An article run in the Daily Hampshire Gazette on Thursday, January 25, 2007, “Smart Growth Recognized” by Andrew Horton informed their readers that the city “won a Smart Growth Award for its planned Roundhouse downtown revitalization project?” from the Pioneer Valley Planning Commission. Let’s take a closer look.
Northampton officials chose a $1 bid from Pioneer Valley Hotel Group of Ludlow over the $750,000 bid by Tryumph Management Corporation of Miami Beach, Florida, who had planned an office building also to be situated over a parking garage. Officials stated the determining factor was the $1,599,449 in occupancy taxes the hotel would bring the city over a twenty-year period, taxes the Tryumph office-building proposal would not have to pay.
Troubling is that city officials used a 60% occupancy rate for the proposed hotel, when the current citywide occupancy rate is 55%. With Pioneer’s project Northampton’s supply of rooms will increase 26.385% from 379 to 479 in about a year’s time. For the new hotel to maintain a 60% occupancy rate, they will need to rent out 60 rooms daily or 21,900 rooms annually; at a rate of 55% Pioneer will need to rent out 55 rooms daily or 20,075 annually.
Absent from the city’s economic analysis is the financial impact to existing Northampton hotels and their corresponding occupancy taxes. Other than the creation by someone of a significant new tourist draw, the only other means for Pioneer to achieve a 60% occupancy rate is to draw business away from existing hotels in the city, or from hotels outside of the city. Since Pioneer owns two in Hadley, they will likely draw some patrons from their own existing customer base and will use their new hotel as a loss leader in order to penetrate the Northampton downtown market. Pioneer’s estimated initial average room rate at the outset is about $105 and that is $45 below the Hotel Northampton’s average room rate and $20 below the Clarion’s. This cutthroat pricing policy could result in fewer overall occupancy taxes collected by the city of Northampton not more, if existing hotel owners lost business and/or had to lower their prices.
Horton’s article quoted City Planner Wayne Feiden as stating, “Since the hotel would be centrally located in downtown Northampton, there would be no need for long car trips along the busy corridors of Route 9 and Interstate 91” and he added, “With this hotel, all trips to downtown Northampton could be made by foot, eliminating the need for cars.”
While it’s true that when patrons of Pioneer’s new hotel decide to patronize a downtown tourist related establishment that they are more likely to walk due to the hotel’s proximity, in general though, this seems like a facile assertion. What if tourists wish to frequent an event at one of the area’s other significant tourist draws like the Basketball Hall of Fame, the Springfield Civic Center, the University of Massachusetts, Amherst College, Hampshire College, Mt. Holyoke College, the Yiddish Book Center, the Eric Carle Museum, the Amherst Cinema, Yankee Candle, or perhaps go skiing in Vermont?
Further, using the city’s analysis, Pioneer’s daily parking need is 126 spaces and Tryumph’s would have been 40 spaces, for a difference of 86 spaces demanded daily. No matter how one examines it, 86 more spaces generally means 86 more vehicles, and 86 more vehicles generally means more traffic not less, unless tourists decide not to venture outside of the downtown area and use a helicopter or some other means to arrive at the hotel or for general touring. It’s unreasonable to assume travelers would not leave the downtown area.
Since the employees and patrons of the office building would have been more likely to live nearby, they would also have been more likely to bicycle or walk to the site than will patrons of the hotel. There is a planned bicycle trail very close by going out to bid soon, public transit is equally close by, and the highest density of population in Northampton is located downtown. Thus the office building would not have attracted the same kind of petroleum based vehicular traffic that the hotel will and would likely have provided a sleepier downtown neighbor than the hotel. So here we had two very different options to choose from and I suggest the hotel will contribute more traffic, pollution, and aggravation for downtown residents, pedestrians, and bicyclists than the office building would have.
Let’s address Pulaski Park too, both bids proposed to expand the park’s footprint a like distance, but the Tryumph bid offered the city an additional $90,000 above Pioneer’s bid for park improvements. In lieu of providing the extra $90,000 Pioneer might now request the city maintain Pulaski Park to a higher standard, with public funding. That equates to public funding for private gain.
The nature of Pioneer’s hotel will be primarily hospitality and tourism, which can be negatively impacted by a poorly performing economy or volatile fuel prices. Additionally, I would deem the inherent risks in running the hotel business as less diversifiable than Tryumph’s. Tryumph could have sold units as office condominiums thereby sharing ownership of the building and spreading accompanying risks, or at the very least rented out offices for a variety of uses, which seems more sustainable over the long term. The Potpourri office building on Northampton’s King Street perfectly exemplifies of this type of diversification.
The city in rejecting Tryumph’s bid rejected a one-time cash payment of $750,000. Presuming Tryumph’s principals had access to this cash via credit or otherwise, had the city accepted this payment it could have been invested in a 20-Year callable Certificate of Deposit at an interest rate of 6.05% compounded semi-annually per FISN. At the end of 20 years the principal would have generated $1,720,393 in guaranteed interest or an annual average of $86,019.65, which if discounted 5% would give us a figure of $1,071,994.98 in 2007 dollars for a total city benefit of $1,821,994.98 when adding the discounted interest to the $750,000 principal. (This calculation relies on the city NOT withdrawing interest but rather compounding it).
Or the $750,000 could have been placed in a savings account earning simple interest. At a rate of 5% annually without compounding, but with enhanced liquidity, the city could have withdrawn $37,500 per year or a total of $750,000 over the twenty years, holding the principal harmless. Discounting the interest at 5% computes to $1,354,832.89 in total financial benefits in 2007 dollars.
Of course an argument can be made that by investing the principal and re-investing the interest with the first option, the money cannot be used. Further, any funds withdrawn would lower the yield and with the second option only the earnings are available as well. However the city sold the parcel for $1 and it is now generating only a modest sum from the parking revenues associated with its current use, though I don’t know the specific figure. In addition, the city has recently upped its free cash account to about $2.5 million and enjoys a positive bond rating. In fact, Mayor Higgins recently committed the city to building a $12.5 million new police headquarters without a debt-exclusion tax override, explaining to the public that as the city is retiring some long-term debt, taxpayers can now afford it. Plus, the new $4 million senior center is being constructed without an override as well. It would seem as though the city must be on reasonably firm financial footing based on these commitments entered into on behalf of taxpayers.
Another option would have been that the $750,000 could have been used for a variety and combination of purposes right away, from retiring long-term debt to repairing degraded streets, to supplementing the city’s operating budget until local aid levels are restored as has been implied by Governor Patrick.
In my view, city officials are accepting increased risks on our behalf and engaging in a questionable bet with the disposition of this public property. Rejecting a certain $750,000 for the parcel in exchange for the possibility of increased occupancy taxes is far from fool proof planning. For instance, if the city chose Tryumph’s bid, once the funds were provided even if their project failed, the city would retain $750,000. If Pioneer’s project fails, unless the city has a written covenant with the new owners, the city retains nothing, not even the land once the deed has been legally conveyed.
