Tax rebates for Champaign hotel get unanimous approval
Officials agree that $3 million incentive worth it to fill in hole left by Metropolitan Building fire in 2008
CHAMPAIGN — City council members unanimously said Tuesday night that they would be willing to offer up to $3 million in tax rebates to the developer of a proposed nine-story hotel to see the project get off the ground.
Craig Rost, deputy city manager for economic development, said he and other officials are tired of hearing people ask when they will find something to fill the "hole" left when the Metropolitan Building burned down at the corner of Church, Neil and Main streets in 2008. Now they have an answer.
Planning Director Bruce Knight said it's important that the city complete a few "tipping point" projects that will carry the city's downtown area forward when a special taxing district meant to encourage development expires in 2017.
Knight said installing a hotel in the city's center is near the top of that list of priorities.
Successful downtowns "have employment, they have entertainment in bars and restaurants, they have residents so it's a 24-hour downtown," Kinght said. "And almost inevitably, they have a hotel."
Hans Grotelueschen of YG Financial Group has asked for the tax incentive from the city to build the $28 million hotel, which includes plans for 145 rooms and 145 new parking spaces. For seven years, the city would reimburse the developer for the food and beverage tax, property tax and hotel-motel tax dollars it pays to the city.
Officials only have approximate numbers of how much that might be over the course of the seven-year agreement, but they have capped the tax rebates at $3 million.
"It's returned after the success of the project instead of financial investment in the project," Rost said.
After the rebates expire, officials expect the property to generate $300,000 annually in new revenue for the city tax roll.
Negative comments on the project were few on Tuesday night. The owner of the Metropolitan Building, who had been renovating the 19th-century building when it burned down, cheered the proposal.
"From our perspective, I couldn't be more excited about this project, and it couldn't be in better hands with Hans," Jeff Mellander said.
Champaign resident Bill Glithero was not as enthusiastic. He said it does not seem right that the city is offering a tax rebate to a developer when it recently approved a 4-cent-per-gallon gas tax and anticipates a coming storm-water fee.
"Anytime I hear someone say it's a win-win situation, I just have to start running in the other direction," Glithero said.
But council member Tom Bruno said tax incentives for new developments "are often misunderstood by the public." He said the city is not cutting a new check.
"We simply turn back around taxes that we would not get if they never break ground," Bruno said.
Knight said the side effect of having a hotel in downtown Champaign will be significant for the bars and the restaurants in the area. That will mean new tax revenue for the city, too.
"We always talk about the value of adding residents to downtown," Knight said. "This is 150 residents that don't have a place to cook. They're going to eat out every night."
MoreA quality hotel is exactly what downtown Champaign needs to be a 24/7 environment. As a former resident who now lives elsewhere, I would absolutely be interested in staying in a downtown hotel. The Marriott in downtown Normal is a real asset, and I think this would be too.
The creation of a downtown hotel is wonderful news, and will surely improve the quality of the city. That doesn't mean it should be financed, in whole or in part, by my tax dollars.
As to Mr Bruno's condensending comment that tax incentives are "are often misunderstood by the public," I suggest that Mr Bruno misunderstands the public's sentiment. What Mr. Bruno doesn't seem to realize is that we do understand the deal, and we still object!
We, the people, understand the terms of the deal perfectly well -- Mr Grotelueschen will very likely pay no city taxes for the first seven years he operates his business. Meanwhile, I, along with 99% of the citizens of Champaign, continue to pay our city taxes with no hope of a rebate.
Mr Bruno, I moved to Champaign 9 years ago. Would you return to me the taxes that I have paid? Not as a new check, mind you, but just to "turn back around taxes that you would not have gotten if I had never broken ground."
Beyond the unfairness of charging the rest of us a regressive motor-fuel tax while simultaneously excusing Mr Grotelueschen's taxes, there is also the issue of the cost. Mr Bruno claims that there is no "new check", but perhaps the city council overlooked the concept of "opportunity cost." If Mr Grotelueschen had not developed that property, someone else surely would have. Perhaps this other developer, without access to public funds, would create a more modest hotel, one that contributes only $1,000,000 to the city coffers over the next seven years. While the city council is not, as they say, issuing a "new check" to Mr Grotelueschen (rather, they are "merely" excusing $3,000,000 in taxes), perhaps they are losing the $1,000,000 that they could have reaped.
Mr Bruno suggests that excusing the taxes is revenue-neutral to the status quo. It is. But it is certainly not revenue-neutral to all other possibilities.
Even beyond the unfairness and beyond the lost revenue, there is yet another cost to this proposal, a direct cost. A hotel of that size requires city services. If, may God forbid, another fire broke out at that site, would the hotellier "turn back" the fire trucks, just as the city "turned back" the taxes? No! A hotel requires the security of a fire and police force. The hotel will enjoy the benefit of a well-maintained street system and sidewalks that are kept clear of trash by city employees, among countless other city-provided services.
These services don't come free to me and my neighbors. But, if the city council has its way, they will come free to Mr Grotelueschen's hotel!
To the city council, I say this: providing targetted 100% tax breaks to your wealthy friends is unfair and costly. This tax break has both opportunity and direct costs, which costs you seek to either ignore or conceal. Shame on you!
To Mr Grotelueschen, I say this: If the business plan you have created can only be profitable by failing to pay your taxes for seven years, perhaps that isn't the correct business for that property. Please try again; surely there is a business opportunity for that property which will simultaneously provide a profit for yourself and a source of tax revenue for the city.
Excellent point, Sameeker. I know your question was rhetorical, but allow me to answer anyway.
The theory behind this and similar proposals (which theory I reject) is that, yes, the public will participate in the revenue generated by the business.
While the structure of the deal resembles a straight-up gift to the hotellier, the hope is that the hotel will be in business long enough, and will be successful enough, that the generated tax revenue will, in time, more than recover the cost of the public financing (in this case, the tax rebate.)
This project will help the people! I am firmly against simply handing out $3 million to help people whom aren't working. Think about how many jobs--of all skill levels--this hotel will create. And, the people staying in the hotel rooms are going to spend lots of money in the downtown area, which helps keep our local business owners in business.
As I've said, I think the hotel is an excellent idea. I agree with you that the hotel will create jobs. I agree that the secondary economic effects will keep other businesses in the black.
Where the city council and I part company is on the question of how it should be financed. I firmly believe that the hotel owner should either use his own money, or sell shares, or borrow money to build the hotel. What he mustn't do is to build his hotel using my money.
I absolutely agree with your point: "What he mustn't do is to build his hotel using my money."
I wish there was a better solution to this. It is unlikely that a developer will build a hotel in downtown Champaign without SOME type of incentive from the City. It just won't happen because when surveying the markets, a developer would either (A) simply choose to build his hotel in a city that DOES provide incentives, or (B) build his hotel in a larger city where a downtown hotel is more of a "sure thing." The City has to do SOMETHING to try to draw a developer to an area like downtown Champaign. However, I agree that the solution shouldn't be using taxpayers' money, but at the same time, I can't think of a more realistic/better solution. Any thoughts? I'd be interested in hearing about potential alternatives.
This is fantastic! I hope it goes through. Although I love the bars and restaurants that occupy most of downtown Champaign, I'm excited to potentially see another type of use here. All we'd be missing now is a grocery store downtown! One suggestion though: how about they skip the 145 parking spaces? With the empty M2 parking garage right across the street, couldn't the hotel work out a deal to use some of its spaces? Or perhaps build an overhead connecting walkway between the hotel and the deck? That seems like the most logical solution to me, rather than to build more parking.
One more time I point out the urban design issue related to the illustration published in the N-G. This is a major mismatch to the present profile in the downtown area, let alone how canyonistic the corner will become. Such design simply does not draw in people.
Second, one more time I bring to people's attention Greg Leroy's boo, The Great American Jobs Scam. This book details specifically that the unanimous vote by the council will cost the taxpayers tremendous amounts of tax dollars and the community will never regain let alone surpass the amount of public monies given for the project.
If the city chooses to extend incentives to a developer, they must come at a price. Since the city will not see any tax revenue from this project for several years, the developer needs to start contributing to the local economy immediately. The trade unions are not going to allow this building to be built without local labor which is a good thing. However, there are a number of other "trades" that are required to build such a project; engineering firms, banks, construction managers, interior designers, and architects to name a few. The city needs to demand that these expenses (which the developer has to pay to someone) be paid locally.
If you object to $3 million in tax abatements, imagine what happens when some of those tax abatements go to pay for engineering services for a firm in Chicago when there is one less than a block away from the hotel. By asking the city for tax abatements, the developer has taken on a partner. As a partner, the city has a stake in this project and should demand that it be be built, financed, designed and engineered locally. Otherwise, he can keep his hole in the ground.
I would like to see the hole filled as much as the next guy but it is very nearsighted of the city to think that they are desperate for development on that site. That hole in the ground is nothing but a money pit for the developer at this point. The longer he waits to develop the property, the fewer his options become. The owner needs it filled more than the city does. Let's work together, as partners, and support local interests.
The proposed drainage fees paid by residents will amount to $3.2 Million; and the tax rebates to the hotel developer amount to $3 Million. The gas tax will cover some of the road repair problem. I agree with Feltrino that the local work force, and businesses should be used which would support the local economy. I suppose the city council knows best. What about the baseball stadium for a local minor league team? Is that on hold now?
So just so we are all clear here, property taxes just went up, a new storm sewer fee is about to be imposed, a gas tax of 4 CENTS a gallon has just passed and this council thinks its a good idea to GIVE not loan tax rebate of 3million dollars plus. And ADD to a TIF district that does not pay into our general fund for street lights and schools and parks etc......And how much is it going to cost to improve the system to accomodate 200 more toilets flushing that they won't be paying for?
Its time for change, serious change. old money, new money , big money has got to get its hand out of the till. Loans not rebates.
For those of you familiar with Canton, Illinois, they recently built a 'boutique' hotel in their downtown. It's quite a bit smaller than what is proposed here (I think it's only 32 rooms), but it seems pretty nice.
http://www.cantonharvesterinn.com/
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