Waterwalk hotel deal breaks new ground for Wichita subsidies

On Tuesday, the Wichita City Council will consider an agreement with a hotel developer that, besides awarding the usual subsidies to politically-favored developers, breaks new ground in the use of subsidy. Additionally, the deal contradicts recent promises made by a top city official.

The proposed hotel, a Marriott Fairfield Inn and Suites Hotel, would be located immediately south of the WaterWalk Place condominium building, at the northwest corner of Dewey and Main Streets.

Site of proposed hotel at Dewey and Main Streets, Wichita 2010-01-10 02
Site of proposed hotel at Dewey and Main Streets. View is looking northeast. WaterWalk Place is the large building at the left. The Intust Bank Arena can be seen in the distance.

Information from the city’s Office of Urban Development indicates these subsidies are proposed for the hotel developers:

  • The city will provide a cash contribution of up to $2.5 million to help pay for building the hotel.

  • The city will create a Community Improvement District to benefit the hotel. Community Improvement Districts, which are a creation of the Kansas Legislature last year, allow a district to charge up to an additional two percent in sales tax. The proceeds from the tax are used for the exclusive benefit of the developers.
  • The project will use Industrial Revenue Bonds. The usual benefit of these bonds is the accompanying property tax exemption. But since the location of the proposed hotel is within a TIF district, this benefit doesn’t apply. Instead, in this case the benefit of the IRBs is that the hotel will escape paying an estimated $328,945 in sales tax.
  • The city will lease the land under the hotel for $1.00 per year, for a term of 99 years. There is a provision that if the hotel performs very well financially, the city will be entitled to additional rent.
  • The hotel will be able to use the WaterWalk Place parking garage for its clients. There is a provision to install a gate so that some parking spaces will be available only to hotel guests and condominium owners. The value of this parking to the hotel developers is huge.

There is a contingency. The city will conduct a study to determine the impact of the proposed hotel on the financial performance of the city-owned Hyatt Regency Hotel that is located nearby. If the study shows a negative impact on the Hyatt, the city “may rescind the Letter of Intent and halt development of the hotel.”

Analysis

This proposal is perhaps the most egregious example of corporate welfare to be proposed to the city council, and one that should be rejected. There are many areas of concern.

Holiday Inn and Suites, Wichita 2010-01-10 07The Holiday Inn and Suites near the proposed hotel. Will the city conduct a survey to see if this hotel will be harmed?

Perhaps most important to public policy, the city has now recognized that when it provides subsidy to one business, it may harm other businesses. This is something on which I’ve written extensively, and I’ve spoken to the council several times on this topic. I’ve been concerned about the effect on privately-owned businesses. The city has shown little concern for this.

But now that a city-owned business — the Hyatt Hotel — may be imperiled, all of the sudden the effects of city subsidy on competition is a concern. 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?

There’s also the credibility of the people involved in this deal. The new owner of the WaterWalk development, Jack DeBoer, was quoted in a Wichita Business Journal article in November saying “I don’t want any more money from the city.”

In the same month the Wichita Eagle quoted him saying “I’m not going down to City Hall with my hand out. I can’t. The city has put their money in it, and I’m happy with that. We’ve put a lot of our own money in and that’s OK. Now, time to deliver.”

DeBoer isn’t going to own the proposed hotel. But it’s part of the WaterWalk development that he owns.

More troubling is the turnaround by Wichita City Manager Robert Layton.

In October the Wichita Eagle reported: “Layton was clear earlier this week: No more city money is available for WaterWalk.” Other Eagle articles quoted Layton stating “We don’t have any other resources to put in.”

Now the city is proposing huge and unprecedented subsidies for this hotel.

The cost of this hotel needs to be questioned, too. The projected cost divided by the number of rooms comes out to around $100,000 per room. I’ve been told that this is very expensive for a hotel of this type. While not a cut-rate budget hotel, this Fairfield Inn won’t have a restaurant. In my experience, they don’t have bars or comfortable lobbies.

If we want to have robust development that has deep roots, grounded in solid finances and the discipline of free markets instead of crony capitalism, we need to turn away from highly subsidized ventures like this proposed hotel. Relying so extensively on public subsidy results in development with shallow roots. As an example, the city is currently facing a huge problem with the Broadview Hotel. This hotel was scheduled to be renovated by its new owners, the purchase and renovation 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 to be so lavish with tax credits and placed a cap on them, the Broadview renovations were put on hold.

There are many questions about this project that need answers, and I’ve submitted a few to the city. From a public policy standpoint, the problem is that citizens have a very short time in which to ask questions and receive answers. The document that details the proposal appears to have been created at around 5:00 pm on Thursday January 7. The city council meeting is on the next Tuesday morning. There just isn’t time for citizens and journalists to submit questions and get answers. Performing any independent investigation in such a short time is nearly impossible.

The developers who are in line to receive millions in subsidy, however, have been working with the city on this matter for much longer. There’s a reason why this work is done in secret: Citizens ought to be outraged at this deal. Better to give them little time to object.

Letter of Intent Relating to Development of WaterWalk Hotel 2010-01-12


22 thoughts on “Waterwalk hotel deal breaks new ground for Wichita subsidies”

  1. I have only one word to the City: NO!

    We have so many “city funded” operations going on now, and I don’t think any but the Zoo pay for themselves. I can’t believe our “leaders” would even contemplate this massive boondoggle in this time of recession and job loss.

    I resent that the city give my money to sponsor certain companies, basically the city is picking winners and losers. The private business can’t compete with all these free loans and subsidies. I say the city needs to get out of this loan business, and special interest giveaways altogether.

    I have a message to the City: People are really angry about this. It is time to realize we have woken up, and we are sick to death of this squandering of our money.

    Next thing we know they will tell us “we have no money so we have to cut the police and fireman and teachers…”

    Blah blah blah….

  2. If it were not for people like you, Bob Weeks, the public would never know (certainly not from the Wichita Eagle!) the facts on how they are being robbed of their taxes and how their businesses are being killed by unfair competition supported by croney capitalism, and more importantly OUR OWN TAX DOLLARS. THANK YOU
    Lynn

  3. This is absolutely outrageous….that the City Council would even consider such a proposal. It certainly puts other developers at a tremendous disadvantage. Many of Wichita’s respected developers no longer develop in Wichita because of the costs…costs they absorb as a result of the “deals” made behind closed doors by a council hell bent on spending other people’s money.
    Obviously, Marriott is not willing to build unless all these subsidies are in place as the ROI risk is too great……..that should be the first red flag.
    Is the Hyatt at capacity? What’s the ROI there?
    This Council should be flogged for their lack of fiscal responsibility and sound business judgment. All we have running this city are a bunch of rah rah cheerleaders with skirts too easily raised!

  4. How have you concluded there’s a $2.5 million cash contribution to this project? That amount will be paid through transient guest tax revenue. So a portion of the funds that the hotel generates will be used to repay the bonds over 20 years. How is that a cash contribution?

  5. My goodness these are all the same points I have brought up over and over. Why didn’t they do a benefit analysis on the impact of OLD TOWN on local restaurants and bars. This is a triple “bail out” this will create sales tax revenue to pay for star bonds, property taxes to save the TIF district, and may even save the City from the embarrassment of the Water Walk failure. Like Bob says this definitely breaks new ground. There are so many subsidies and tax abatements in this deal they can’t even use them all,(IRB prop tax abatements) because they run over each other.

  6. I would very much like to see the City build another ‘Hyatt’ or other right by the new Arena, same deal etc for the City, having enjoyed a great meal downtown @ Bel Ami on Saturday evening prior to attending the Paisley concert that was now drawing to a close my mind was set at, ‘would it not be just great to walk out of the Arena and straight into a Hyatt, Hilton, Intercontinental Flag Ship Hotel’, a few drinks in the Bar then head up to a luxury room, hmm, I woke up and entered the frigid evening and walked to my FREE parking spot 2 blocks away @ the Bel Ami.
    Come on Wichita, lets get into overdrive on progressive.

    I know Im right as you can do the same in every other big city in America… why not here?

  7. Why would any Wichita business use their own money to expand when they can make the Wichita Taxpayers pay for them to do it? Why would any new business pay property taxes in Sedgwick County when they can make someone give them a TIF district? It’s because we keep re-electing the same group of enablers to run the city and county…

  8. I watched the discussion by the city council and thought that they asked good questions. The proposal is complex but the biggest questions are, who is taking on the risk? and is it an acceptable amount of risk? The city is already in a significant position of risk and if Water Walk never develops, we all lose. This hotel project will go a along way in helping to retire the bond debt for infrastructure costs that have already been occurred. It will also help jump start further development in the area. The developer has to pay a significant amount of property taxes and is personally at risk. Is it ideal? Perhaps not, but given the circumstances, the economic climate, the need for more rooms, and the risk to the taxpayers, this proposal makes sense and my hope is that the council shows the fortitude to approve the project.

  9. Why do people always assume that growth of a city, more hotels, more anything is progress?

    Is it so that the salaries of City employees increases?

    I bought a home in Wichita 1984 and the taxes were $272 per year. They are now $1400 per year. I can’t afford much more progress.

    Do I need to sell my home and move out of the City?

  10. “Why do people always assume that growth of a city, more hotels, more anything is progress?” Basic economics for starters.

  11. OMD January 12, 2010 at 5:18 pm

    Mike – Whats your alternative…
    Hi
    Businesses can fork over their own money to start up

  12. OMD January 12, 2010 at 5:18 pm

    Mike – Whats your alternative…
    Hi, I missed a button and submitted too early.

    1. Businesses can fork over their own money to start up.
    2. The city can drop tax rates for ALL businesses.
    3. The city can work to get rid of roadblocks to businesses.

    TIF districts discriminate against current businesses and are not at all helpful to the county AS A WHOLE.

    One other thing that needs to change is the emphasis on downtown. It seems that every city council member elected since I remember has been a huge fan of anything downtown. Most of the Wichita Residents don’t live there or even go their regularly. The city council is wasting our tax dollars to improve the view from THEIR offices and ignoring the rest of us.

    Mike

  13. Looks like today the council approved the subsidy for the hotel;this makes me so angry!!!Building a hotel with hundreds of thousands of taxpayer subsidies seems to show how much scorn they have for ordinary people;they think we are stupid enough to believe that most of the subsidies will be paid for by out of town visitors!!!!

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