John Fieseler of the Tourism Council took to task lobbyist Bruce Bereano in a letter-to-the-editor of the News-Post (see the letter below as published June 7, 2017) for stating that up to 85 percent the Frederick County hotel tax can be used to retire the private debt of approved downtown hotels. Fieseler is correct that the 1st Amendment to Memorandum of Understanding (MOU) between the County and his Tourism Council states that under a hotel and conference center facility development incentive program “up to 85% of the hotel room tax (HRT) may be dedicated to servicing the debt on capital expenditures related to constructing the public improvements required for a full service hotel…”
There are two problems with Fieseler’s rendering:
1. Promiscuous use of ‘public’ label: The hotel promoters have a
record of defining facilities as ‘public’ based not on established practice, necessity and commonsense understandings but on whatever supports their political rhetoric and advocacy. On-site parking for a hotel is not normally considered a public sector obligation, yet that is now integral to the design of the DH&CC. Likewise purchase of the land for a hotel business is not normally a ‘public’ responsibility. It was specifically ruled out early in the DH&CC procurement and not mentioned in the Plamondon proposal but has since become central to The Deal. For several years the supporters of the City-sponsored hotel told us the conference center or meeting rooms were ‘public infrastructure’ even they were to be operated by the hotel management as part of its business and were effectively being gifted to the hotel owner.
Being termed a ‘public’ facility was enough, in the minds of its enthusiasts, to justify putting the conference center portion of the hotel complex on taxpayers when that was thought doable politically. Now it’s inconvenient and the political spin has changed. Now the hotel and its meeting space (conference center) will both, we’re now told, be financed fully by the developer, the conference center having changed its spots to ‘private.’
Based on the long history of wrapping the hotel in opportunistic rhetoric limiting the use of the hotel tax to servicing debt on “public improvements required for a full, service hotel” is unlikely to prove any kind of real limit to those determined to use taxpayer money for the business’ interests.
2. County Bill 16-13 authorizing the tax rebate provides no limit on use: In the very same July 19 meeting the Frederick County Council voted 4 to 3 to raise the hotel tax to finance a ‘hotel development incentive program’ the County staff papers accompanying the draft bill referred to the tax rebate as being devoted to servicing debt of “the project.” They contained no suggestion the program is limited to debt on ‘public’ improvements as mentioned in the MOU.
A 5-page memo to Frederick County Council from Helen Propheter, director Office of Economic Development dated June 27, 2016 describes a direct rebate to the hotel operator to help pay down his debt:
p2 “Rebate is proposed to be 70% to 85% of hotel rental tax collected from a hotel and conference center accepted into this program to service a predefined amount of debt for a period of up to 25 years.”
p4 “… a Hotel Development Incentive rebate/dedication model is proposed, where up to 85% of the Hotel Rental Tax generated by a hotel that meets the pros gram’s criteria can be dedicated to the project’s debt service for a period of up to 25 years.”
The County Executive clearly proposed to the County Council an that County Council clearly voted (4 to 3) believing that approved downtown hotel projects — for practical purposes the downtown Frederick hotel — would have their hotel taxes rebated in order to pay down private or public debt on the project.
The MOU cited by John Fieseler does limit use of the tax rebate to servicing debt on “public” portions of the project, but this is another opportunistic use of verbiage, because the County Executive and Council majority neither intended nor understood their measure to be so limited. The Propheter interpretation that all parts of the project are eligible for tax rebating could easily be embraced when it comes to financial settlement.
The argument is always available that the project a whole is public in the sense that the City of Frederick specified it in a regular procurement (RFP), selecting both the site and the developer, the City is buying and owning the land on which the hotel is built, the City providing the on-site basement parking and thereby the City is building the foundations for the hotel. Plus organizing some $31m or 37% of the $84m funding on the last estimates published by the City. The whole complex is very much a City government project, and hence public in nature, making much spin possible.
The ‘Need’ of needy business
Also of interest is Mr Fieseler’s assertion: “Communities need these high-end, full-service properties, but investors don’t necessarily. This is the reason projects such as this one are done as public-private partnerships. Investors can make faster, easier money building ‘select service’ hotels out by an interstate.”
But what basis is there for the claim that communities “need” high-end, full service hotels that investors judge won’t pay for themselves? The clearest and objective measure of ‘need’ is precisely customers’ collective willingness to pay sufficient to generate revenues for the hotel that allow it to cover the costs of providing those services and provide a competitive return on investment. Fieseler would probably respond that there will be benefits beyond there revenues gained by the hotel. It has been a constant refrain of hotel supporters that the hotel as specified by the City’s hotel advisory group has been the #1 priority of major employers as a facility essential for attracting top quality staff to come and work here. In that case they should be able to organize to put up the money themselves to support the facility. It speaks volumes that they have never even discussed doing that. It’s easy to express a ‘need’ if others are going to pay for it.
A ‘full-service’ hotel with a range of restaurants, cafes, bars, spa, gym, business center etc often makes sense when those extras are not available nearby — if the hotel is a bit isolated. But in a diverse downtown like Frederick’s it makes no sense because there are already a bunch of such facilities within walking distance.
A ’high-end’ hotel may well work in downtown Frederick, but almost certainly not one of around 200 rooms in size. The need will be satisfied by investors once Frederick City, the county and the state make clear they won’t have to compete with a connected and favored hotelier getting tens of millions of dollars of public assistance.
The Frederick Extra published a slightly edited version of this here:
Interestingly the City declined all comment, beyond the vague statement that they don’t share my interpretation.
They acknowledge the City has no records bearing on the new deal with the developer, and no revised project budget showing the new sharing of costs and allocation of funds.
also COPY of Fieseler letter to Editor June 7, 2017 to which I was responding in part:
New hotel design makes clearer distinction between public, private components
by John Fieseler, Frederick Letter to Editor, Frederick News-Post June 7, 2017
In his June 1 letter to the editor, “Public officials should be honest about downtown hotel,” lobbyist Bruce Bereano very inaccurately accuses County Executive Gardner and Mayor McClement of making “absolutely false statements” regarding the use of public money for the building or maintenance of the proposed downtown hotel and conference center. He suggests that the memorandum of understanding (MOU) accompanying the county ordinance that raised the hotel tax rate last year allows the private developer of this project to keep up to 85 percent of the hotel rental tax collected for up to 25 years to pay off their private capital debt on the hotel and conference center.
The MOU wording is clear. Hotel tax revenue can be used only to pay for construction debt related to public improvements in support of a hotel and conference facility in a municipality’s downtown, for a project that meets the Automobile Association of America’s stringent Four Diamond rating criteria.
Communities need these high-end, full-service properties, but investors don’t necessarily. This is the reason projects such as this one are done as public-private partnerships. Investors can make faster, easier money building “select service” hotels out by an interstate. Consider the fact that Plamondon Hospitality Partners, a homegrown Frederick company chosen to be the developer of this project, has already designed, built and opened three new select service hotels in other areas in the three years we’ve been working through the public processes necessary for a project of this nature.
The new hotel will still collect and pay the county the hotel tax at the same rate as all other hotels here. Per the MOU, a portion of these funds can be used to pay off the debt on the public infrastructure.
What the mayor and county executive were happy to announce last month is that the new design incorporates an even cleaner distinction between the public and private components of this project. The public dollars will pay for the land, road improvements, and build the underground public parking. The private dollars will build and maintain the hotel and meeting space on top. This arrangement will be incorporated into the next legal agreement with the developer.
We share the enthusiasm of the mayor, county executive and our partner organizations about the updated design and funding arrangement, and can’t wait to see this exciting project get underway.
John Fieseler, Executive director, Tourism Council of Frederick County
The Bereano letter he comments on was as follows:
I write in response to the absolutely false statements recently made publically by the Frederick County Executive, the Mayor of Frederick and in a recent letter to the editor by Michael Paskowsky, published in this newspaper, all asserting that no public money will be used to build or maintain the proposed new design for the downtown Frederick Hotel and Conference Center. That is absolutely untrue.
Pursuant to legislation recently enacted by the Frederick County Council and signed by the Frederick County Executive, the Frederick County hotel tax is being raised from 3% to 5% (public money) and pursuant to an accompanying MOU the private owners of this new hotel and conference center – the Plamondon Hospitality Partners – will be allowed for a 25 year period of time to keep and retain up to 85% of this hotel tax (public money) collecting from occupancy tax of this new hotel to use to finance and retire the developers capital debt on the building and maintenance of the new hotel and conference center. Public money in the form of taxes collected that otherwise would go to Frederick County would therefore go into the pocket of the one particular private developer of the downtown hotel and conference center. 25 years of keeping and using public tax money collected from occupancy of the new hotel to be kept by the developer to retire his debt is a heck of a lot of public money the county and city officials say falsely will not be used.
Public officials please should talk honestly with the public.
Bruce Bereano, 191 Duke of Gloucester Street, Annapolis, MD 21401
My letter to Frederick News-Post
Downtown hotel project in a constant state of flux
It is great to have the Tourism Council’s John Fieseler, the mayor, the county executive and other sponsors of the downtown hotel and conference center saying that with the new design public funds will go only to associated public improvements. They now endorse an important principle: that public funds should go only to public purposes and never to a favored business, or it becomes a boondoggle and corporate welfare.
The trouble is, all these officials are playing word games with us. Buying land for a developer is NOT a public purpose. The conference center, we were told year after year, was a public purpose. Skeptics like me said: Why, then, is it being built with $8.3 million of public funds and gifted to the favored developer to operate as an integral part of his hotel business? We won that one with the mayor’s announcement May 18 that the conference center as well as the hotel would be built and operated with investor funds after all.
So what’s happening to the $8 million of public funds needed to build the conference center?
Officials won’t say. The talk is the city’s parking deck underneath the hotel will be designed in such a way as to relieve the developer of any foundation construction expenses. The city will take on the risks and expense not only of a parking deck but also of foundation columns to support the hotel above. This might well eat up more than the $8 million being “saved” on the conference center, and end up being the most expensive public parking per car in the state of Maryland. City officials say they can’t yet provide any estimate of the cost of the parking deck, and they don’t have any revised budget for the project.
Everything about this project is in flux. The only constant year after year is that this hotel is about a year away from final design and permitting and about three years from the grand opening.