Boon Or Boondoggle?

[September 12th, 2007]

Metro has finally provided the first glimpse of what a publicly financed hotel for the agency’s troubled Oregon Convention Center would look like.

And it ain’t cheap.

Metro’s consultants last week pegged the total cost of the agency’s preferred option—a 600-room, publicly owned hotel—at $244 million. Nearly 90 percent, $215 million, would come from bonds issued by the agency.

That’s a lot of money to throw at a business—conventions—infamous for broken promises of economic development in cities from Pittsburgh to, well, Portland.

Metro officials acknowledge they will be betting the store if they move forward with such a hotel. The bonds would be repaid with hotel revenues and, if those revenues didn’t materialize, from taxpayers.

“Under currently available financial resources, Metro does not have the financial ability to adequately finance the project,” Metro chief financial officer Bill Stringer told a joint meeting last week of the Metro Council and its subsidiary agency, the Metropolitan Exposition Recreation Commission.

Len Bergstein, a representative of hoteliers opposed to a publicly subsidized hotel, called a presentation by Metro’s consultants part of a long-running “shell game.” “These numbers are based on projections developed by consultants who have been consistently wrong across the country,” Bergstein says.

Like everything surrounding the concept of a convention center hotel, how Metro got to the current proposal after about six months requires some explaining.

Earlier this year, the Portland Development Commission abandoned its 17-year quest for a convention center hotel. That decision by the city agency, which specializes in arranging creative financing for public projects, came after the Portland City Council balked at a projected subsidy of up to $90 million for a privately owned hotel.

PDC punted the project to Metro, which owns the convention center. Metro is in a tricky position. Although the agency expanded the convention center in 2003, national conventions have snubbed Portland. The number of attendee-days declined 41 percent last year to a total lower than in 2002, before the capacity expansion.

Nonetheless, Metro says it has confidence in its consultants’ projections that a hotel would lure large national conventions.

“We showed the numbers to people in the local hotel industry, and in most cases, the response was, they seemed reasonable,” says Metro general counsel Dan Cooper.

Why might public ownership be more viable than private? Cooper explains that, because a public owner would not need to earn the 20 to 30 percent profit required by private investors and could borrow money more cheaply, the project would cost less.

Currently, Cooper says, forecasts show an annual operating gap between revenues and expenses of about $1.5 million to $2 million.

Metro is exploring several options to fill that gap. These include dedicating all property taxes generated by the hotel into debt service, increasing MERC’s share of a regionwide hotel tax, and refinancing the current convention center debt.

Any such moves would require the approval of and possible financial assistance from the City of Portland, Multnomah County and perhaps even the state.

As Metro councilors observed last week, the agency would be shouldering a large risk for rewards that would accrue mostly to the private sector and other agencies.

Consultants KPMG estimate a 600-room convention center hotel would generate $54.5 million in local economic benefits and $2.5 million in new taxes annually. But the added revenue for the convention center is projected at only $940,000 a year, or about 5 percent of its annual mortgage payment.

Others are wary of such predictions.

City Commissioner Erik Sten, who, along with Mayor Tom Potter, killed PDC’s involvement, says Metro needs to tread carefully.

“After my experience with faulty projections on PGE Park and the tram, I’d be very reluctant to do a deal like this,” says Sten.

Metro’s next step comes Sept. 27, when councilors will decide whether to spend $600,000 to hammer out hard numbers for design and construction costs, now estimated at $168 million.

It’s unclear whether Metro will ultimately OK the project. Council president David Bragdon says any deal must protect Metro’s finances and provide net economic benefit. “It will be challenging,” Bragdon says.