DALLAS - The Phoenix City Council approved a $600 million revenue bond financing planfor the expansion of the Civic Plaza Convention Center yesterday and opened the door toa $300 million deal to build a nearby luxury hotel.
The council was also expected to approve nearly $560 million of bonds for capitalprojects, including water and sewer system improvements. The council was expected toraise water rates by 4% and wastewater rates by 7% to cover new debt service and currentneeds.
The decision to move ahead with Civic Plaza bonds comes after a year of intense lobbyingof the Arizona Legislature to provide $300 million for the expansion. Under terms of thebond issue approved by voters on Nov. 6, 2001, the state had to cover half the cost ofthe project. After writing provisions to make the state's obligation contingent upon thelevel of revenue raised by the center, state lawmakers approved the deal in June. If thecenter raises sufficient revenue to cover debt service on its own, the state does nothave an obligation to contribute funds.
As in several other cities, Phoenix convention officials now want to begin considering ahotel financed with revenue bonds to make Civic Plaza more competitive with a spate ofrecently expanded or newly constructed convention centers across the country.
Although some Phoenix council members question the wisdom of the city owning a hotel,backers say the 1,000-room hotel is crucial to the convention center's success. Thecouncil yesterday discussed opening negotiations with Hilton, Marriott, andStarwood/Sheraton concerning operating the hotel. Although sales tax revenue wouldlikely back the bonds, the deal is being structured so that revenues from the hotel willrepay the debt.
The hotel would need an occupancy rate of 64% to 68% to pay for itself, with room ratesranging from $167 to $185, according to a feasibility study.
Other cities that own convention center hotels include Austin, Sacramento, Chicago,Denver, Houston, Overland Park, Kan., and Myrtle Beach, S.C.
While Phoenix Mayor Skip Rimsza said he prefers to let a private developer build thehotel, the reality is that finding a developer with the financial resources for theproject is unlikely. By issuing tax-exempt debt, the city can lower the cost of theproject so that the hotel breaks even sooner.
Phoenix was thwarted in its efforts to partner with a private firm in building aconvention center hotel three years ago, when a judge ruled the arrangementunconstitutional. However, city officials say owning the hotel outright would notviolate the constitutional provision regarding public-private partnerships.
The council also voted to proceed with a $250 million bond issue already authorized byvoters for a variety of projects throughout the city. The negotiated deal, likely tocome to market early next year, could include variable-rate bonds. Another major issuewill be $192 million in water obligations to cover part of the capital improvement plan.
