Public Sector Involvement is Appropriate for the Downtown Project

Original Published March 8, 2016
Frederick News-Post

Peter H. Plamondon, Jr
Plamondon Hospitality Partners, LLC.

We have been following the City’s efforts to realize the multi-year vision for Frederick’s dynamic Downtown to build a ‘legacy project’, the Downtown Hotel and Conference Center. This is a unique and challenging opportunity, one that’s dear to my family’s heart and our company’s soul. Over 35 years ago, my dad opened his first restaurant in the county. We’ve been blessed, our locations have grown with the brand’s popularity, and we expanded our hospitality culture into hotels, which have thrived. This doesn’t happen without many loyal customers and dedicated full and part-time associates, now over 1,000 strong with 450 employees residing locally. 

It goes without saying that public/private partnerships are sometime difficult to get one’s arms around, so I am writing to share our perspective. We believe that it is unfortunate that some of the public comments have not been based in fact, especially regarding the need for public funding to support site development, public parking and the conference center portion of the partnership.

The need for a Conference Center has been discussed for many years, and we were delighted to compete and be chosen from the high quality proposals that the City received.

The RFP that was put forward by the City called for the project to incorporate approximately 200 guest rooms and 15,000 – 20,000 square feet of Conference Center meeting space in downtown Frederick.

• It is clear that the Conference Center will be a capstone project for the Carroll Creek Park.
• It is also established that communities across the Country have recognized the value of investing in a public conference center to stimulate economic activity, to support the local business community and to provide a wonderful facility for weddings, social events, and other local needs.
• Fundamentally, we also need to acknowledge 2 important facts.
  • The conference center portion of the project is a public amenity. It will be available and will be continued as a pubic conference center as required by a legal agreement called for in the Memorandum of Understanding signed with the City in the Fall.
  • Importantly, in cities all across the United States these job creating and community serving facilities are being built with public/private partnerships. Our neighbor Montgomery County, for example, crafted a highly successful similar project.

This project has been intentionally scaled to maximize economic impact by encouraging out-of-town visitation fueled by groups, meetings and small to mid-sized conferences not attracted or accommodated in the market today. The size and scope of the Downtown Hotel and Conference Center has been researched and recommended by industry experts.

The location along the Carroll Creek Park is best suited for a successful project that will attract conferences that will make Frederick a unique destination for its appeal to maximize use and attendance by conferees.   Its location, scale and the fact that its design and materials must architecturally conform to its surroundings adds to the investment that would otherwise not be needed to build a similar project in a suburban location. It will also be a catalyst to the continued investment in the new East Street corridor.

Remember that the City insisted there cannot be any risk to the public sector. Rental and catering fees will be charged and the private investors are obligated to cover all expenses, maintenance and future capital repairs and replacement for the entire project. The underlying risk/financial structure is a significant element but too often downplayed. It is the polar opposite structure of many similar sized downtown projects, where the public sector often pays up to 50% of total project costs and must take 100% risk for operations and future needs.

Further, other projects like this invariably benefit from tax abatements and associated bonds that are not backed by private investment. That is not the case here. After a brief start-up period, our hotel will pay over $700,000 in real estate taxes. Additionally, independent studies have confirmed that MSA bonds will be paid back by the new revenues the State of MD will receive with no additional expense.

So why does the public sector fund these projects? The answer lies in the most significant benefit – the $26 million annually in economic impact that comes from job creation and visitor spending that accrues to our community as a whole. This project’s compelling underpinning – the historic, upmarket setting, a ‘destination’ lodging experience, the walkability factor, ability to host high profile events – fuels significant impact on an entire city center and makes this a completely different project than any suburban proposal.

That is the real return on investment and why our public-private partnership was created and makes so much sense.

The more suitable question is not whether the public sector should be involved, but whether the level of investment that has occurred is appropriate.

The private sector is funding over $40 million for the project. It is likely my brother and I will have to personally guarantee the performance of the financing. Quite frankly, these dollars could easily build multiple limited service hotels with far less risk and public fanfare. But we chose to enthusiastically respond to a community need. We’ve done so with vigor and are honored to be part of such a highly collaborative public-private partnership. We truly believe in this project and appreciate each and every stakeholder effort. This partnership will prevail on the facts, and the result will be positively transformative for county residents, local businesses and visitors to the region.  

Sincerely,
Peter H. Plamondon, Jr
Plamondon Hospitality Partners, LLC.

Hotel may be ‘the best economic development opportunity that our community has entered in decades’

DELEGATE KAREN YOUNG

Hotel may be ‘the best economic development
opportunity that our community has entered in decades’

I am writing in response to Sen. Michael Hough’s letter, “Arguments against hotel.”  I believe that the minority opinion of our state delegation needs to be heard as well, particularly since we represent the downtown area.  Although the majority of the Frederick County delegation voted against this bill, as of Wednesday we’ve received 62 letters of support for this project and 10 letters against it.  Included in the statements of support are the Chamber of Commerce, several major employers and numerous downtown businesses.

The senator’s first point is that he wants to cap the hotel tax at 3 percent even though enabling state legislation in 2004 gave the county authority to impose a tax of up to 5 percent.  This defies the goal of moving toward a charter form of government that gives local elected officials more of a voice in the decision-making process.

Every Maryland county and Baltimore City levies a tax on hotel room rentals.  Only Frederick and Cecil are at 3 percent.  The others range from 4 to 9.5 percent.  A 2 percent increase in the hotel tax would equate to between $2 and $4 per room.  For the most part, visiting tourist would absorb this.

The Tourism Council of Frederick County receives 97.4 percent of the current hotel taxes (projected at $1.7 million for fiscal 2016).  These funds are allocated to the Visitors Center, marketing efforts, nonprofits (e.g., the Weinberg Center for the Arts, National Museum of Civil War Medicine, Delaplaine Visual Arts Education Center, Historical Society of Frederick County, etc.), and other endeavors that promote tourism.  These funds benefit all hotels in the county.  A conference center would certainly generate incremental room rentals as well.  Not all conference attendees chose to stay at the flagship hotel.

Hough objects to raising this tax “to fund the construction of a competitor hotel.”  However, if one fact has been emphasized repeatedly, it is that public funds will not be allocated to the hotel. The hotel cost estimate of $40.7 million will be financed 100 percent by the developer.  Public funds are being sought to support public facilities such as the conference center, roads, streetscape and utilities.  This should meet the senator’s criteria of “general public items.”

The downtown conference center is unlikely to compete with conference centers in less urban settings.  Professional associations and millennials want to attend conference in unique tourist destinations that feature dozens of gourmet restaurants and boutique shopping within a short walking distance.  Public-private partnerships are the economic model for downtown conference projects throughout the country.  In fact, it is difficult to identify any urban hotel/conference center projects that are totally financed by the private sector.

The Maryland Stadium Authority has already invested in projects where other private ventures exist such as the Bethesda North Marriott Hotel and Conference Center, the Ocean City Convention Center, and the Baltimore Convention Center.  This is not the first example of a state-funded entity competing, on a limited basis, with a nearby private-sector venue.  No evidence exists that state investments in unique partnerships have resulted in private failures.

Hough claims that there are still “many unanswered questions about the costs of this project and the environmental problems of the site.”  The delegation has had about a dozen presentations on the project in the past two years.  In fact, on Feb. 4, 2014, we were handed a color-coded spreadsheet (revised version 3.3) that detailed all of the costs and revenue streams.

At least three needs-assessment studies have been completed on the project.  I am sure that the private developer of the hotel has conducted one also.  Not only is this a very financially viable project but it also may be the best economic development opportunity that our community has entertained in decades.

According to the contract purchaser of the property, the current property owner conducted both Phase I and II Environmental Studies in 2007-’08.  The various levels of site plan approval will require additional environmental assessments before proceeding.

Hough concludes by stating, “I voted against the state giving over $19 million to the proposed downtown hotel and conference center.”  I am fairly certain that the senator understands that the MSA bond leverage figure is a statement of capacity, not the actual funding request.  Moreover, the MSA does not intend to give the project anything.  Tax increment financing is a nationally accepted financing instrument that permits jurisdictions to promote economic development.  TIFs allocate property tax revenue from increases in assessed values within a designated TIF district to public infrastructure within the same district.  In other words, it is a loan, or advance, against future tax obligations that are generated by the project.

It is important to note that taxpayers will not have an increases tax burden as a result of this project.  Nor will taxpayer dollars pay for this project. Moreover, the significant increase in the commercial tax base resulting from this project will make a substantial impact in supporting local services.

Hough is correct about the delegation vote of 4-3-1 against the project.  I proudly stand with my two other colleagues representing District 3A, where the project will be built.  We appreciate that this exceptional economic development opportunity could represent an additional $26 million in annual local spending, 280 new jobs, $1.5 million in incremental annual tax revenues, and minimal risk.

DELEGATE KAREN LEWIS YOUNG
writes from Annapolis. A Democrat, Young represents District 3A.

This letter to the editor originally appeared in the Sunday, February 28, 2016 edition of The Frederick News-Post.

Downtown hotel rewards far outweigh risks

Downtown hotel rewards far outweigh risks

Frederick stands today at a literal and figurative crossroad.  Ours is a beautiful city, one that has slowly and carefully risen from a devastated flood zone to the gem that has emerged.  The business, retail, restaurant, and cultural offerings that increasingly draw visitors to our community are successful in great part because of the vision to expand upon the historical beauty of downtown. 

Many of us — who have planted the flowers, swept the streets, created walking tours, started all kinds of businesses in historic buildings and donated money to purchase the twinkling holiday lights and special events — are proud of our hard work to make Frederick shine.  We have also recognized for many years that economic development and an expansion of our business tax base is hamstrung by the lack of a key infrastructure enhancement.  We believe the Downtown Hotel and Conference Center is an opportunity for Downtown to evolve in a positive way, and continue the path that we have personally worked so hard to pave over the past two decades.

Why do we support this project?  It’s very simple.  A Downtown Hotel and Conference Center means jobs, tourism, and filling a huge void in our infrastructure – a void that challenges our ability to attract and retain businesses in Frederick.  Our opportunity to compete with other municipalities, counties, and states depends upon this project.  The proposed facility will attract business meetings and conferences and allow us to introduce our organizations to new faces. 

We believe this is a valuable long-term project, and if we want to capitalize on the conference market the local business data points to, public financing is the only way to achieve it.  We recommend using the expertise and the funding available through the Maryland Stadium Authority due to their track record and excellent reputation of completing successful projects. 

In addition to demand for this project from our business community, residents and tourists, the MSA’s experts have determined the Downtown Hotel and Conference Center, as proposed, is a good return on investment for the State. 

In their 30 years, the MSA has completed similar projects in partnership with local governments, universities and the private sector throughout the state, and they are more than their name implies.  MSA projects promote historic preservation, adaptive reuse, community redevelopment, cultural arts and civic pride and its mandate includes creating public-private partnerships for financing facilities like the Downtown Frederick Hotel and Conference Center.

Prudent communities tap into the MSA resource whenever possible.  Our request for public support is not a blank check, but for the State to authorize the Maryland Stadium Authority to finance this project, at the level they have pre-approved.

It is important to note the MSA investment is not a loan.  The funds are invested in the project based on the estimated State tax revenue which will be received directly from the project.  As is standard protocol, neither Frederick City/County nor the developer is responsible for paying back the MSA for this investment.

We have the good fortune of learning from several unsuccessful public-private partnerships from the past, which have experienced revenue shortfalls that have become the responsibility of the local government, and ultimately the taxpayers.  Unlike our project, those projects were unfortunately owned and/or operated by government agencies.  We have diligently worked for more than a year to structure an agreement (MOU) and develop a funding plan that will not leave taxpayers on the hook, as the risk falls on the private developer – one who has decades of knowledge in the hotel sector and a stellar reputation in our community.

We believe the rewards far outweigh the minimal risk to the taxpayer.  Similarly to the Carroll Creek Linear Park project, which was met with criticism but has since paid enormous dividends to the community, the Downtown Hotel and Conference Center will allow us to continue to build a successful and thriving community.

Elizabeth Cromwell, President and CEO of the Frederick County Chamber of Commerce, John Fieseler, executive director of the Tourism Council of Frederick County and Kara Norman, executive director of Downtown Frederick Partnership wrote this on behalf of the Downtown Hotel Advisory Committee. This letter to the editor originally appeared in the Sunday, February 28, 2016 edition of The Frederick News-Post.