DALLAS - The Dallas City Council took the first step toward building a publicly financed convention hotel yesterday, approving a $500,000 option to buy a site adjacent to the convention center.

The council approved the option on a 12 to 2 vote, with a decision on buying the land expected in the fall. On a separate vote, the council agreed to study a restructuring of existing convention center debt to produce savings that could be used in the land purchase.

"I think to a large degree this will determine the future of downtown," said Mayor Tom Leppert. "We have a convention center that by today's rules is uncompetitive."

Losing ground to other major convention cities that offer hotels connected to their convention centers, Dallas is playing catch-up in hopes of securing major meetings, such as the American Heart Association's.

The proposed 8.34-acre site for the hotel is now a parking lot. The city will next seek formal proposals from developers and begin drafting financing plans for the hotel, which is expected to cost between $200 million to $300 million and open by 2010.

The proposed hotel site is appraised at $7.5 million on the tax rolls, but two independent appraisals value it above the $40 million mark.

To raise the money to buy the land, Dallas would consider certificates of obligation, staff members said. Since the hotel will take only half of the site, the city could sell the other half for development after the value has risen, officials said.

Council member Mitchell Rasansky was adamantly against issuing debt to buy the land and voted against the option.

"I would never take a risk like this," Rasansky said. "We don't even know where we're going to get the money. We're going to borrow it? That's not right."

Dallas has been trying for years to develop a convention center hotel as every major convention city either had one in the works or in operation. Financing has proven the biggest obstacle, as the city has been reluctant to raise the hotel and rental car tax to a level that could hurt existing convention business. Instead, under the current plan, money for debt service on revenue bonds would come from sponsorship and partner fees.

Convention center officials have identified at least 80 groups representing $800 million in spending that say they wouldn't consider hosting an event in Dallas until a convention center hotel was under construction. The Dallas-based American Heart Association has promised to bring its conventions to the city in 2013 and 2017 if a hotel is built.

Hotels that would compete with a new 1,000-room rival worry about the vacancy rate at their own establishments, but some also recognize that without a connected hotel, convention business will continue to disappear. Currently, Dallas has three hotels with more than 1,000 rooms.

City Council member Dwaine Carraway said the competition comes not only from major cities such as Denver, Phoenix, Las Vegas, and Orlando, but from Dallas suburbs such as Irving and Grapevine, which are closer to Dallas-Fort Worth International Airport.

"We're not trying to put people out of business," Carraway said. "If we build this, there will be more people staying in the other hotels. But Grapevine is not playing with us. Either we're going to be Dallas or we're going to let a lot of little cities feed off of us." q

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