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Corporate Welfare / Subsidies

Kansas City’s Convention Hotel’s Collapsing Foundation

By Patrick Tuohey on Oct 3, 2016

Despite years of failing to deliver on promises of convention business, Kansas City leaders still want another convention hotel. Badly. But building a convention hotel in downtown Kansas City is apparently a bad business decision, so developers want taxpayers to subsidize the deal until it is a good investment for businesses.

So far that’s not the case. We learned from a recent story in The Kansas City Star that almost as soon as the deal was announced in May 2015, “the development team approached the city after that announcement to ask if it would consider guaranteeing bond debt on $62 million in catering revenues.” The more alarming part of the Star story, however, are the other obstacles to the deal.

·         The land the city wants to contribute to the hotel deal has a lien on it.

·         The private owner of the remaining quarter of the site has not yet reached a deal to sell.

·         The building contractor has not yet provided a construction price for the whole project.

Yet in testimony before the City Council on October 15 of last year, financier Steve Rattner said that the project was “ready to go” (starts at 2:20:28, emphasis added):

[Councilman Quinton Lucas:] Is it fatal to the project that you have a six or seven month delay?

[Steven Rattner:] We are ready to continue—every day we’re spending money to meet our obligations that we have with the city under the contract. We know we can get the financing today. We know what the cost of the project is. So we have the sources and uses. I cannot guarantee you that if we delay this six months that something will happen that will kill the project. Construction costs could go through the roof, and we don’t have that budgeted in so that could kill the project ‘cause you can’t raise enough equity. . . .

This project is ready to go now, right? And we have it under contract now. So can I say without a doubt it is going to kill the project? No. But I cannot guarantee you that the project will happen.

We learn now—a year later—that few of these things are true even now. They certainly weren’t true then. The developers don’t have the financing, they don’t know the cost of the project, they don’t have the land. The project is not ready to go now. City Manager Troy Schulte, who sat in on this hearing, should have known these things. The same is true for developer Mike Burke. Why did they not speak up to correct the record?

No one should be surprised that the convention hotel deal is viewed with such skepticism. Past promises failed to materialize, and testimony such as that quoted above only serves to further erode public trust.

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About the author

Patrick Tuohey

Senior Fellow of Municipal Policy

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