Monday, September 27, 2010

Tucson's downtown hotel: To be or not to be? (Part 1)


Since he took office, City Councilman Steve Kozachik has been trying to hold the Mayor's and other council members' feet to the fire on the new downtown hotel deal.

The issue of whether or not to build a mega-hotel downtown has been complicated by Tucson's ongoing budget problems-- thanks to a downturn in the US economy, high unemployment and poverty in Arizona, cuts in funds from the state government and an over-reliance on tourism, sales tax, and the housing boon statewide.

All of this has been coming to a head since the City Council voted to send Prop 400, a 1/2 cent sales tax increase, to the voters this November. Labeled the "core tax", it theoretically will be spent on core services-- police, fire, and parks-- but, as I understand it, that is not an iron clad promise.

City Manager Mike Letcher proposed 2 plans to balance Tucson's budget-- Plan A being pass the sales tax and Plan B being across the board 15% cuts in all city departments (including police and fire). (Plan B, I think, is a particularly stupid idea because it plays into the hands of the people who tried to pass Prop 200 last fall. They contended that the City Council didn't value police and fire and would cut those services unless they were protected by the charter changed proposed in Prop 200, and here you go-- not even 1 year later, Letcher's Plan B proposes just that!)

As his answer songs, Kozachik has proposed Plan C and the hybrid, updated Plan D. I am not endorsing Kosachik's Plan D whole hog, but I do agree with him when he says that there are steps that the City Council can and should take now--regardless of whether or not the sales tax passes. For example, included in Plan D are items like eliminating cars and car allowances for city employees (check this link and scroll down to see who gets this now); a 2% decrease in pay for city employees making above $96,000; increased "cost recovery" related to Parks and Recreation programs (ie, increased fees); a sliding scale Sun Tran fare increase; and much more. The kicker at the end of Plan D is killing-- at least for now-- the hotel project:

"Because of the uncertain impact on the General Fund, advise Rio Nuevo Multipurpose Facilities District Board that the City will not entertain any further consideration of funding proposals associated with the Downtown Convention Hotel until the sales tax has sunsetted (see below.)

"In the event sales tax fails at the ballot box, City will not entertain funding proposals for the Hotel until State-shared sales tax receipts to the City exceed those identified in “sunset” provision cited below."


According to Kozachik (the sole Republican on the City Council), he presented Plans C and D as points of discussion and wants to discuss/debate the ideas with other members of the City Council. The problem is that the Democrats on the City Council didn't want to discuss the plans.

At the September 21, 2010 City Council meeting, Kozachik also made this motion to tell the Rio Nuevo Board that the city was washing its hands of the hotel project proposed by Garfield Traub.

Convention Center Hotel and the City of Tucson

What is the City of Tucson’s legal obligation to the design, development and building of the Convention Center Hotel? The Master Development Agreement identifies the Agreement is between the Rio Nuevo Multipurpose Facilities District (The Owner) and Garfield Traub (The Developer).

The signature page of the Master Development Agreement states that the Mayor signs “Solely in connection with the City’s obligation and agreements pursuant to Sections 2.2.2, 4.1.14 and 4.2 of this agreement”

Section 2.2.2 relates to the construction of the East entrance and states that the agreement “obligates the City to expeditiously pursue mutually agreeable methods for funding the CC East Entrance Construction Fund” The City complied with this obligation by issuing additional Certificates of Participation.

Section 4.1.14 relates to the City issuing permits during the design phase and states “City agrees to expedite to the fullest extent possible plan review and approvals as well as the issuance of all permits and consents required for the project.” The City has complied with this obligation.

Section 4.2 relates to the City issuing permits after completion of the Design Development Period and states “City agrees to expedite to the fullest extent possible plan review and approvals as well as the issuance of all permits and consents required for the project” The project has not been approved and therefore the permits will not yet be issued.

Clearly, The City of Tucson has no contractual obligation to fund the project. In light of the dire financial condition in which the City finds itself, the City should not risk one more dollar of the taxpayer’s money on this project.

I move that the City of Tucson advise Rio Nuevo Multipurpose Facilities District Board that 1) at this time we do not intend to backstop or issue any bonds to secure the completion of the Tucson Convention Center Hotel, Parking Garage and Convention Center Expansion and 2) The City will not approve any additional expenditures for the Convention Center Projects until RN has negotiated an acceptable GMP and funding plan for the project.

This declaration of intent will allow the RNMF Board to decide if the project is financially viable in its current form and to decide if alternative funding methods are available. That obligation is clearly delineated in the MDA under Sections 4.1.13 and 6.6.

Section 4.1.13 assigns to Garfield Traub the responsibility of securing a Design Build Contract with Turner/Sundt and to negotiate a GMP, advising Rio Nuevo as that is developed.

Section 6.6 assigns to Rio Nuevo the responsibility of obtaining funding for the Project. The City of Tucson is explicitly not mentioned in the development of a financing plan.

We, as the City of Tucson, cannot simultaneously tell our citizens that we need for them to pass a ½ cent sales tax because we are in dire financial straits and also tell them that we are obligating their money to a $225 million project that has significant risks and assumptions associated with it. The turn in the economy has dictated that this type of risky project should not be placed on the shoulders of the citizens of Tucson.
(Emphasis added.)

The motion didn't go anywhere because no one seconded it. For Kozachik's Ward 6 update on the meeting, check this link. To watch the City Council meeting online, check out Channel 12.

I do believe that Tucson needs larger, updated hotel accommodations downtown, but I don't agree that the city should go hundreds of millions of dollars into hock for decades to build it. (Here's a hint: there is a reason why the bankers aren't financing this.)

5 comments:

  1. So as a progressive, I wondering about the following question... is Kosachik being the voice of reason on this issue?

    I have to learn a lot more about the hotel and its history, but it seems Kosachik might be on to something?

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  2. @Three Sonorans, for a glimpse of the convoluted hotel hell history, check out my Part 3 blog post.

    Yes, I believe that Kosachik is on to something. Too bad John C. Scott's interviews with Heywood Sanders (referred to in Part 2) are not online. It was chilling. I was all for the hotel project until I heard about Sanders' research-- which was conducted before the recession.

    Although Kosachik ran as a Republican, the more I get to know him the more I believe he is really an Independent.

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  3. I'm beginning to think so also... How can we talk about Prop 400, shutting down the Rialto, and then building a hotel?

    Something does not compute. I don't know Kosachik personally, even though I live in his district, but whenever I hear him talk he doesn't sound too crazy like the Repugs up in Phoenix...

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  4. @TS-- I agree. Regarding real estate deals downtown-- something does not compute, and it goes beyond Rio Nuevo. Check out my 2 articles on failed real estate deals. My big unanswered question is: Who writes these contracts? The M&C approve the deals, but they are not writing the contracts. It has to be city staff. Is it incompetence or corruption?

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  5. @TS-- Kosachik reached out to me as a result of some of my blog posts. As a result, I have gotten to know him. He is a pragmatic managerial type-- not an ideologue. I appreciate his hard work on the budget and the hotel issue. (And, obviously, I am not a Republican.)

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