The City is proposing to borrow almost $200 million to build a Convention Center Hotel.  Let me show you the $130 million subsidy from the general fund that is needed to build the hotel.

Private investors

The City has been asking private investors for years to consider building a convention center hotel.  Private investors have said NO!  Their message is that the hotel does not make financial sense. (1)

That doesn’t work – so now what?

Public-owned hotel

If the hotel is owned by the Rio Nuevo, the hotel won’t have to pay property taxes and many other taxes.  Plus, Rio Nuevo can borrow money at lower rates than private business because they can issue tax-exempt bonds; this is very helpful because we have to borrow almost $200 million to build the hotel.  This should make the hotel profitable…but NO, the hotel would not be able to make the debt service payments of $16 million/year. (2)

That doesn’t work – so now what?

Special site-specific taxes

How can we make the debt service payments?  Here’s an idea, let’s impose a bunch of special taxes if you stay at the hotel or hold an event at the convention center.  Over the life of the bonds, these taxes will be over $100 million.  This money could go to the general fund to help pay for core services.  Instead, the money is needed to pay for debt service.  You would think that a $100 million subsidy, no property taxes, and lower interest rates would be work… but NO, the debt service coverage is still not sufficient. (3) (4)

That doesn’t work – so now what?

Direct cash subsidy from the City

 What if we have the City make a direct cash subsidy of $1.1 million/year for the life of the bonds?  This will provide over $30 million.  So now we have over $130 million of cash subsidies and you would think we should be able to finance the hotel…but NO!  (5) 

That doesn’t work – so now what?

City guarantee

What if the City of Tucson (i.e. Taxpayers) guarantees the loan if the hotel turns out to be a bust?  This has to work because the city is in such great financial shape that investors should be chomping at the bit to loan $200 million for the hotel.  Well guess what…we now learn that investors still are not interested. (6)

That doesn’t work – so now what?

Hoping and praying

Several City officials have stated that the new plan is to:  Let’s wait until next spring and hope investors change their mind. 

No property taxes, lower interest rates, $130 million subsidy, City guarantee – at some point you have to come to the conclusion that the hotel is not a good idea.  Let me ask you: is owning a hotel a ‘core service’ for the City?

Footnotes:

(1)    Page 45:  “…the Public/Private model is not available…”

(2)   Page 45:  “…bonds secured solely by project revenues cannot be issues…”  Pages 57-61 show debt service of $11.5 to $16.2 million/year.

(3)   Page 45:  “…even if project revenues are used, there would be a financing gap… site-specific transient rental tax (6%), site-specific city sales tax (2%), new convention center surcharge (2%)…” 

(4)   Page 58:  $3.12 million in 2019;  $3.72 million in 2025

(5)   Page 45:  “…to create an acceptable risk profile…, it is recommended that additional revenue be pledged…”

(6)   Page 45: “…government credit support is required…”

 Read the report HERE.