City & County attempting to make up for lack of State-$s but lawyers struggle

For the second time they’ve cancelled a scheduled Joint City/County Workshop of elected officials for ‘Discussion of proposed agreements regarding Downtown Hotel Project.’ Reason: a legal consultant advised against the draft MOU. We haven’t discovered the nature of the legal problems which torpedoed the draft agreements. We filed a Public Information Act request at the City for a copy of the outside legal counsel’s report that we hear caused officials to decide they had to call off presentation of the plan.

Today the City Attorney Saundra Nickols wrote us saying “The City has one document responsive to your request.” That is the outside legal counsel’s advice on the draft MOU. But Nickols writes: “This document was prepared by the City’s outside legal counsel for the City and is subject to the attorney-client privilege and is therefore protected from disclosure by GP 4-391 as privileged or confidential records.”

Behind closed doors City and County officials have been struggling with how to provide some $20 million of financial support for the Plamondon hotel project that the State government has fled from. For political reasons the scheme has to appear to represent no burden or risk to City or County taxpayers. ‘Appear to’ is the operative verb because in fact any funds raised for the hotel project could be used for more conventional City or County purposes — such as stormwater, roads, police buildings etc — so given finite local borrowing capacity it has to be a burden in fact. Similarly there has to be risk in City and County support. Construction in a flood plain with two centuries of industrial waste disposal on site has inherent risk, as does the paid-parking underground garage. Any hotel venture involves risk but this more so than most because of the burden of meeting City requirements that it incorporate non-paying meeting space, car parking and luxury facilities beyond what investors would fund on their own. City and County governments cannot sponsor a venture like this and then cleverly deploy words to banish real risk.

Tax increment financing (TIF) is likely involved, officials say. 

TIF fundamentally flawed

TIF debt logic rests on the misleading proposition that a commercial venture in a new building, a new hotel in this case, will likely generate an increase (or ‘increment’) in City tax revenues at that site, and that the new revenue stream in the years ahead will be a sound basis for new City borrowing to subsidize the project. But TIFs are actually unsound because (1) the new hotel business will likely attract some of its custom from established hotel businesses nearby so there will be at least a partial decrease or tax ’decrement’ nearby offsetting the increment at the new hotel (2) businesses generating increments in City and County revenue also tend to require increases in local government services in return for their taxes. So combining the offsets (1) and (2) little or no net tax increment is actually generated in the real world, and there is no solid basis for TIF financing. 

TIF is a smiley-face con.

In 2015 local elected officials were sold on the downtown Frederick project with the quiet assurance that the State would be carrying the bulk of the risk. Its promoters spoke confidently of how the State government via grants would help buy the land and pay for consultants while the Maryland Stadium Authority would put up most of the risk capital.  After the MSA gave the project the thumbs down, City officials placed their faith in MEDCO (Maryland Economic Development COrporation.)  But it, too, wanted nothing to do with the Frederick hotel. For several years the project was advanced in Annapolis not by going through the regular appropriations processes following full county delegation consideration but by shady closed door partisan deals in the legislature. The City got some grants awarded but then was unable to draw on them through failing to file the paperwork on time. Further deals in Annapolis were in the end thwarted by Governor Hogan and Senator Michael Hough. 

Proceeding without state funds puts local taxpayers at more risk if the City and County put up money.  The last project financing plan from December 2018 headed ‘Downtown Frederick Public Infrastructure Budget’ was for the project to use a total of $22.25m of public funds, of which the City and County would together put up $11.75m and the State $10.5m. If the project isn’t changed substantially local taxpayers will now be up for almost twice as much — in order to make up for the State’s withdrawal. 

Biggest public sector cost in  the December 2018 project budget is the underground parking — $16.15m. Located down in the Carroll Creek floodplain with centuries of industrial waste fill the construction of this is the riskiest part of the whole project. It makes no sense as car parking at nearly $70,000 per parking space (versus $15,000 to $20,000/space in a regular above-ground parking garage). The roof of the underground parking deck presents Plamondon with a dry ground-level ‘podium’ or platform engineered to carry the five story hotel above. The public ‘car parking’ so-called is really the public funding of Plamondon’s hotel foundations. 

The whole rationale for City sponsorship and public funding of the Plamondon hotel in 2015 was the claim that without public funds there would never be a hotel built downtown. That justification has been scuttled by the hotel now being built on the Visitation Academy site just two blocks away from Plamondon’s site without any City or County sponsorship or funds. 

2019.10.23

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