Convention Center hotel subsidies questioned by watchdog group

By Greg LaRose

Source: NOLA.com | The Times-Picayune

September 14, 2018

The Ernest N. Morial New Orleans Convention Center’s proposal to build a 1,200-room hotel on its property is drawing scrutiny from a good government watchdog group, which questions why the project is so reliant on public support in the form of tax breaks.

On Thursday (Sept. 13), the Bureau of Governmental Research (BGR) sent an open letter to the facility’s leadership that questions the recent analysis from a convention center consultant.

Mayor LaToya Cantrell has also criticized the project, specifically citing the amount of public support the Morial Convention Center’s governing authority intends to request. Its consultant, HVS Convention, Sports and Entertainment Facilities Consulting, puts the amount at $170 million, including a property tax break and refunds on hotel and sales taxes. Calculations from BGR, which has not taken a position on the hotel, puts the amount at $330 million.

Michael Sawaya, convention center president and general manager, said in an interview Thursday that he stands behind HVS’s findings and doesn’t intend to respond to BGR’s questions. In July, the watchdog organization asked convention officials to slow down the approval process for the hotel, saying more time and information were needed to assess financial factors and its potential benefits.

“It’s just obvious they still don’t understand it,” Sawaya said of BRG.

Local developers Daryl Berger and Joe Jaeger have teamed with Matthews Southwest Hospitality and Preston Hollow Capital of Texas to propose the $557 million hotel. Their plans call for the hotel to operate under a nonprofit, which they could transfer to the convention center authority once their debt on the project is paid. State law currently does not allow the convention center to own a hotel, making it the largest such U.S. facility without one, according to Sawaya.

The proposal calls for the convention center to provide a $41 million payment up front and receive a 40-year break on property taxes from the city. In addition, the developers are seeking rebates on hotel occupancy and sales taxes.

BGR chief executive Amy Glovinsky said in her letter to Sawaya that the HVS analysis “substantially” underestimates public contribution to the project. The undervaluing of tax rebates alone accounts for $100 million of the difference between the Convention Center’s subsidy calculation and BGR’s.

The consultant’s accounting also excludes a free land lease with the developers from the Convention Center, worth nearly $29 million, Glovinsky wrote.

Sawaya said the Morial Convention Center currently pays no property taxes on the site where the hotel is planned, on the downriver end of the exhibition halls. He called the consultant’s economic impact projections for the hotel “conservative,” because they don’t take into account the potential additional development on fallow convention center property adjacent to the hotel.

Berger and Jaeger were part of a previous pitch to bring a hotel, residences, businesses and other amenities to the vacant stretch, but negotiations on that previous proposal bogged down with convention center officials.

The BGR letter also points out the vast difference in valuations of the hotel in 40 years. The HVS report value is quadruple what the developers say it will be worth, making the public’s contributions appear smaller, Glovinsky said.

The HVS analysis was intended as a starting point for negotiations, Sawaya said. Action incentives and concessions the convention center eventually agrees to could be drastically different, he added.

“The reason we sought an independent analysis (from HVS) was to determine whether it was worth moving forward with the hotel proposal. Based on what we see, we still think this is in our best interests,” Sawaya said.

One sticking point will be that the hotel ends up under the convention center’s control, Sawaya said, acknowledging that state law would have to be changed in the interim for that to happen.

The convention center’s executive director consistently stood behind the HVS hotel project analysis when asked about Glovinsky’s assertions, including what she called the consultant’s “questionable comparison” to other developments, most of which are half the size of the proposed 1,200-room hotel. Glovinsky said the consultant’s analysis is based on a lone hotel proposal, as the Convention Center received no others to show that the public was being asked for the minimum support needed for the project.

The BGR letter also questioned the consultant’s methodology for determining that the new hotel would attract 50,000 new visitors to New Orleans, and why they would use the hotel’s meeting space rather than the Convention Center next door.

Members of the Convention Center authority were sent copies of Glovinsky’s letter, which includes 10 pages of detailed questions about the HVS analysis.

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