Remarks to be delivered at the January 12, 2010 meeting of the Wichita City Council.
Mr. Mayor, members of the council:
There are several aspects of the proposed hotel in the WaterWalk development that I find troubling.
Perhaps most important to public policy, the city has now recognized that when it provides subsidy to one business, it may harm other businesses. As you may recall, I’ve spoken to the council several times on this topic over the past few years. I’ve been concerned about the effect on privately-owned businesses and the willingness of entrepreneurs to assume risk only to find themselves competing with a subsidized business. The city has shown little concern for this.
But now that a city-owned business — the Hyatt Hotel — may be imperiled, the effects of city subsidy on competition is now a concern. It’s only now that city hall is measuring the harmful effects of its actions.
This is a slap in the face of all businesses in the city that have faced competition from a city-subsidized competitor. In particular, there is a Holiday Inn and Suites just three blocks away from the proposed hotel. Will the city survey to see if this hotel will be harmed by a subsidized competitor?
Then, why are we settling for such a low rate of return on this project? Promoters of public investment in downtown Wichita like the Wichita Downtown Development Corporation are promising returns of up to 15 to one for future projects. The agenda report for this proposed public investment indicates a benefit to cost ratio of 1.77 to one for the City of Wichita.
Are these two indicators measuring the same thing? If so, why are we about to make an investment with a return of less than two to one, when much higher returns are promised after the planning for downtown revitalization is complete?
I’m also concerned about the economic viability of this project. If we want to have robust development that has deep roots, grounded in solid financials and free market capitalism instead of crony capitalism, we need to turn away from highly subsidized ventures like this proposal. Relying so extensively on public subsidy creates development with shallow roots.
An example of this is the problem the city is currently experiencing with the Broadview Hotel. This hotel was scheduled to be renovated by its new owners. The purchase and renovation were to be made possible by large subsidies by the city. Tax credits from the state were to play a large part, too. But last year when the state realized that it couldn’t afford these tax credits, it placed a lid on them, and now the Broadview renovations are on hold.
There are a few specific questions about this project that need answers. We need to see a development budget for this hotel. It appears that the cost will be around $100,000 per room. I’ve been told this cost is high for this type of hotel.
We also need to have more information about how much of their own money the developers are putting into this deal. Also, I think citizens would like to see the details of the ground lease and the parking arrangements.
Although the governor didn’t mention this last night, there’s movement in Topeka to limit or eliminate tax exemptions, including sales tax exemptions such as planned for this hotel. Is the city confident it can secure the planned sales tax exemption?