Monday, September 27, 2010

Tucson's downtown hotel: Who's on first? Rio Nuevo Board passes hotel back to M&C (Part 2)

The tortured saga of Tucson's new downtown hotel has been a long and twisted one.

Do we need a giant, glittering new hotel downtown?

How much will it cost?

Who should pay for it?

Who will own the debt?

Who will get the profits?

Tucson's Mayor and Council have been waffling around these questions for years with no resolution. The downtown development drama got exponentially more complicated when the Republican-controlled Arizona Legislature created the Rio Nuevo Board to oversee how Rio Nuevo's funds are to spent in the future. Over the summer there were public squabbles between the Mayor and Council and the Rio Nuevo Board. (One example: the RN Board didn't approve of the M&C using downtown parking garage spaces to pay off a legal settlement with developer Scott Stiteler because of a contract dispute.

These stories led me-- and I'm sure other Tucsonans-- to wonder who's really in charge? Did the Legislature clearly delineate the responsibilities of the RN Board and how they are to interact with the Mayor and Council? It appears not.

Tucson City Councilman Steve Kozachik has been pushing the City Council to drop the mega-hotel project-- at least until the economy improves. He also believes that whether or not to finance and build the hotel is in the hands of the Rio Nuevo Board-- or it was until they punted late last week and said the hotel fiasco belonged to the city.

According to the Arizona Daily Star, "...the project is in … well, "chaos" may be too strong a word, but "confusion" is not. Mix in confusion with political posturing by both the City Council and the Rio Nuevo board and the result is unacceptable. Especially on a project of this size and involving so much taxpayer money."

Here is the text of Kozachik's September 24, 2010 memo to the Mayor and Council, which he released after the RN Board ducked out of the hotel business (even though it is not clear that they lawfully can walk away from it-- since they are supposed to be in charge of how the Rio Nuevo funds are spent.)

SUBJECT: Responsibility for Decision-Making on the Proposed Convention Hotel

There seems to exist a condition of leadership paralysis with respect to making a decision about proceeding with the Convention Center Project. The Rio Nuevo Board has suggested shifting the decision-making responsibility back to the City, where that authority resided prior to the Board having been seated by the State Legislature. With over $230 million in taxpayers’ dollars in the balance, the City must make sure that all relevant questions are answered openly and publicly.

1. Who is legally responsible to make the decision to proceed with the Hotel?
State Legislation placed the legal obligation to adopt a Guaranteed Maximum Price (GMP) and finance plan on the Rio Nuevo Board. And, the Master Development Agreement for the project is between Rio Nuevo and the developer Garfield Traub. What is the role of the Legislature in the decision by the Board to shift that burden to the City? Legally, how does the change in relationship affect the Master Development Agreement? Does a new agreement need to be negotiated?

2. If the District shifts responsibility to the City for the hotel decision, what role does the District now play in approving any contracts related to the project?
The Legislature stated that no TIF money could be spent on any projects other than the Hotel and related project elements until a Notice To Proceed had been issued by the District. If no such NTP is issued, what are the City's options with respect to funding any other projects with TIF revenue? What role does the District then have in those decisions if they have shifted the duty/right to negotiate a hotel package to the City?


3. What other areas are affected by a change in the relationship?
What is the cost for putting together a finance program, that is, a bond package? Does the District have any financial obligation to assist in funding those costs with TIF dollars, or is it a General Fund obligation? Who negotiates the bond package? Who is involved in approving the terms of the package?

Subcontractor bids have expired. There will be a cost involved with re-submitting and re-evaluating a new set of bid documents. Do TIF dollars pay for those new costs, or is that a Developer cost to be borne by Garfield Traub? With the "owner" now out of the decision-making picture, who is to review and approve the bids with Garfield Traub?

There is no GMP. Previously, the District and the City have both been evaluating the proposed GMP submitted by Turner/Sundt. Is the City now in the position of making a unilateral decision with respect to the acceptability of the GMP and negotiating a new one in the event it concludes the existing price is too high? What role does the District now play in that process?

If the City puts together a funding package, does the District have any remaining role in its approval? If not, does this, in effect, constitute tacit agreement by the District that the City now controls the use of the TIF for this, and other projects the City deems appropriate use of those funds?

What we know is this:
a) There remain serious questions to be answered with respect to the financial viability of the Hotel.
b) In the present Convention Center Hotel market, there are numerous real-life examples that demonstrate the financial down-sides possible in operating a facility such as this.
c) There is no private sector money included in the financing of this project and the developer has openly indicated that he is unwilling to absorb any of the risk.
d) The “Team,” as described in the Master Development Agreement, with whom the District is to negotiate a Guaranteed Maximum Price and a finance plan, is comprised of commission-based firms who therefore have no incentive to produce for the City the lowest possible price for a high-quality product.
e) The taxpayers’ voice has been left out of the conversation. If the Rio Nuevo Board passes to the City the responsibility for making this decision, it is the Mayor and Council who are responsible to the taxpayers for whichever choice is elected, not the Rio Nuevo Board.
f) The voters are being asked to approve a sales tax increase along with a package that includes a significant salary increase for Mayor and Council. When the voters see those propositions on the ballot, their vote will reflect the level of trust they have for the governing body.

There appears to be a strong sense of urgency on the part of those who stand to benefit financially from this project that the District step aside and the City simply approve a funding plan that ultimately places the taxpayers at risk for what may well become an under-performing property. The decision to make this level of commitment comes while we are in midst of negotiating a GMP, in the midst of our trying to balance the FY2011 and FY2012 budgets, and in the midst of an effort by some in the City bureaucracy to convince the taxpayers of our need to adopt a sales tax increase. To take on a debt of this size while so many critical fiscal issues are unresolved is irresponsible.

It is time we protect the taxpayers’ interests and make a firm decision that, at this time, we cannot take on the burden of a risky capital project such as this. It is unfortunate that the District is now trying to absolve itself from fulfilling the leadership role in this matter that it was formed to exercise.

Nonetheless, the Board’s decision to stand down on the decision and place it back in the hands of the City does not obligate us as leaders in this community to approve a debt burden that is clearly inconsistent with the other fiscal realities with which we are faced. The timing is wrong, the finances are uncertain, and therefore the project must stop now until the market has improved to the point where some level of private sector investment can be included in the plan.
(Emphasis added.)

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