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Council leans toward rejecting both conference center plans

Council leans toward rejecting both conference center plans

March 30th, 2014 in News

Jefferson City's interim finance director, Bill Betts, addresses the mayor and city council members regarding questions about the proposed conference centers at a public hearing on the proposals last week.

Photo by Julie Smith

After months of negotiations and tweaking to two proposals for a conference center, the Jefferson City Council may be ready to toss both out, largely because of the number of special incentives being requested and the potential for a general fund obligation.

Council members have been working for nearly two years on the current incarnation of a proposed conference center. The past few months have been spent in closed sessions with two developers, negotiating details and ironing out what incentives would be needed to make the project work.

The proposal from Jefferson City-based Farmer Holding Co. includes a 61,000-square-foot conference center to be located within the Capital Mall, with a 127-room hotel attached and a total conference center cost of roughly $14 million. The hotel itself would cost just under $14 million.

The proposal from Hannibal-based Ehrhardt Hospitality Group includes a nearly 45,000-square-foot conference center in the 300 block of West McCarty Street, with a 150-room hotel attached. The conference center would cost $13.8 million and the hotel itself would cost $15 million.

The council is expected to vote April 7 on whether to move one proposal forward to a pre-development agreement, where further negotiations could take place in order to ensure all parties are comfortable with the proposal before an actual development agreement is signed.

But several council members have indicated there are problems with both proposals and it may be more likely that the council opts to not move forward with either.

Fifth Ward Councilman Ralph Bray said he has been working with city staff to draft a resolution that will be offered April 7, which he said would reject both proposals. Bray said he believes there is strong support on the council for the resolution and would not be surprised by a unanimous vote to reject the conference center proposals.

Bray said there are several reasons to reject both, the largest being a need to be fiscally responsible with city funds.

"I think that's a big one right there," Bray said. "We went into this with the idea of what can we get with the $9 million from the lodging tax ... and it was only at the last minute, I believe, that we decided to also open the door to incentives. ... As it turns out, the proposals would require a significant amount of incentives, a lot of incentives."

Both proposals would require the 4 percent of the lodging tax dedicated to conference center construction, though the Ehrhardt Hospitality Group has estimated it will bring in closer to $12 million, rather than the $9 million originally estimated.

On top of that, the Ehrhardt proposal includes tax abatement on the hotel for 20 years, a 250-space parking garage built and funded by the city, additional surface parking also provided by the city, a community improvement district (CID) to levy an additional 1 percent sales tax, a transportation development district (TDD) also to levy an additional 1 percent sales tax, and the use of all sales taxes from the new hotel and conference center for the project itself. It would require the city pay the developer $327,000 per year with a 1 percent annual increase for 20 years, regardless of how much the incentives actually raise.

The Farmers' proposal requests modifying an already approved tax increment financing (TIF) district on the Capital Mall to allow 50 percent of all sales tax growth to go to mall improvements, 25 percent for conference center construction costs, and the remaining 25 percent would go to the city. It also requests a 100 percent TIF on the new hotel and conference center, meaning the developer would keep all sales tax growth for the project, and an already approved community improvement district on the Capital Mall, which would levy an additional 1 percent sales tax. The Farmers also request to keep the 3 percent of the lodging tax dedicated to the Jefferson City Convention and Visitors Bureau from the new hotel and an appropriation pledge to support bond financing of the project, which would essentially promise that the city would consider making up any shortfalls with city revenue.

Bray said most, if not all, council members have never been prepared to consider any general fund obligation.

"That's no fault of the developers," Bray said. "We asked them (what it would take), and they told us. And as we got deeper and deeper into the details ... we learned a lot about what it's going to take to eventually have a conference center."

Third Ward Councilman Bob Scrivner said there are real obstacles with both proposals as presented in terms of the incentives requested and the potential for a general fund obligation.

"I think that it's going to be difficult to get a consensus on the part of the council to move one of them forward," Scrivner said. "It's extremely disappointing that we've gotten this close and it might not make it."

Scrivner said there are issues with both proposals and noted one aspect he doesn't like is that the Ehrhardt proposal for taxing districts will require a vote of all affected land and business owners, and his understanding is the developer wants the city to go out and convince them that it's the right move.

While Scrivner said he's comfortable funding the project out of projected growth, he said without assurances the growth will occur, it will be more difficult to convince the council to move forward.

"There's no stomach for guaranteeing anything," Scrivner said. "We've told people that there will not be an operating subsidy."

Third Ward Councilman Ken Hussey said he's leaning toward eliminating both proposals, noting that was a motion he made back in November when the council voted 6-4 to move both forward. He said the number of incentives needed to make the project work may be outside the scope of what the council initially intended.

"Both projects are requiring a public investment far more than the lodging tax," Hussey said. "Both developers have shown us what it really costs to get the size facility that we're seeking. ... Unfortunately, we don't have enough money to build, strictly with the lodging tax funds, a 40,000- to 50,000-square-foot facility."

Fifth Ward Councilman Larry Henry said though he hasn't ruled anything out, he is leaning toward eliminating both proposals and starting the process over. He said the numbers being provided by the developers show too steep a price for the facility the council wants, and he doesn't believe those numbers will get any smaller in further negotiations.

"I prefer not to move either one of them forward," Henry said. "It's not going to get us where we want to go."

Henry said the incentives being requested by both developers are too large and though they may be called incentives for developers, they actually represent more of a public subsidy, something the council is not in favor of, especially considering the potential for a general revenue obligation in the future.

"Let's face it, a lot of that is public subsidy, which is what we said that we didn't want to do," Henry said. "There's no way I would try to move something forward and try to pull the wool over the public's eyes ... Some of those incentives really are (subsidies)."

First Ward Councilman Rick Prather said there may be a vote to move one proposal forward, but it is more likely that there will be a vote to eliminate both.

"The latest proposals had their issues on both the Farmers and the Ehrhardts," Prather said. "Anything can happen in the next two weeks ... I'm very hopeful, but very skeptical."

Prather said if one proposal is moved forward, the goal would be to get concrete details, specifying he would like to see hard numbers on construction costs instead of the estimates the city has now.

Second Ward Councilman Shawn Schulte said even if a developer is selected to move forward, the city still is nowhere close to signing a contract or development agreement to start construction.

First Ward Councilman Jim Branch said he's trying to find a way to make one of the proposals work, but details are still vague on both proposals.

"I don't think both developers will make it to the next phase ... I don't know if any (will make it)," Branch said. "There's still a lot of blanks that need to be filled in as far as ... what we can make work."

But regardless of what happens April 7, Branch noted the council has made it farther in the process to get a conference center than ever before.

"Even if we fail to move anybody else on, we have made it farther than we ever have," Branch said. "We have put a lot of time and effort into this, and if it does end, it's not going to be for lack of trying."

Second Ward Councilman Rick Mihalevich said he hasn't made a decision on whether one proposal will be moved forward or both will be eliminated, but noted he likes the downtown site proposed by Ehrhardt, as long as the financials work. He said a pre-development agreement would allow the city to ensure all the numbers are accurate and no operating subsidy would be needed before officially partnering with a developer.

Fourth Ward Councilman Carlos Graham said he still is going through both proposals to see "what it's going to take to make this a reality." Graham said until the discussion with all council members happens April 7, he's unsure if the consensus will be to eliminate both proposals.

If a proposal is moved forward, Graham noted the city could still walk away as the next phase would be the pre-development phase to iron out details such as who would own the building if the conference center fails. Graham emphasized he is continuing to seek input from his constituents about what they think and how he should vote.

Fourth Ward Councilwoman Carrie Tergin said the council should move one proposal forward to allow for serious negotiations to take place and continue the process the city began. She said making that decision does not mean the city is obligated to build the conference center and break ground with that developer as in a pre-development agreement, the city could still choose to walk away if the numbers don't work.

"That's the key to moving forward," Tergin said. "We have to narrow it down to one. ... We can't really get what we want until we sit down with one (developer)."

Bray said if the resolution does pass April 7, he doesn't believe that should shut the door on the possibility of a conference center in Jefferson City. Though he acknowledged the next effort likely would not be undertaken by the current council, he said the city can build on its experience from this round of discussions and be more prepared for the next proposal.

"I think our patience will be rewarded," Bray said.

See also:

Developer: Decision to toss both proposals would be disappointing

Outside groups play role in the conference center proposals