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Bay City Conference Center
Project Stalled by the Controversy of Competing Visions
By Robert E. Martin
Following the cusp of an unequaled tourist season, coupled with a
glowing feature in the Detroit Free Press proclaiming Bay City one of
Michigan's growing recreation communities, an important decision is being
made by the Bay County Board of Commissioners on whether to support a
proposal advanced by the City of Bay City to construct a $14.1 million
Hotel & Conference Center.
As we go to press the County is scheduled to meet on whether to release an
$8.89 million HUD Special Purpose Grant essential for construction of the
project, only voices and votes on the County Board are divided, with
several commissioners feeling the project too costly and risky, and others
supportive of the project but preferring to see it fall into the hands of a
local as opposed to an out-of-state developer.
According to City Manager James Palenick and Economic Development Director
Rob Anderson, however, the project presents a definitive 'win-win'
situation for all taxpayers & residents of Bay City, with virtually minimal
risk and the potential for a sparkling and much needed facility that will
generate more funds over the long run than will be expended.
City officials have put forth a development proposal for the construction
of a first-class, full-service, destination hotel/conference center working
with Garfield & Associates of Dallas, Texas as developer, and utilizing
tax-exempt bonds to finance the hotel portion of the integrated facility.
According to Palenick, "The bonds would be a pure 'revenue' issue - without
the credit-pledge or backing of the City of Bay City, and with no legal or
financial obligation to the City. Rather, the City would establish a
not-for-profit entity to issue the bonds on behalf of the privately-managed
facility, with the only risk associated with default carried by the
bond-buyers."
In order to proceed, however, the city requires the contribution of an $8.9
million HUD Special Purpose Grant held by the County, which will then be
added to $1.5 million MEDC, CDBG 'small cities' grant for parking
improvements, a $1.5 million State MEDQ 'site reclamation' grant for
conference center foundation work, a $255,000 no-interest Brownfield
Land-Assembly loan, and a $2 million Power Fund loan from the City's EDC to
complete the overall financing.
By utilizing the city's bond counsel, Joe Piell of Miller, Canfield,
Paddock & Stone to assure proper legal conformity, the not-for-profit
entity set up by the City under the plan would then issue approximately $10
million in tax-exempt bonds to finance the hotel portion of the facility.
According to Palenick & Anderson, because there is so much public funding
committed to the project in the form of both grants & subsidized loans,
they are being told by both Ray Garfield and Bob Swerdling, Vice-President
of Municipal Finance for U.S. Bancorp/Piper Jaffrey, that it is likely that
the bonds can be insured, receive a triple-A rating as a result, and be
priced at an approximate 6% yield - without any connection to, or impact
upon, the City's finances or credit rating.
The bonds sold for the hotel would likely be a 25 to 30-year issue, with
the City retaining ownership of the complete integrated facility for the
entire term of the financing. During that term of financing, if and when
the project generates net profit, then 100% of such net profits accrues
exclusively to the City. Additionally, at the conclusion of the bond
amortization term, the City further receives 100% of the net asset value of
the complete facility. At the conclusion of the bond payout, the City can
either continue to own the facility or sell it off in its entirety to reap
the benefits of the sale price.
Enter the CountyS.
In contrast to the City's vision, Bay County proposed developing a
Hotel/Conference Center allowing the Saginaw construction company J.R.
Heineman to build, own, and operate the facility with an equal contribution
of public grants & loans, and with Heineman accounting for $4 million in
equity/debt in order to construct a $6 million hotel as part of an overall
$19 million project.
The Heineman Proposal called for a Hilton Garden Inn to be run by a
franchisee, in contrast to the City proposal which would avoid franchise
fees. Moreover, with the Heineman proposal the City would retain the same
amount of financial risk as with the Garfield proposal, only they would
lack any corresponding return, either from the net profits of the facility,
or any part of the net asset value.
However, while the County was exploring the possibility of releasing the
HUD money to Heineman, the company inexplicably withdrew its development
plan from the table. When asked about the position of the County on this
project, Bay County Commissioner Mike Halstead said that while he supports
the Garfield Proposal, several commissioners feel that the City is throwing
up unnecessary barriers, and would not grant Heineman the $2 million Power
Fund monies.
According to Halstead, he is uncertain about whether the Garfield Proposal
will pass with the Commissioners. "I am attempting to line up a fifth vote
to support the project," he explains, "but thus far I have not been
successful. Some commissioners feel the project is too costly, but my view
on that is why should the cost concern them? The City is am important
portion of economic development in Bay County as a whole, and if the City
has already obtained the funding with little if any risk to taxpayers, then
I feel we should support them and release the HUD money."
Additionally, commissioners opposed to the project assert that only a
conference center should be built and that private hotels within the area
should take care of the lodging aspect. Bay County Commissioner Gene
Gwizdala has led opposition to the Garfield Plan, only The Review was
unable to contact him prior to press time to further amplify or articulate
these arguments.
Opponents have also voiced concerns that while Bay City is contemplating
building a Conference/Hotel Center, the City of Saginaw is looking at
closing its Civic Center; however, a strong case can be made for the fact
that the difficulty with the Saginaw Civic Center is endemic not to
dwindling demand, but a poorly run and mismanaged facility, which further
bolsters the argument for supporting the professionalism offered by
Garfield for the Bay City project.
>From the City's Perspective.
According to a report written by City Manager Palenick, the
Garfield Proposal assures a first-class, full-service facility which will
not compete directly with other local, limited-service hotels such as the
Holiday Inn, but rather will seek to expand the market, bring new
conference business to town, and actually create an overflow which will
assist all other properties.
Moreover, the Garfield proposal offers Bay City an opportunity for a
tremendous return on not only its investment, but also a return to the
public at large on all of the state and federal dollars contributed to the
project in the form of net profits at the end of the financing term, as
well as the net asset value of the facility.
Indeed, Tom Williams of the nationally recognized appraisal firm of
Oetzel-Williams has conservatively estimated the approximate value to Bay
City as likely to exceed $70 million dollars over 30 years.
As Williams notes, "The county's position is quite simplistic. They
currently have control of an $8.9 million dollar HUD grant. They gain or
lose nothing if the development is the Garfield project, or if it is done
by a private for profit entity. The city's position, however, is
drastically different. The monetary benefit to the city is substantial and
should be considered by all parties. A $78 million return on a $2 million
Power Fund Investment can be substantiated, and it is not often that a
community has a chance to be involved in such a project."
And finally, in contrast to the large potential for return on investment to
the City with the Garfield Proposal, there is no corresponding potential
for such return on alternative projects.
Notes Palenick: "It would certainly be questionable public policy at best
to suggest that it is more appropriate to turn over such a massive amount
of public funds to a private-sector entity without any potential or legal
structure for a return on investment, when there is a clear, optimal
alternative which does provide a true return on the public's funds.
Clearly, above all else, this is the fundamental issue at hand."
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