City may tap hospitality tax for hotel

The StateMayor Bob Coble wants to use part of Columbia’s new hospitality tax to ensure a city-owned hotel would be able to pay its bills.

Coble wants to set aside $200,000 of the city’s new 2-cents- on-the-dollar hospitality tax, levied on prepared food and beverages, for the next four years.

That money would be used if the as-yet-unbuilt convention center hotel is unable to repay its debt of $71 million, including reserves set up to cover debt payments.

That $71 million debt is $11 million more than originally projected. Officials say the size of the borrowing has increased from $60 million in part because the city wanted more safeguards built into the deal to protect taxpayers, including expensive bond insurance.

Coble says his plan to use hospitality tax money to cover the hotel’s debts, if necessary, adds another layer of protection.

City Council, acting as the nonprofit corporation that would own the hotel, will meet Tuesday to review plans for the facility. Coble’s proposal is likely to be discussed.

Tapping the hospitality tax, expected to generate $5.6 million a year, might be contested by groups that want a share of that money.

The city received 33 applications, totaling more than $11 million, for $3 million the city agreed to dole out from the first year of the tax.

But using hospitality money to support the hotel matches the purpose of the tax — to attract tourists, Coble said.

Still, Coble’s proposal could reopen debate about whether the city should go into the hotel business, using public money to back a hotel.

‘WE HAVE DONE EVERYTHING WE CAN’

A study by PKF Consultants of Atlanta indicates the proposed Columbia Hilton Hotel should make enough money to repay the $71 million revenue bond that would be issued to finance it. Reserves — essentially a savings account — to cover some losses already are built into the bond deal, Coble said.

“It would be four years from now until you ever had any deficit, just by the way the deal is structured, if you ever had one,” he said.

But there is risk involved.

Rather than assume the hotel will be able to pay its debts, Coble says the city should use hospitality tax money to cover its risk. “Then, I think you can say we have done everything we can do to cover the legitimate risk that is there.”

City Council would have to approve using the tax revenue for the hotel. Under Coble’s proposal, $800,000 to $1 million in tax money would be available to cover any losses.

“The hospitality tax is just another reserve that we would put in place during the ramp-up period” in case the hotel doesn’t bring in as much money as projected, assistant city manager Steve Gantt said. “We would have another reserve to cover our bond payment or any operational deficits we may have until we get up and running.”

‘DRAGGING THE CITY DOWN’

In December 2002, City Council decided to pursue a deal for a 300-room Hilton hotel built with city-backed revenue bonds. The hotel, which will be operated by Hilton Hotels Corp., is being developed by a team led by the Edens & Avant real estate company of Columbia.

Council has been criticized for deciding to build a publicly financed hotel rather than accepting an offer from a private developer to build a facility.

Council rejected a proposal by John Q. Hammons of Springfield, Mo., to build a 300-room Renaissance hotel. Hammons built the Embassy Suites in Columbia.

This past fall, Greenville hotel developer Bo Aughtry also offered to build a 180-room Courtyard by Marriott on the convention center hotel site, at Park and Senate streets. Aughtry owns the 120-room Hampton Inn on Gervais Street.

Aughtry says several cities, including Pittsburgh, have built or are building Courtyard by Marriott hotels for their convention centers.

Aughtry believes the Hilton hotel is too big for the convention center and will fail, dragging other hotels down with it.

“I see the hotel as a linchpin of dragging the city down,” said Aughtry, who has lobbied council members to change their minds and accept a privately built hotel.

However, Coble says the city needs a hotel with banquet facilities and ample meeting space to complement the convention center, not a limited-amenity hotel like a Courtyard.

“I can’t believe that a Courtyard by Marriott can be our convention hotel,” said Steve Camp, president of the Midlands Authority for Conventions, Sports and Tourism. “It may have full service, it may have a restaurant, but that is not the image we want.”

RISING COST

Gantt, the city’s lead administrator for the hotel, hopes council will give the OK on Tuesday to proceed with the hotel.

If it does, ground could be broken this month, and construction could begin in 60 to 90 days.

What council will get Tuesday is a proposal for a $71 million revenue bond to finance the hotel. The city is responsible for half of the bond’s payments if the hotel’s revenues do not cover them, Gantt said.

“But the moral responsibility is we can’t afford for the bonds to default and the hotel to go out of business,” Gantt said. “So if the hotel can’t cover its share, the city has a moral, if not legal, obligation to cover all of that, as well.”

The original proposal called for a two-tiered bond deal of about $60 million, with the city backing around $23 million.

The deal shifted to the single, larger bond when City Council insisted on having bond insurance, Gantt said. The insurance would cover bond repayments if the city defaulted on the debt.

If that happened, the bondholders would be repaid, and the insurer would come in and take over the hotel and its management, Gantt said.

However, the cost of insurance added $3.5 million to the hotel bond, Gantt said. The cost of issuing the bonds also has gone up, increasing the project’s cost. Reserve funds, money that will be set aside to help cover payments on the bonds if the hotel encounters difficulty, also increased the bond’s costs.

The group that will develop the hotel has given the city a guaranteed maximum price on the project of $48.8 million, Gantt said.

Designing and building the hotel will cost about $40 million, said John Lumpkin, head of the hotel development team. The guaranteed price includes other costs, including pre-opening and marketing expenses, initial working capital and operating reserves.

Coble said the city can’t afford for the hotel project not to succeed.

“We’ve got to make the convention center and the hotel work,” the mayor said. “Our goal is a stronger economy, to bring people into Columbia. That is what we have got to make happen, and that is what we are about doing.

“We are transforming this economy to make it stronger, and tourism and conventions are clearly one way to do that.”