David Devine had an interesting article recently in the Tucson Weekly entitled, "The Risks of Revitalization." You can read the article here. It relates to the inherent risks involved when developing convention centers, and I found similarities to the situation currently before the city with regards to the Hilton Garden Inn and the redevelopment of the Three County Fairgrounds.
The future redevelopment of the fairgrounds has been used to justify the construction of the Hilton Garden Inn, in part, as there is talk of locating an 80,000 square foot exhibition hall there. As well, the inn itself is to function also as a conference center.
The level of public financing that may or may not go into the Fairgrounds project remains to be seen. Cultural grants could be pursued I suppose or maybe Tax Increment Financing as the Gazette recently secured. Something has to happen though, as recently the Northampton Development Corporation admirably floated the fair a $25,000 loan to help keep it going. Not much else as been revealed publicly about the proposal to this point, however.
Exhibition Halls at the Three County Fair
The economic aspects and market conditions that Devine addresses in his article relates to the success or failures of convention centers when they are viewed as an economic development strategy, regardless of whether that is a private or a public endeavor. To me that is the similarity to the present conversation transpiring in Northampton regarding the Hilton Garden Inn. Arguably, convention center development may not live up to its promises of increased tax revenues and downtown revitalization, which Northampton officials are banking on with respect to the Hilton Garden Inn. Devine calls the convention business, "intense, costly and financially risky." Devine also quotes Stallings regarding a hotel in Kansas, "It didn’t generate the revenues forecast, but that’s always a risk." If the Hilton Garden Inn does not generate the revenues forecast, in turn the city will not generate the occupancy tax revenues forecast, and the local multiplier effect revenues for local businesses will not materialize to the degree hoped for either.
For instance, city officials have claimed that the hotel’s occupancy taxes will benefit the city, but the impact on the occupancy taxes paid by existing hotels has not been projected. Devine attributes that, "Sanders can list case after case of convention-center hotels which were predicted to be profitable but actually turned out to be money losers…" Sanders further adds regarding a financially disastrous convention-center hotel experience in St. Louis a few years ago that, "these hotels perform rather more modestly than predicted, often doing half to two-thirds of the business anticipated." Sanders was further quoted, "the supply of available square footage in convention centers around the country was growing at a much faster rate than demand. In addition (Sanders) research showed that the number of people attending conventions has actually plummeted." Maybe that’s not true here in the Paradise city, but the city has not yet released any projections of potential conference center demand. Moreover, the only thing I’ve heard Mayor Higgins reference are the new hotels that have gone up on the eastern side of the Coolidge Bridge in Hadley. For what it’s worth, I would feel more comfortable had there been a market feasibility study performed before Higgins and the city council committed Northampton to the inn. The Parmars did have a market study conducted, but will not release its findings.
Hilton Garden Inn proposal
Will the Hilton Garden Inn revitalize downtown? Though not referring to the proposed inn, Sanders opines in general that, "It’s a highly competitive market, and (these projects) are the equivalent of rolling a whole lot of dice, each of which has to come up right." The Hilton Garden Inn may indeed prove to be a wise investment, but that will takes years to determine apparently. In my view, while many of the financial risks associated with the Hilton Garden Inn will belong to the Parmar family, the city is a vested partner as well. Therefore the risks the hoteliers enter into could impact city taxpayers over the long term too, for better or worse.
At 100 rooms, the Hilton Garden Inn will have to average 55 rooms rented per day annually in order to match existing occupancy rates in the city. This will happen under two scenarios: the hotel/conference center will generate new business, or it will take business away from existing hotels in Northampton and the surrounding area. It is likely that both could occur. Devine again quotes Sanders, "A center wanting to attract users often has to offer deeply discounted rates, and the prices of hotel rooms must also come at bargain prices." Lower prices for hotel rooms means lower occupancy taxes collected by the city per rented room.
In addition, according to Sanders, "Communities keep throwing taxpayer dollars at attracting the elusive convention business, through adding more downtown attractions…" and what is it we are witnessing in the city currently? The debates over the redesign of Pulaski Park and the reincarnation of the Academy of Music, both of which require taxpayer dollars and are located adjacent to the proposed hotel site. While some argue that these developments are proceeding independently of one another, others disagree with that notion. While I’m not insinuating that complementary planning is undesirable, let’s just call it what it is.
Moreover, if the Hilton Garden Inn were to lose money and close, the city could be left with a hulking vacant building in its downtown. Perhaps the building would be sold for a different and as yet undetermined use. If the owners were to then stop paying on the mortgage and/or taxes on the building, would the city end up the owner after foreclosure? To anyone’s knowledge, has Northampton planned for the demise of the hotel should it fail? Should there be a Plan B?
In fact, Devine points out that convention center industry proponents like Johnson use anecdotal evidence and usually don’t track what happens after projections are made. In the case of the Hilton Garden Inn, the city should be able to assess how closely actual tax revenues generated match up with projections, and should also be able to analyze any impacts to existing hotel tax revenues. This would be after the fact though, and the city has a habit of not doing this publicly unfortunately.
A perfect example is the redevelopment of the Northampton State Hospital. During the ballot initiative of 2003, it was argued by proponents of the redevelopment plan that the NSH proposal would net the city $400,000 in increased tax revenues at full build out. Today there have been 59 units of housing constructed, with dozens more planned or under way. The first commercial building is under construction on the south campus as well. But the city has not made public to Northampton taxpayers the economic impacts thus far, good or bad, so we are left to wonder. Since the planning department has stated publicly that new residential housing tends to cost the city more in services than it generates in tax revenues, should residents assume that the project is to this point losing money?
The city’s economic development coordinator and the appointed Citizens Advisory Committee should be tracking this. They should tell us the amount of taxes the project has brought in thus far and how those revenues compare with the increased costs to city services. Moreover, how many jobs have been created, permanent and/or temporary? That was another stated goal of the project that the city and CAC are hopefully tracking. Or are we to wait until the project is completed in twenty years for a retrospective analysis, as one CAC member recently opined on the Paradise City Forum. Hopefully those entrusted to oversee this multi-million dollar development process are minding the details, but it would be nice to know more about how it’s going financially, and one shouldn’t have to be an investigative blogger to find out. Keeping the public informed on the disposition of what was once a public property would be a good practice indeed. This would go a long way toward proving that local government leaders trust in Northampton citizens in the same way that they want citizens to trust in their government.
