Convention Center puts hotel development on hold and donates $1 million for coronavirus relief, but fails to satisfy local coalition

By Michael Isaac Stein

Source: The Lens

April 23, 2020

The governing board of the Ernest N. Morial New Orleans Convention Center is pressing pause on behind-the-scenes negotiations with a private development team over a publicly subsidized, $702 million hotel development.

The announcement followed weeks of criticism from public officials and local government watchdog the Bureau of Government Research, who said that the Convention Center should reconsider the wisdom of moving forward on expensive tourism projects during nationwide lockdowns and economic crises triggered by the coronavirus.

At the last full board meeting, Convention Center President and General Manager Michael Sawaya reported that the hotel negotiations were still ongoing, despite those concerns.

The board’s new chairman — State Rep. Walt Leger — had previously announced that they were pushing back key votes on a related, but separate, “entertainment district” development that would surround the new hotel with new restaurants, bars, residential housing and other attractions. But on Wednesday, Leger firmly committed to pressing pause until the board can resume normal, in-person meetings. Currently, meetings are being held virtually.

“We have decided at this time not to take any further action related to the development of that property,” Leger said. “That includes all of the upriver portion, the anchor hotel as well as well as the master developer agreement until a time that is more appropriate and until a time that we can join each other once again in a more appropriate public setting so there can be more complete engagement and discussion over how to proceed.”

He recommitted to taking a “fresh look” at the planned developments, and indicated that the center could be willing to consider options outside of the hotel deal and entertainment district proposals currently on the table.

But it does not appear that the board is planning on giving into demands to reroute tens of millions of dollars it’s holding in reserve for those projects — as well its $557 million, five-year capital plan — into a relief fund for hospitality workers who have lost their jobs as a result of statewide business closures.

The board on Wednesday voted to donate $1 million to foundation grant funds helping hospitality workers who are out-of-work or having their wages slashed due to the coronavirus crisis.

The decision followed weeks of demands from a local coalition of unions and advocacy groups for the center to donate $100 million from its cash reserves to support hospitality workers. And it came just days after a large national union threw its weight behind the coalition and threatened to pull its 2021 convention from New Orleans if the center didn’t negotiate with the group.

‘What would you do with $10 in New Orleans?’
The donation didn’t satisfy the coalition, which has unified under the banner of the Coalition to Create a Fair Fund for Hospitality Workers. The coalition argued that the donation was not only insufficient, it was decided without negotiations and without their direct input.

“Hospitality and tourism workers have been laid off and are struggling to pay for rent, food, healthcare, and basic necessities while we worry about our future,” a Wednesday statement from the group said. “Today’s action by the Convention Center board translates into a donation of less than $10 for each New Orleans hospitality and tourism worker.”

The coalition continues to demand $100 million in relief funding based on the idea of giving $1,000 grants to all out-of-work and struggling hospitality industry workers. The group points to U.S. Bureau of Statistics reports that show there are roughly 100,000 hospitality workers in the New Orleans area. All of them, the coalition argues, are either fully out-of-work, facing serious financial struggles or will soon face financial hardship as the economic fallout of the coronavirus crisis drags on.

On Wednesday, the coalition poked fun at the donation on social media by asking, “What would you do with $10 in New Orleans?”

“Buy 3 happy hour cocktails at Ms. Mae’s,” was one of the answers. “Take your kid to the zoo (on the free zoo day).”

The coalition’s demands have become intertwined with the fate of three large, interconnected developments worth well over $1 billion, including the hotel, entertainment district and a $557 million capital plan to upgrade and repair the current convention center building. The Convention Center has argued it doesn’t have $100 million to spare because it needs to maintain enough cash and bonding capacity to make those developments happen.

The coalition was also disappointed that during Wednesday’s meeting, the board didn’t address the current needs of the Convention Center’s contract workers — people who do work for the Convention Center, but aren’t directly employed by it. Along with the $100 million support funding, the coalition’s other central demand was that the center financially support those contract workers.

One of the leading members of the coalition is Unite Here Local 23, a union that represents Convention Center contractors, such as cooks and banquet servers.

Even before the larger coalition formed in late March, Unite Here demanded compensation for the Convention Center’s contract workers during the economic fallout from the coronavirus crisis. The crisis has stopped tourism and travel dead in its tracks and has already directly led to the cancellation or loss of 48 Convention Center events, according to a presentation on Wednesday.

The Convention Center said it will pay all of its 500 employees until May 16, but has not made any commitment to providing aid to the contractors. For direct employees, Convention Center President Michael Sawaya said that his intention was to pay employees “through the end of the executive order,” referring to Governor John Bel Edwards stay-at-home order, which is in effect until May 1.

The Communications Workers of America, one of the country’s largest labor unions, wrote a letter to Sawaya last week, threatening to relocate its planned convention in New Orleans in August 2021 if the center didn’t negotiate and come to an agreement with the local coalition.

“We’ve taken in the input we’ve received from many organizations,” Sawaya said on Wednesday when asked about the status of that convention. “My response is that we have been responsive and we have been taking these things into account, and we believe we are positioned to continue to be their host and hope they see we’re serving our community the way we’re supposed to.”

The union didn’t respond to a request for comment on Wednesday evening. But in an interview earlier this week, the union’s Secretary-General Sara Steffens said that they would make a final decision not based on how much money the center gives, but based on its willingness to sit down and negotiate with the local coalition.

“What’s important to us is the process of working with Unite Here and other unions and generally supporting the hospitality workers. If our fellow unions made an agreement with them then we’d be happy because then there’s two sides at the table,” she said. “But it doesn’t work unless there’s two sides at the table.”

The $1 million donation approved on Wednesday will go to two funds. The first $500,000 fund will go to United Way of Southeast Louisiana’s Hospitality Cares Pandemic Response Fund. The second $500,00 will go to the Greater New Orleans Foundation for its Louisiana Service & Hospitality Family Assistance Program.

Board member Robert “Tiger” Hammond asked whether the donation was a one-time thing, or whether they should think about some sort of recurring aid.

“As we continue to have meetings and discussions about what the future looks like, I believe it would be appropriate to consider that as well,” Leger said.

‘Taking a fresh look’
Wednesday’s meeting provided vital updates on a trio of interconnected development projects that the center has been working on for years. Worth more than a billion dollars, the developments include a $557 million five-year capital plan to upgrade the current convention center, as well as an ambitious plan to jumpstart 47 acres of vacant land the center owns on the upriver side of the current building.

The upriver development plan has two parts. The first is a “marquee” hotel that would be directly connected to the convention center. The second is an “entertainment district” to surround the hotel that would include residential housing, bars, restaurants and perhaps even more hotels.

The status of those developments is directly related to the coalition’s demand for $100 million. Convention Center officials have argued that while the center might have $100 million on hand, that money is reserved and designated for planned investments — namely the capital plan and upriver developments.

The Convention Center recently received three proposals from private developers for the entertainment district. Those proposals were put up on the Convention Center board’s website this week for public viewing. The next step is for the board to hear presentations from the three groups in a public hearing. That has been pushed back, and Leger indicated that the presentations won’t happen until meetings can be held in person again.

For the hotel development, The Convention Center has already chosen its preferred private development team. The center has been in negotiations with those developers to convert their initial proposal into a legally binding contract. But now, Leger says those behind-the-scenes negotiations have been put on hold as well.

Leger also indicated that he would be open to rethinking the entire development structure. He explicitly noted a recent report from watchdog group The Bureau of Governmental Research that urges the center to reassess the prudence of the developments, given concerns over the proposed financing for the hotel and the uncertainty caused by the coronavirus crisis.

“I’m committed to, in working with you, to take a fresh look at a dynamic multi-use upriver development that could include the significant development already proposed by those who have submitted proposals as well as an anchor hotel,” Leger said. “But again, now is not the time for those discussions.”

The $557 million capital plan, on the other hand, appears to be on track. On Wednesday, the board approved a $5.4 million contract to hire Missouri-based Populous Architects as the executive architect for the Convention Center’s five-year, $557 million capital plan. The board refused to approve the contract twice earlier this year over concerns that the firm was not a small or minority-owned firm and wasn’t including any small or minority-owned subcontractors.

Populous was able to satisfy the board’s concerns by including two small businesses as subcontractors: Nano LLC and Landmark Consulting. Because of that, the total contract amount increased from the originally proposed roughly $4 million for Populous alone, to $5.4 million for all three companies.

The capital plan has the biggest implications for the Convention Center’s available reserves and its capacity to provide money to struggling hospitality workers. The hotel and entertainment district developments will require cash contributions and investments from the center, but they will still be mostly funded with private funds.

The $557 million capital plan, on the other hand, is completely funded by the Convention Center, a public body that receives the majority of its funding from the collection of locally-generated hotel, food and beverage taxes. It’s unclear how much of its large reserves the Convention Center could yield while still maintaining enough cash and bonding capacity to fund the capital plan.

How large are the Convention Center reserves?
One of the biggest disagreements between the local coalition and Convention Center officials is over the question: how much money does the Convention Center actually have to spend?

The coalition has claimed the center has roughly $200 million in reserves. They point to a state Division of Administration report showing the center has $185 million in unrestricted assets. A financial report from the center in September said there it had $215 million in net unrestricted assets and another $63 million in restricted assets mainly for debt service obligations, construction and to satisfy existing agreements.

But in recent months, the reported level of “unrestricted assets” saw a precipitous decline. The center’s most recent financial report from last month said the center had $148 million in “unrestricted assets” and $139 million in “designated or restricted assets.”

It appears that the rapid change in “unrestricted assets” was at least partially the result of a categorical change. Instead of “unrestricted” vs. “restricted” assets, the convention center is now emphasizing the distinction between “unrestricted” and “restricted and designated.”

“Over the years there’s been much discussion about the reserves maintained by this entity,” Leger said at Wednesday’s meeting. “The reality is that the reserves held by this authority are dedicated and reserved for expenditure on items that are either constitutionally or contractually mandated.”

He said that the terms “unrestricted” and “restricted” are accounting terms that don’t necessarily illustrate the reality on the ground. He said that much of their assets are tied to planned future investments, debt service payments and requirements from the state and bond covenants that force the center to have a certain amount of assets on hand. He said the state requires them to have 18 months worth of operating funding at all times, for example.

It’s not entirely clear how much of the Convention Center’s assets are technically unrestricted, but designated by the board for a certain use. Some clarity was provided on this question at Wednesday’s meeting through the presentation of the center’s 2019 audit report.

According to the audit, the center only has $55 million in assets that aren’t restricted or designated, down from $80 million at the end of 2018. The center also has $230 million “designated or restricted assets.”

It appears, however, that there are a large variety of reasons that money could be classified as restricted or designated. Restricted assets include “capital projects, funded by the proceeds of taxes, restricted for building expansion and improvements.” Designated assets, meanwhile, can include money for projects that are “in the planning stages, or in the acquisition phase.”

It appears that there’s at least $97 million worth of designated assets within the $230 million category that encomasses both “designated or restricted assets.” That includes $46 million in cash and another $41 million in investments that are “designated by the board for future specific use.”

The audit illustrates that ultimately, the amount of money the Convention Center has to spare is directly tied to its planned investments and expenditures. The coalition argues the money is best spent now, as workers face an unprecedented economic downturn that could have ramifications for the tourism industry for years to come.

The Convention Center, meanwhile, has argued that the best thing they can do with their assets is continue with planned investments to aid in the city’s economic recovery.

The coalition is now turning to elected city officials to intervene. The Convention Center has an 11-person board. Eight of those positions are appointed by the Governor while three are appointed by the mayor of New Orleans.

Cantrell hasn’t entered the fray on the $100 million demand yet, and it’s been a long time since she’s weighed in on the planned upriver developments. In 2018, she came out strongly against the planned hotel, saying the public subsidies were too high. That was before her “fair share” initiative — an 2019 effort with the goal of diverting more hotel tax revenue to infrastructure investments, particularly at the Sewerage and Water Board.

The Convention Center agreed to give $23 million to the Sewerage and Water Board as part of that deal. In October, Sawaya told The Lens that part of the deal was that the Mayor would support the planned developments.

“She agreed to support the hotel project,” he said. “She committed to it in front of the governor, in front of all of us.”

So far, however, Cantrell has remained quiet on the proposal.

In its Wednesday press release, the coalition points out that the terms of the three current mayoral appointees expire in July. That means the city will soon have to choose the next set up board members.

“Today’s vote is just the beginning. We urge Mayor Latoya Cantrell and the New Orleans city Council to intervene and instruct its three upcoming Convention Center board appointees to ensure struggling hospitality and tourism workers receive our fair share of these cash reserves.”

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