses for the government funds poured into the financial sinkhole of conference center hotels – like better roads, schools, police, utilities. If the demand for the hotel/conference center were as great as its mouthy advocates suggest they would put up their own money to finance it, and get their hands out of taxpayer pockets.

Mr Burgess maybe we have no 4-star hotel downtown because for ten years the politicians and  special interests have been messing around talking, talking, talking and begging, begging, begging on behalf of a huge government sponsored, taxpayer underwritten hotel as a monopoly downtown. If instead they had focussed on clearing away some of the regulatory obstacles of zoning and permitting we’d probably have two or three downtown hotels by now – smaller surely than the endlessly talked about City/Chamber of Commerce behemoth  proposed for the News Post site – but more suited to the scale of downtown. Smaller hotels would fit many empty sites and buildings, and need not cost taxpayers a nickel.

The Mayor is a politician trying to bring home the pork while saying someone other than us will pay for the pig. So of course he SAYS City taxpayers won’t be responsible. The Mayor however went to Annapolis and like other hotel boosters he spoke in favor of the conference center bill (HB1474) stating the City would accept responsibility for its operating expenses and losses in return for state loans. He wants to pass on those responsibilities to the hotel operator, and maybe in order to get the $25m to $30m upfront money the hotel operator will sign up to cover the City’s conference center losses. And maybe the hotel operator will swallow those losses for a year or two. But beyond that the conference center built at City insistence, on City land, and declared to be a public facility will become a liability to taxpayers.

The hotel operator will not be able to carry indefinite conference center losses and will request annual City “support” to stay open. Or face the embarrassment of another empty building. The conference center will then undercut not only hotels with meeting space but the Weinberg Center and places like Ceresville Mansion and Dutch’s  Daughter.

2016.04.29

Above is response to this:

Donald R Burgess Jr
One of the many irrational arguments that the opponents of the proposed Downtown Frederick hotel make is that the 207 room Marriott hotel would somehow steal rooms from other local hotels and that is “just not fair.” These citizens are apparently oblivious to the significant revitalization, changes, and growth that have occurred in Frederick in the last 15-20 years, including the many new hotels and motels that have popped up out of the ground every year or two.

Currently, there are about 22 hotels and motels in or just outside the City of Frederick totaling about 2,415 rooms. But there has not always been that many rooms. In just the last 4 years, Woodspring Suites, Hilton Homewood Suites, and Marriott TownePlace just popped up out of the ground totaling 359 new rooms. Yup, that’s right, three brand new hotels with almost twice as many rooms as the proposed Marriott. Going back a few more years to 2007-2009, the Hilton Garden Inn and the Motel 6 Fort Detrick popped out of the ground totaling 301 rooms. And in the five years preceding that – yup “Pop Goes the Hotel” – the Hampton Inn Fort Detrick, Marriott Residence Inn, and the Comfort Inn totaling 267 rooms.

In 1995, twenty years ago, there were just 8 hotel/motels in the vicinity of the City of Frederick totaling about 940 rooms. Since then 14 new hotels have popped up out of the ground – or about one every 16 months – adding another 1,475 rooms. Doing the math, in 20 years, the room supply in the vicinity of the City of Frederick went from 940 rooms to 2,415 – or an annualized growth rate of 4.8%.

In December 2014, the Maryland Office of Tourism Development released a report “The Economic Impact of Tourism in Maryland.” The study showed that the number of visitors to Frederick County increased from 1.44 million in 2009 to 1.72 million in 2013 – or an annualized growth rate of 4.6% – and essentially the same as the historical average of 4.8% growth in hotel rooms. Imagine that, “Supply in Response to Demand.”

The bottom line is that at the historical rate of growth of hotels in Frederick, the proposed 207 room Marriott Hotel will only provide enough additional capacity for about 21 months.

It’s just not fair – pesky facts debunking the irrational argument that the proposed hotel would steal rooms from other hotels in Frederick.

Another round Burgess first

Donald R Burgess Jr Crazy talk? I am citing City sources which have shown numbers as high as $30m government financing. The Preliminary Revised Budget Sources and Uses Matrix produced by Richard Griffin’s office as of 2.4.16 is probably the best current source. Rounding to the nearest hundred thou it shows the overall project $69.8m, private developer $44.1m so governments provide $25.7m split City $3.5m, county $6.1m, state $16.1m. As you say the conference center cost is put at $11.7m so the three levels of government are planned to carry an additional $14m over and above that. All these $-numbers are likely to change since they still don’t have working drawings from which to do costing and the project may be modified by historic preservation and planning commission review.

https://www.facebook.com/groups/126605231054468/permalink/216360928745564/

P Samuel: Mr Burgess, you say the MOU will make the hotel operator responsible for losses. The state’s stadium authority (MSA) has so far not accepted that. To the contrary their insistence that the City take responsibility for conference center losses was spelled out in HB1474, the bill that died in appropriations and finance committees despite strong support from the City, chamber of commerce etc. It remains to be seen whether the MSA will cave on their former requirement in the new negotiations after the Youngs and Carol Krimm did their end-run to the budget committee. But regardless of MOUs and other contractual arrangements: (1) the City has always insisted on the conference center despite it being regarded as a lossmaker (2) the complex will sit on City land and will have been built in response to a City procurement (RFP) (3) no private operator can carry CC losses unless it is making huge profits on the hotel, and it’s hotel profitability is uncertain. Therefore regardless of what an MOU may say the City and its taxpayers are very much ‘on the hook’ for conference center losses, if not immediately at least after a few years’ operations.

The project in question the downtown hotel and conference center is specified as a full service hotel meaning it has multiple restaurants, bars, gym, business center, pool, spa,and other services plus flexible meeting space – the conference center part. That means it will compete with many different service businesses – other hotels, other restaurants, other bars etc. Again the competition by itself is good. What’s NOT good is that state, county and city governments are proposed to put up a huge chunk of the capital cost ($25m to $30m) and the state wants the city to take responsibility for losses on the conference center. Conference centers as sponsored by local governments and states are notorious losers financially. Just occasionally they do work out OK (Bethesda for example) but they are a speculative investment and the city, county and state should not be speculating with our money.

Your rigid categories obscure the fact that these are all meeting places and cater to a variety of meeting events. Certainly some are better set up for some kinds of events than others, some are more flexible in their offering, some more specialized, they are differently sized and differently located, but despite this there is an important degree of competition between them.

Every meeting place has its unique characteristics and so won’t face competition for every event, but for many events event-planners have choices and so there is competition.

Actually Dutch’s Daughter caters for up to 300 people not your 80 according to their website http://www.dutchsdaughter.com/events.htm … but competition occurs across businesses of different sizes and different service offerings. One of the erroneous arguments of those advocating the government-subsidized downtown hotel is that it will be an ‘upscale’ establishment and therefore not compete with lower priced less classy investor funded hotels. Whatever the room rates it hopes to get we can be sure that it will be offering deals and discounts when its regular high room rates are not keeping its rooms full. And so it will be competing, using its taxpayer provided capital to get business away from self-funded establishments. That’s wrong. It is misuse of taxpayer funds and just encourages more corporate begging and waste.

It’s a mixed picture. We have some construction going on but also a lot of blighted and empty buildings and sites. Frederick is growing more slowly than it could. People in the development business tell me the regulatory obstacles here are huge – over prescriptive zonings, high impact fees, high taxes, high water bills, and a meddlesome micromanaging Historic Preservation Commission. Everything is paper based in an age when progressive places allow you to file on-line. Gaithersburg is about to overtake Frederick as the state’s second city.

Mr Burgess maybe we have no 4-star hotel downtown because for ten years the politicians and special interests have been messing around talking, talking, talking and begging, begging, begging on behalf of a huge government sponsored, taxpayer underwritten hotel as a monopoly downtown. If instead they had focussed on clearing away some of the regulatory obstacles of zoning and permitting we’d probably have two or three downtown hotels by now – smaller surely than the endlessly talked about City/Chamber of Commerce behemoth proposed for the News Post site – but more suited to the scale of downtown. Smaller hotels would fit many empty sites and buildings, and need not cost taxpayers a nickel.

The hotel competition itself is fine, Mr Burgess. What is NOT fine is competition underwritten by upfront government subsidies to the tune of $25m to $30m plus the City accepting responsibility for the operating losses of the associated conference center. That is a destructive boondoggle — corporate welfare at taxpayer expense. Such crony capitalism is unfair because it undercuts hotel businesses that are fully funded by investors, and it is destructive because it adds risk to any entrepreneur considering going it alone. Plus we have better uses for the government funds poured into the financial sinkhole of conference center hotels – like better roads, schools, police, utilities. If the demand for the hotel/conference center were as great as its mouthy advocates suggest they would put up their own money to finance it, and get their hands out of taxpayer pockets.

 

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