Champaign council to consider rebate for proposed hotel

CHAMPAIGN — Developers would be one step closer to breaking ground on a nine-story hotel at the former site of the Metropolitan Building in downtown Champaign if the city council signs off on a tax rebate deal this week.

Earlier this year, council members unanimously supported a proposal that would give up to $3 million in reimbursements to the business for the food and beverage tax, property tax and hotel-motel tax dollars it generates during its first seven years in operation. Council members could cast their formal approval when they meet at 7 p.m. on Tuesday in the Champaign City Building, 102 N. Neil St.

Hans Grotelueschen, the property owner, expects to begin construction in June and estimates the hotel's completion would be in July 2013, according to city documents. The nine-story, 145-room hotel would fill the hole left behind at Church and Neil streets in downtown Champaign when the Metropolitan Building was destroyed by fire in 2008.

Designs calls for the structure to be occupied by a small bar and cafe for guests and retail space on the first floor, with meeting space, an indoor pool and fitness room in the basement. A parking garage would comprise the next three floors — about one parking space per guest room — and 145 hotel rooms would be located on the fifth through ninth floors.

The tax rebate deal was tailored to reduce risk to city funds by requiring no up-front investment in the project, according to documents. Hypothetically, if the hotel never opens its doors or is otherwise unsuccessful, the city wouldn't be on the hook for any money.

Officials estimate that a successful hotel could generate $300,000 annually in new revenue for city coffers after the 7-year tax deal ends.

According to city documents, the developer is finalizing discussions with a "high quality hotel" and will announce a name brand on or before Tuesday's city council meeting.

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sameeker wrote on April 30, 2012 at 9:04 am

Joe the plumber said "that sounds like CORPORATE socialism to me". End corporate welfare now. I don't see them offereing me any money to live here.

sacrophyte wrote on April 30, 2012 at 9:04 am

So we give these businesses a 7-year $3million deal that will eventually just start to pay for itself in 2029 (7 years + $3million/$300k/year + 2012)? Right.

 

What watchdog group is going to hold businesses, city planners and council members accountable to this? What are the ramifications if the businesses do not actually generate $300,000/year (starting in 7 years no less!!)? Do people get fired? Do they get sued? How does the public recapture this money if promises are not kept?

 

It seems to me that the real winners in this honey deal are the developers and business owners. With my tax money. Great. Thanks so much.

 

Now show me where I am wrong.

ddf1972 wrote on April 30, 2012 at 9:04 am

The property is generating nothing sitting vacant.  While not thrilled with subsidies, I see this hotel as being successful if well run and positioned:


Close to Amtrak, and part of a thriving downtown area. Guests will likely eat and shop in downtown Champaign, supporting local business instead of the chains out on Prospect. Hotel could utilize, via skybridge, the underused multi-story parking deck.


This is the missing link to downtown Champaign being a 24/7 environment.  I see more pros than cons.

adams wrote on April 30, 2012 at 12:04 pm

"I see more pros than cons." -- ddf1972

Great, then you pay for it. Don't ask me to.

Business investment ought to occur in a free market: people that believe in a project invest in it; people who don't, don't. The market then rewards those who guessed correctly. If you're right, you get rich. If I'm right, I get rich.

Let's make a deal. I won't ask the City to pay for my new car. Don't ask me to pay for Hans G's new hotel.

Chambanian wrote on April 30, 2012 at 1:04 pm

You aren't paying for it, you're accepting less money than you theorectically might get otherwise.

I don't see why you're opposed to a company paying less tax. That's closer to the free market ideal you claim to advocate.

Lostinspace wrote on April 30, 2012 at 1:04 pm

A "thriving downtown area"? You're kidding, right?

ddf1972 wrote on April 30, 2012 at 11:04 pm

Guess you didn't see downtown before about the year 2000, esp. in the 80s, when most buildings were empty or underutilized.  Now there's nary a vacancy.  Of course, our downtown is a fraction of what it used to be size-wise, but check out the downtowns of places like Decatur!

Lostinspace wrote on May 01, 2012 at 10:05 am

I saw it in the 60s and happily spent time and money there.

Now I find no reason to go there, and I avoid the bland and depressing big box area as much as I can.  The city government wants me to go to the web for shopping, and I am happy to oblige.  We need a government with some imagination and energy instead of what appears to be a model of complacency.

parkmymeterelsewhere wrote on May 01, 2012 at 9:05 am

The missing link:  a city official with the visual sensitivity to realize the destructive repetition of another hotel; another parking garage; another bakery; another bar; another business somewhere that will close due to the excessive repetition of one or two types of businesses instead of creativ diversity.

ultragreen wrote on May 04, 2012 at 8:05 pm

The vacant property isn't generating money to the city, however it isn't consuming city services either (police, fire, road maintenance, etc.). The proposed hotel, however, will be consuming city services that cost money, therefore other taxpayers will have to pay for those services.

One estimate of the cost of these city services is the tax revenue that the hotel would generate ($300,000/yr.) had it not been waived by the city council. Spread across 7 years, the total amount of these estimated costs is $2,100,000 (because city tax revenue must remain at parity with the cost of city services). Therefore, other taxpayers will subsidize this hotel at an estimated cost of $2,100,000.

Some city council members (e.g., Tom Bruno) stated that the city isn't actually giving the hotel project any money, just a waiver of taxes, therefore the city has nothing to lose from this project. This assertion, however, is untrue because it implicitly assumes that the hotel will consume the same level of city services as a vacant lot!

MSJ66 wrote on April 30, 2012 at 12:04 pm

This city council has to go. When this doesn't pan out with the rosy scenario they paint (think the parking deck) they will want to do what they continue to do to the residents now. More taxes and fees to pay for their poor planning and management of city affairs and fiscal matters. Every one of them who was in favor of the gas tax, the drainage fee(I'm paying for 2 neighborhoods that flood even though I've never had a flooding issue in my area) and now more give aways to developers for this mess, needs to get booted from the council when their term is up.

scott_tapley wrote on April 30, 2012 at 12:04 pm

About 5 minutes playing around with a spreadsheet reveals that the project's internal rate of return to the City is below the 1.9% currently available on 10-year Treasuries until 2030 (assumptions: a $1 million outright gift in addition to the $300k of annual tax rebates, in order to get to the $3 million value of the total package, and a 2% annual growth rate on the initial $300k benefit to city 7 years hence).


Alternatively, at a 5% discount rate the City's $3 million isn't recouped on a present-value basis until almost 2040.


Great project idea for downtown; bad investment for taxpayers.

bluegrass wrote on April 30, 2012 at 1:04 pm

I'm confused, in your assumption the first issue is a $1 million gift.  How do you come to that assumption?

 

scott_tapley wrote on May 01, 2012 at 11:05 am

If the City rebates for seven years taxes that are expected to flow in at a rate of $300,000 annually after those seven years elapse (assuming the hotel's revene stream is constant) that would amount to a rebate of about $2.1 million (7 x $300,000).  If the hotel's revenues are growing at a modest rate, that would suggest a rebate of less than $2.1 million.  The difference between the $3 million incentive amount listed in the article and the actual taxes rebated is what I referred to as a "gift."  You can call it something else, but it has to come from someone's bank account (unless there is a permanent, ongoing rebate of taxes not mentioned in the article).


Regardless of what you call it, the City's $3 million does not generate even a paltry Treasury bond rate of return for nearly twenty years, and the City does not recover its "investment" on a present value basis for nearly thirty years.

bluegrass wrote on May 01, 2012 at 4:05 pm

I guess I was confused because the article stated it could rebate "up to" the $3 million, not guarantee the $3 million.  It was my understanding that the hotel can turn in receipts for certain taxes paid, and get that money rebated up to the limit, but that they wouldn't get back more than they paid in. 

 

 

 

rsp wrote on April 30, 2012 at 2:04 pm

Did that include any jobs that it is supposed to create? I thought they were going to add a clause to these things whereby they had to pay back the benefit if they didn't live up to the agreement but I don't see any mention of it here. I think they are also thinking about the fact the property is "costing" the public as it is due to it not providing benefit. As long as they keep giving deals they will keep expecting to get them. A few comments on a blog won't change that. Only integrity will. The idea you have to pay a business to come to town to make money, or guarantee a certain profit to a bigger business while a smaller one gets pushed out. 

billbtri5 wrote on April 30, 2012 at 1:04 pm

hardly fair to the numerous hotels already in Champaign who are collecting and paying their fair share of taxes already, now they have one more competitor that they (existing hotels) are actually subsidizing .....

 

is there anybody on that council with business experience ?

rsp wrote on April 30, 2012 at 2:04 pm

Many of them were subsidized when they were built too. And when there are events in town they tend to be filled. Seems like we lost out on a few things because of not enough space but I'm not sure if room counts have changed a lot since then.

bluegrass wrote on April 30, 2012 at 7:04 pm

Which hotels were subsidized when they were built?

philip wrote on April 30, 2012 at 3:04 pm

Guys, remember that this is a rebate.  We're not giving them anything; we're just waiving the taxes for the first seven years.  At the end of that period, we have a successful hotel generating tax revenue for years to come.  Even during that period, hotel guests and employees will be doing business here. 

It's a far better deal than getting the taxes on a hole in the ground for those seven years. 

ultragreen wrote on May 04, 2012 at 8:05 pm

You're making the implicit assumption, philip, that the new hotel will consume the same level of city services (police, fire protection, road maintenance, etc.) as a vacant lot! The vacant lot doesn't generate reveneue for the city, but it is not consuming costly city services either. The net value of the vacant lot to the city & its taxpayers is $0 Revenue minus $0 Costs = Net Value of $0.

In contrast, the hotel has the potential to generate $300,000/yr. in tax revenues, however this revenue has been waived for the next 7 years. The hotel will still consume city services, however, whether it is generating tax revenue or not. If the hotel consumes $300,000/yr. in city services (the same as its potential tax revenues), then it will consume a total of $2,100,000 in 7 years. Therefore, the net value of the hotel to the city during the next 7 years is $0 Revenue minus $2,100,000 costs = Net Value of $ -2,100,000. Thus, the city can expect to lose over $2,000,000 on the hotel during the next 7 years if the estimated cost of city services is correct. Other taxpayers will have to cover this loss or expect a reduction in city services.

After 7 years, the hotel will generate an estimated $300,000/yr. in tax revenue, which will be in parity with the estimated cost of providing city services. Thus, the net value to the city of the hotel after the 7-year period is $0, which is the same as the vacant lot. Even if the cost of providing city services to the hotel is less than $300,000/yr., it will still take considerable time before the city can recover its initial revenue loss.

There are various externalities that can be taken into consideration. For example, the hotel will generate jobs within the community and the customers of the hotel will likely spend money at local businesses. While it is true that these two externalities will provide revenue for the city, it is also possible that the success of the hotel will cause job losses at other hotels in the area and merely shift customers from one hotel to another (without causing a net increase in hotel customers in the area). In a saturated retail market, these negative externalities tend to eliminate the preceding positive externalities.

spangwurfelt wrote on April 30, 2012 at 4:04 pm

How about we hold off on any big new downtown CU giveaway until we've paid off the previous big new downtown giveaway, CU's fanciest and most expensive skateboard ramp, AKA the mostly empty parking garage?

C in Champaign wrote on April 30, 2012 at 4:04 pm

Get it straight. This is not a gift. The city is not paying anything to the developer to build the project. The city is offering to allow the developer to "earn" a portion of the future taxes that the project generates as an incentive to build a project (likely bigger and more robust than might otherwise be built in what has been an eysore of a gaping hole in the ground) that they feel would be a boost for the downtown area. The taxes included in the incentive are the city's portion only, and the city doesn't "lose" anything because they never put any money at risk in the first place.


There have been large developments in the downtown area that have benefitted from either up front money, land, new infrastructer built and paid for by the city, or combinations of those, but that is not the case here. 


In the mean time, even while the city is rebating a portion of its taxes to the developer, the other taxing bodies in town are the winners. The school district, MTD, park district, and others will recieve the benefit of taxes on a very large development in the downtown area. And even better, jobs are created by the construction and operation of the hotel, and the businesses in the area, yes those evil restaurants and bars, surrounding it are bolstered by the patrons of the hotel.


You can debate whether a hotel is a good idea or not, but this is not a losing proposition for the city.

scott_tapley wrote on May 01, 2012 at 12:05 pm

Gotta love this (dare I say government) logic.  C, if rebating taxes doesn't cost the city anything, then why not rebate everyone's property taxes starting next week.  Taxpayers would be elated and, by your logic, it wouldn't cost the city anything.


Your statement "...this is not a losing proposition for the city" is only true because the city chooses to ignore the time value of the money it is foregoing and can balance its budget on the backs of those who ARE paying taxes during the seven-year interim.


I'm not saying the hotel isn't a worthwhile project...just that the developer is getting one heck of a deal on the taxpayer's dime.

bb wrote on May 02, 2012 at 4:05 pm

And your "time value of money" argument is only true because you choose to ignore the fact that there would be no money, and thus no time value, if the project doesn't get built.  It won't get built without the rebates.

 

ultragreen wrote on May 04, 2012 at 8:05 pm

C in Champaign: You are wrong. The city is proposing to provide this hotel with free city services (police, fire protection, road maintenance, clean-up costs of abandoned business properties, utilities) for the next 7 years. That means other taxpayers will have to pay for the city services that this hotel consumes, or expect a reduction in such services.

Tax rebates are not free money. They are subsidies that will increase the tax burden on everyone else, otherwise they result in either degradation of such services or greater public indebtedness. Unlike a vacant lot, this hotel will consume costly city services.

parkmymeterelsewhere wrote on April 30, 2012 at 5:04 pm

You've got it crooked just like the first round; we went throught this response/criticism once before with the same results; small town; gandiose expectations.  Even last weekend the hotels were NOT FULL.

pattsi wrote on April 30, 2012 at 8:04 pm

Be certain about the data you us--the tax refund or rebate is for 7 years across the board. It would be useful if the N-G article(s) contained all details. In addition, it was end confusion if the city posted all of the financial details about TIF, EZ, and any other economic development incentive used by the city. Sunsine and transparency usually can be used in discussions.

jettexas wrote on April 30, 2012 at 9:04 pm

None of the discussion above has mentioned anything about the hotel's appearance.  Everyone happy with a another big box with windows on that corner?  Or is appearance ultimately less important to city government and the developer than financing?  I'm not suggesting that the discussion of how its financed, or the jobs that its construction and use might create, is irrelevant.  These are important questions, as contributors already have made clear.  And I'm certain that few enjoy the hole in ground on that corner.  But there are only so many of these boring boxes that can be erected downtown before the downtown loses whatever "charm" or whatever attaction/attractiveness it might have to draw people downtown.  And if no one wants to go downtown, then we have an empty hotel, across from a half-empty office complex, adjacent to a mostly unused parking garage.   Shouldn't the developer be reaching out those who use the downtown for ideas about how to improve the look and atmosphere of the downtown?  Sounds like a far-fetched question only if one believes that any one with money can throw up anything that they want.

parkmymeterelsewhere wrote on May 01, 2012 at 9:05 am

The downtown charm was lost when city officials handed out 11 wholesale liquor licenses ;intentionally placed parking meters in every possible location; approved 01/02 main project; and constructed the now-empty parking deck for an 02  main hotel--yes have we forgotten the plan for an 02 main hotel!!!.   These  factors killed any charm and equal accessability.   The city officials who made these decisions will be credited with a legacy of visual insensitivity and greed for their own pocketbooks.

bluegrass wrote on May 01, 2012 at 10:05 am

I couldn't agree more.  I much preferred the 'charm' of drug addicts and prostitutes patroling the streets of downtown Champaign, like it was before all the restaurants, coffee shops, bars, retailers, offices, businesses, and condos moved in.  And now a hotel that will bring more people to the downtown area?!!!  Poppycock.

I say bring back the stabbings and vacant buildings.  Bring back the weeds and the crumbling brick.  Let's demand equal accessibility for the rats, opossoms and raccoons to inhabit the attics of downtown again.  It was all so... so charming.

fflkommish wrote on May 01, 2012 at 12:05 pm

Whether this is a money maker or not for the city ignores a bigger issue - is the city creating an unfair advantage for one business over existing competitors?  We already have hotels in this town - a new downtown hotel will surely hurt their business.   The city is picking winners and losers again (just like the County Market on campus).

Local Yocal wrote on May 01, 2012 at 1:05 pm
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The Hole was a natural for an urban ampitheatre with covered stage for concerts, plays, lectures, dance performances, stand-up comedy, political debates, spoken word, ect. and a movie screen for "walk-in movie shows" in the summer, maybe some snack bars and public sculptures on the perimeter. Instead, a subsidized developer gets to gamble on $120-a-night rooms. After he abandons it in 5 years, perhaps the City can give it to HUD to manage a senior citizen living center.

sameeker wrote on May 02, 2012 at 12:05 pm

Waiving taxes is the same as giving them money. Since the taxpayers are investing in this business, are they going to socialize the profits like they are the cost? Either way you slice it, we still have corporate welfare.

bluegrass wrote on May 02, 2012 at 3:05 pm

Why yes, they are going to socialize the profits.  You see, my understanding is that only certain city taxes will be rebated.  When one owns a property and a business, one pays a wide variety of taxes to many different levles of government.  So when they pay their property tax bill, they will be helping to pay for public services like Parkland College and the MTD.  And when the hotel pays the people who work there, they will also be paying for services like Medicaid and Social Security.  You're not saying your against health care, people on disability, public transporation, and education are you?

sameeker wrote on May 03, 2012 at 5:05 am

Just think of how much more they would pay for those services if they were not being given the tax break. The services that you mention benefit the entire public. conservatives like to complain about any program intended to help the poor; however, they have no problem with corporate welfare.

bluegrass wrote on May 04, 2012 at 11:05 am

'Just think of how much more they would pay for those services if they were not being given the tax break.'

That's exactly what I'm trying to get you to do.  Consider that right now, they are NOT getting a tax break, which is apprently what you're rooting for.  If you go to the Champaign County website you can see that property has an assessed valuation of around $40,000. 

Now, fast forward a couple of years, and assume they are getting a tax break.  Now, try to imagine a property tax bill for the same parcel of land, but now it includes an improvement worth perhaps tens of millions of dollars.  Are you starting to see why it might be beneficial to have a multi-million business located where there is not currently a hole in the ground?

 

fflkommish wrote on May 04, 2012 at 1:05 pm

you are assuming that no one would improve that lot without a tax break.