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Mayor Wellington Webb is so confident in Denver's economic future that he's willing to bet the house on it -- or at least the city's convention center.
Webb agreed last week to give developer Bruce Berger a $55.3 million subsidy to build a Marriott hotel adjacent to the Colorado Convention Center. The city plans to fund its contribution to the $217 million hotel by issuing bonds known as "certificates of participation" and loaning the money to the Denver Urban Renewal Authority, which negotiated the agreement.
In city-supported deals like this, Denver typically uses sales and property taxes generated by the development to pay off the municipal bonds. So-called tax-increment financing has funded the Denver Pavilions, the Adam's Mark hotel and a host of other projects. However, the legal authority of cities to issue such bonds is now in doubt; several recent court cases, including one in Broomfield, have made it unclear whether cities can offer them. Further complicating the issue is the voter-approved TABOR amendment, which mandates that most bond issues be put before the voters.
Since certificates of participation usually offer public buildings as collateral, they aren't covered by the TABOR amendment, so Denver can issue them without putting them on the ballot. The city has used this scheme to pay for several civic buildings, including the social services headquarters, and the standard practice is to use the new structure itself as collateral.
In this case, since the city isn't building the hotel, "we can't use it as collateral," says city treasurer Steve Hutt. Instead, city officials plan to use the existing convention center -- which is set to be expanded to more than 2.4 million square feet -- as collateral for the hotel. "The certificate of participation is subject to city council appropriating the money every year [to pay the bonds]. If we don't make the annual payment, we would lose the building," Hutt adds.
According to the deal with Berger -- which still needs to be approved by the city council and DURA -- the bonds will be paid off by taxes generated by the hotel over the next two decades. But if the economy were to tank, as it did in the mid-1980s, and the hotel were unable to generate enough taxes to pay off the bonds, the bondholders could take possession of the convention center.
Of course, rather than allow that to happen, Denver would almost certainly dip into city coffers to pay off the bonds, say several city councilmembers. That means Denver taxpayers could wind up paying all or part of the $55 million -- despite being told by the city that no general-fund revenues would go toward this private project.
"You could say this is a higher risk to the taxpayers because the city is putting up its own assets as collateral," says Councilwoman Susan Barnes-Gelt. "The good news is that our economy has diversified, and I don't think we'll see the devastating abandonment we saw in the '80s."
Councilman Ted Hackworth had hoped the city wouldn't have to issue bonds, but instead would strike a deal whereby Berger could collect his $55 million simply by having the city refund sales and property taxes collected on the hotel. The city struck a deal like that earlier this year with Forest City, the company that won the contract to redevelop the former Stapleton airport site. Under that agreement, Forest City will fund $294 million in roads, utilities, parks and other improvements and will be repaid with a portion of the taxes collected on the property. "I was hoping that instead of bonding, they'd do what Forest City did," says Hackworth. "They've really escalated the participation rate of Denver taxpayers."
DURA executive director Tracy Huggins, who negotiated the deal, didn't respond to repeated phone calls from Westword.
In November, Denver voters approved a $271 million expansion of the convention center. The hotel deal was contingent on the vote, but the convention center expansion will happen only if a hotel deal is struck. City council sees a huge new hotel as essential to ensure the success of the center, since the thousands of visitors who attend conventions will need a place to stay.
Berger has been the leading candidate for that deal. He bought the former Denver Post building, located between 14th and 15th and California and Welton streets, for $3.3 million in 1998. After a brief tussle with historic preservationists who wanted to save the building, he spent another $3 million to tear it down and turned the block into a parking lot.
Eyebrows were raised at city hall when Berger then valued the land at $22 million ("A Game of Chance," August 26, 1999). But he really annoyed city officials -- even those who support the 1,100-room hotel -- in early April when he tried to squeeze even more revenue from a deal that was already quite generous, demanding that he retain the right to challenge property-tax assessments on the Marriot.
"Berger went beyond being greedy," says Barnes-Gelt. "Because we didn't have a hotel deal in place in November when the voters said yes, Berger was in the driver's seat."
Webb angrily announced that the deal was dead just seven weeks ago, and the city went to great lengths to explain that although the Berger site was regarded as one of the best for a new hotel, it wasn't the only spot where that hotel could be built. But since voters had already approved the convention center expansion, Denver was under enormous pressure to strike a deal with Berger so that expansion could get under way. Talks resumed in mid-April, and the agreement was struck on May 11, with Berger and the city compromising over the property-tax issue. Berger has said he would like to open the hotel in 2003.
(The fate of Currigan Exhibition Hall, which will have to be torn down or moved to make way for the expansion, is still unclear. The city has been pressured by historic preservationists to try to save it, and Denver has offered to give away the building -- which could be disassembled and moved -- to anyone who can come up with a use for it. This week the city is mulling over four different proposals for the structure, including one from a group that wants to build a Bible theme park in Erie and would put a replica of Noah's ark inside Currigan.)
The push to expand the convention center troubles Barnes-Gelt, who thinks Denver would be better off encouraging more downtown housing rather than trying to lure big conventions. "I'm not convinced that having a guy from Des Moines walking down the 16th Street Mall and buying a T-shirt is such a great thing for Denver," she says. "That's how we get junk like the Pavilions. It's a totally suburban model plunked in the middle of an urban place."
She'd like to see Denver create some sort of fund to buy up vacant downtown land and sell it to developers who agree to create affordable housing. Only with more center-city residents, Barnes-Gelt says, will Denver ever offer the sorts of quirky shops and restaurants that bring tourists flocking to New Orleans and Boston.
"The most important thing is to get people living downtown," she adds. "Then we won't be so vulnerable to the ups and downs of the economy."