THE BIG FIX

A desperate St. Louis pays top dollar to gamble on a risky convention-center hotel

It was not always this way. St. Louis voters approved the city's first convention center in 1923. When it finally opened in 1934, it bore the name of its most avid backer, Mayor Henry Kiel. General- obligation bond issues require a two-thirds majority at the ballot box. To increase the chances of voter approval, downtown projects were often packaged with other bond issues supporting neighborhood improvements. By the 1960s, however, attempts to expand Kiel Auditorium had been defeated repeatedly at the polls. So St. Louis, like other cities, turned to another method of financing -- the issuance of revenue bonds -- which allows them to raise capital to pursue projects without electoral consent. Under this mechanism, after completion of a project -- be it a stadium, convention center or hotel -- a city, ideally, pays back the principal and interest to investors with some form of newly generated tax revenue. Earnings on municipal bonds are lower, but investors are often attracted to the market because of its tax-exempt status.

The other reason cities sell revenue bonds is that they can't secure private financing because the projects are deemed financially unsound investments by commercial lenders. Bankrolling the construction of a 1,000-room hotel in the flagging core of a Midwestern city is by definition a risky business -- making taxpayers lenders of last resort.

Kabacoff says he's confident the city will deliver on its pledge. "We'll reshuffle, things will change, but basically the fundamental pieces are there and are to be relied upon," he says. "We're spending a lot of money betting on being able to do this project. I was willing to make that bet because I felt this community had committed to do this project. When the public puts money into a deal, they ought to be able to envision that the deal will have more of an impact than just the project, because the city doesn't need to be in the real-estate business. So they have to make a bet that if this thing happens then other things happen. That's the only way you can justify, in my belief, (putting) public dollars into a project.

"This community had lost its confidence about its downtown," says Kabacoff. "That happens in cities many times. That's why local developers really come to the conclusion that they're not going to pioneer downtown. Our goal is to restore these cities by historic renovation."

In a promotional video produced for HRI, Harmon makes the same pitch in a sound bite culled from a local TV-news broadcast. With the cameras rolling, the mayor says: "Sometimes people from outside our city see it better than ourselves."

Harmon's and Kabacoff's opinions, however, are not universally shared. Ald. Freeman Bosley Sr. (D-3rd) and Ald. Sharon Tyus (D-20th) -- both frequent Harmon-administration critics -- voted against the HRI deal in June. Both continue to voice concerns about the financing. "I just think it's a real fiasco," Bosley says. "I think it's an affront to every taxpayer. I don't see any dollars going into our neighborhoods at all. And it's all to benefit Marriott. (They're) talking about putting a convention-center hotel here, and the people who are going to end up paying for the damn thing will never spend a night in it. That's a problem for me."

"Let's just watch and see where the money goes," says Tyus. "First of all, I was against how much (HUD) block-grant money was involved with it." Tyus suspects that St. Louis may encounter difficulties by borrowing money from its future HUD block grants, because the federal formula for allocating such funds is based on population, and the city's numbers are continuing to decrease.

During her nine-year tenure on the Board of Aldermen, Tyus says, she has witnessed how the repayment of federal loans has forced other budget-cutting measures. "What I remember is that it significantly reduced the amount of money that we had to work with," says Tyus. "When you make a loan from one pot to another (and) you start paying it back -- something has got to go."

Tyus complains that Slay routed the hotel bill away from her Convention and Tourism Committee to prevent her and Bosley from holding hearings on it. "Francis (Slay) didn't send it there on purpose, and that's not right."

Slay counters that the bill was sent appropriately to the Housing, Urban Development and Zoning Committee, on which half the members of the Board of Aldermen sit. "I make the decision on that. If somebody thought that I assigned that bill to the wrong committee, they could have certainly brought it up and challenged my decision, and that was never done by anybody, including her." Slay dispels Tyus' other concerns by labeling her an obstructionist. "She usually votes against everything," says Slay. "But that's all right. That's up to her."

Critics outside the immediate political arena may not be so easily dismissed, however.

"It seems that there is not much private market interest in doing this project," says Heywood T. Sanders, an urban-policy expert at Trinity University in San Antonio. "What should that tell us? That this is a project that carries with it some very clear risks."

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