State refuses to extend deadline, City loses $350k hotel grant from DHCD + BACKGROUND

The State took the unusual step of refusing to extend the June 30 deadline on a FY2014 grant of $350,000 for the downtown hotel project, so the City has lost the money. Earmarked for purchase of land for the hotel it could not be spent for lack of any comprehensive contract between the many parties to the project.

Kudos to Mallory Panuska and Danielle Gaines for breaking the story in the Frederick News-Post. But City officials must have known months ago that the State, via the Department of Housing and Community Development (DHCD) declined to extend the deadline.

http://www.fredericknewspost.com/news/continuing_coverage/downtown_hotel/after-not-spending-money-frederick-loses-grant-for-hotel-conference/article_9a8a7efa-056f-5d27-a46c-d7a24c69abf7.html

There’s important background to this, not covered by the  Frederick News-Post.

Receipt of the grant was announced by the City April 29, 2014:

“Frederick, MD — Mayor Randy McClement traveled to Baltimore yesterday for Governor O’Malley’s announcement of the State’s Strategic Demolition and Smart Growth Impact Fund awards. Mayor McClement joined Baltimore City Mayor Stephanie Rawlings- Blake, Maryland Department of Housing and Community Development Deputy Secretary Clarence J. Snuggs, and other local officials at the site of the former Old Town Mall in Baltimore as Governor O’Malley announced the projects benefitting from Impact Fund assistance.

“The City of Frederick, will receive a total of $350,000 in Smart Growth Impact Funds for costs associated with the proposed Downtown Frederick Hotel & Meeting Space Project. Funds will be allocated for land acquisitions, design, and infrastructure costs associated with the development of a 200 room, full-service hotel with 15,000-20,000 square feet of meeting space, to be constructed in downtown Frederick.

Mayor McClement addressed the crowd as the current President of the Maryland Mayor’s Association. “These funds help not only The City of Frederick, but other cities across the State.”

Regarding the award for Frederick, Mayor McClement said, “We are thrilled to receive this assistance from the Governor’s Smart Growth Impact Fund. This award reinforces the State’s support of the Downtown Hotel Project, and the positive economic impact it will have on the City and the State.”

The Downtown Hotel Project, chaired by local businessman Earl Robbins, is a Public/Private Partnership initiated by the Chamber of Commerce and the local business community and remains a top priority of Mayor McClement’s Administration….” end quote from City PR

Sara Luell, spokesman for the DHCD is quoted now to the effect that the $350k grant expired, undrawn upon, June 30 this year.

On November 12, 2014 about six months after the City announced receipt of the $350k grant the City Department of Economic Development (DED) posted a statement saying among other things “Funding from the (DHCD) grant will be used in part consultative services with Jones Lang LaSalle and to assist with site control and pre-development and entitlement costs for the project.”

http://businessinfrederick.blogspot.com/2014/11/city-of-frederick-awarded-35k-in-sgif.html?m=1

Misleading to damp local criticism

This would appear to have been an attempt to counter local criticism that City taxpayer money was being used for $335,000 consultants like JLL and other hotel project development costs.

In fact the City had signed an agreement with DHCD that the grants (which the State calls Strategic Demolition not Smart Growth gants) could only be used for land acquisition.

The City announced receipt of a second grant of $500k January 19, 2016:

“Frederick, MD – January 19, 2016: The Department of Housing and Community Development (DHCD) announced that The City of Frederick was awarded $500,000 from the Smart Growth Impact Fund (SGIF) for the Downtown Frederick Hotel and Conference Center (Project).

The fund is aimed at providing a catalyst to projects that accelerate economic development and job production in Maryland’s sustainable communities. Funding provides assistance for critical pre-development activities in order to attract needed public and private investment to revitalization projects. $2.075 million was awarded to nine projects.

The award will be used to support the site acquisition costs for the development of the proposed 207 room full-service hotel with 24,000 square feet of meeting space in Downtown Frederick. The City previously received a $350,000 SGIF Grant last year bringing the total grant availability to $850,000.

“Funding from the grant is critical to advancing the Project,” said Richard Griffin, Director of Economic Development for The City of Frederick. “We’re pleased DHCD also recognizes the importance of this project and the positive economic impact it will have on Frederick and the State of Maryland.”

Again note the City claim that the grants would help fund “critical pre-development activities”. This was false.

Sara Luell DHCD spokesman told us: “In FY14 and FY16 the City of Frederick was awarded Strategic Demolition Fund grants for the acquisition of the former Frederick-News Post site for the development of the Downtown Frederick Marriott project. Strategic Demolition Funds will support site acquisition specifically.

“All grant awardees are required to sign an agreement outlining uses of funds, state regulations, etc. Strategic Demolition Funds are for capital use only; therefore, all funds are to be used strictly for approved capital activities.” (email 2016.07.12)

We queried the DHCD spokesman about this given the City Department of Economic Development (DED) claims that Jones Lang LaSalle consulting and other pre-development costs were drawing on the DHCD grants.

Luell responded: “My original statement is correct. When the city first applied they had included other activities besides land acquisition in the request. They consulted with the department and found out that was not a viable use under SDF. The SDF funding is only being used for acquisition. You will have to reach out to the city to ask what other sources of funding they are using for other activities related to the project.” (email 2016.07.15)

False statements

The Mayor and Richard Griffin both made false statements that the State grants were helping pay project development expenses, contrary to the terms of the agreement with the State, and even though they had not been able to draw a cent of the $850k grants that had been announced.

It is unclear how this political chicanery affected the State DHCD view of the project, but last summer (2016.07.13) the City DED made its third shot at a DHCD grant, this time for $1 million.

Critics were active lobbying against the grant.

We wrote DHCD along these lines:

1. This is the third state grant the City is applying for. There were grants of $350k in FY2014 and $500k in FY2016. The Mayor and Board of the City agreed July 13, 2016 to seek $1 million out of an available $3.5 million statewide (outside Baltimore) for Strategic Demolition (or Smart Growth Impact) fund grants.

2. This latest request for authority to apply for the state grant was sneaked in at an afternoon business meeting with no public notice and concealing the fact that the grant requires a local match. Local City funds are needed to match the state funds in contradiction of claims by officials that no local taxpayer money is going on the Hotel project.

3. The City’s purchase of land for the developer contravenes the terms of the procurement RFP which explicitly stated that City land would not be supplied. Both proposers in conformity with this proposed to buy land for their project. No rationale has ever been stated for the City subsequently deciding to buy the land itself and leaseback to the developer.

4. The City purchase/lease-back at around $85k/year in the first stabilized year of hotel operation is highly advantageous to the developer according to local hotel finance professional Matt Seubert. He says a typical leaseback goes for 3% to 5% of gross revenue which based on the first stabilized year forecast would run between $322k and $809k taking the Crossroads study low and the Pinnacle study high.

5. City purchase of the land for the City-selected developer Plamondon is unfair because other hotel developers have to buy their own land. It makes for unfair competition. Much play is made of the new jobs created if this downtown hotel gets built, but visitors cannot stay in two hotels at the same time. So if they stay downtown they will not be staying at other hotels in the area. With fewer guests at existing hotels they will trim staffs, offsetting any new jobs downtown.

6. City taxpayers keep being told falsely they are NOT ‘on the hook’ for problems at the downtown hotel and conference center. Any business that results from a City selection, that is City sponsored, and that sits on City land puts the City very much “on the hook.” The same goes for the county and the state if they support this scheme and sink money into it.

7. Three years after site/developer selection City officials concede the site selected is too small for the hotel complex they prescribed so they sup;port negotiations to buy the adjacent property to the East (The Eagles building.)

8. Maryland Stadium Authority (MSA) chairman Thomas Kelso recently said the Frederick Hotel project was seriously mismanaged and the board voted unanimously not to support the project further. MEDCO said the Frederick hotel proposal does not have an adequate financial plan or an up-to-date market study and will not further consider it until these are forthcoming. It is unclear how the project can now proceed because state funds were made conditional on MSA involvement.

9. Seven years after the City began the hotel project no plans are submitted for City permits and the project faces major difficulties getting permits from the City Historic Preservation Commission and City Planning Commission. Its demolition plans face serious problems being accepted by Maryland Historical Trust (MHT.) Beth Cole at MHT wrote the City of Frederick last year (Aug 17, 2015) that it was “likely to be a contributing element of the National Register-listed (historic) district.”

10. The Department of Housing and Community Development should not throw good money after bad. It should not deprive worthy projects elsewhere of funds to indulge a highly flawed hotel project in Frederick.

also a short letter draft was circulated

Dear……

Please do not fund the City of Frederick’s Downtown Hotel project with State grants. $31 million plus of public funding for a hotel and conference center is a serious waste of public funds. This project is unfair to hotels which raise their own money and only enriches a collection of consultants and special interests. The hotel has grown from a $45 million project to $84 million total cost in just three years and the cost of government upfront subsidies from about $11 million to $31 million. There is wide sentiment in Frederick that this project was ‘fixed’ for the chosen developer and competitive projects were discouraged. City taxpayers are concerned that the project will lose money and that they will be sucked into covering losses in the not distant future. end draft short letter

Whether this advocacy affected the decision or not, or whether the false narrative of City officials boomeranged, we don’t know. But we do know that later in the year DHCD turned the City down flat as we reported:

http://frederickhotelboondoggle.us/2017/01/boondoggle-hotel-project-stiffed-by-state-dhdc-15-strategic-demolition-fund-grants-made-fy17-frederick-zerod-out/

The Frederick News-Post under earlier management gave extensive coverage to the summer 2016 application for $1 million, that third grant request. But come the winter with news that Frederick had been turned down without a cent, not a word of the knockback made it into the Frederick News-Post.

2017.08.26

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