City Council member John Ryan took some new numbers on Denton’s proposed convention center project for a trial run Monday night, in anticipation of presenting them to fellow council members today.
Ryan has been working for more than a week on different scenarios to help calculate the city’s risk in the project. O’Reilly Hospitality Management has proposed a public-private partnership to build a convention center, full-service hotel and restaurant on University of North Texas land next to Apogee Stadium.
For many months, city staff members have presented financial projections for the city’s convention center based on certain assumptions about business at the accompanying hotel, which would be owned by O’Reilly. Ryan asked the staff to give him a copy of that document so that he could test variables in the assumptions, such as the hotel occupancy rate and tax abatements from the county and the Denton school district.
He shared some of what he learned with the council last week and again Monday night with those who stopped by one of his regular town hall-style meetings at North Branch Library.
Ryan asked that the matter be put on the agenda for the council’s work session today.
Pivotal for the city has been a guarantee that O’Reilly would pay “rent” to make up the difference between the tax money the city would collect from the project — property, sales and hotel occupancy taxes — and the debt payment.
Early on in the negotiations, the city agreed to kick in another $100,000 per year, and delay the start of the “rent” until the third year of the project.
It also agreed to ask the county and the school district to contribute some of their property taxes, too, to help keep the “rent” low.
The county has declined to participate. The school district has yet to vote on the matter, but is expected to discuss it again on Oct. 28.
Last week, the council directed the city staff to stop working on the project until O’Reilly tells the city whether it would go ahead with the project without tax breaks from the county and the school district.
Without the county’s tax break, Ryan found that the developer’s “rent” over the life of the 25-year development agreement could go from $3.4 million to $4.3 million.
Without the school district’s tax break, that number climbs to $6 million.
If the hotel doesn’t do as well as expected, the project could be more costly not only for the developer but also for the city, Ryan found.
Based on what the developer has offered, the staff has been presenting the council with projections that show the hotel at 78 percent occupancy by the fifth year of the project. It also shows the average customer paying $159 per night for a room.
Because Tim O’Reilly, head of the Springfield, Missouri-based company, told the council that he believed the project could still work with the hotel at 69 percent occupancy, Ryan tested the financial projections to that level.
In that scenario, the city’s revenue would come up short by about $3.2 million.
Ryan also found that the staff’s financial projections calculated inflation for everything in the project except the cost of repairs, such as replacing the roof or carpet. Without that calculation, the city could come up another $2 million short at the end of the 25-year agreement, he said.
Unless such a shortage was addressed, the city could see a major impact on its hotel occupancy tax fund, Ryan said. A number of city programs, including the Denton Convention and Visitors Bureau, depend on that fund for their annual budgets.
Because construction bids for the convention center came in higher than expected, the city has tentatively agreed to finance the project over 30 years instead of 25, without collecting “rent” from O’Reilly those past five years.
The latest financing model increased the total cost of the project from about $49 million to about $55.7 million, city documents show.
The council is expected to take up the matter during its work session today starting at 2 p.m. at City Hall.
PEGGY HEINKEL-WOLFE can be reached at 940-566-6881 and via Twitter at @phwolfeDRC.
