The Jefferson City TIF Commission voted 7-1 on Thursday to reject the proposed Tax Increment Financing (TIF) plan for the former Truman Hotel & Conference Center property.
The full City Council can still approve the TIF with a two-thirds supermajority vote in favor, with a first reading of the ordinance likely to happen at the council's July 18 meeting and final approval no earlier than the Aug. 1 meeting.
TIF Commission Chairman Bill Betts attributed his "no" vote to his belief the project could have proceeded profitably without the aid of taxpayer money.
Cole County Presiding Commissioner Sam Bushman gave the only "yes" vote from the 11-member TIF Commission. Three members of the commission were not present at the meeting.
TIF allows developers to finance certain improvements in blighted areas using a portion of the new sales and/or property tax revenue that results from the development for up to 23 years or until all eligible costs are reimbursed. The Truman Hotel TIF could last up to 25 years because its second phase of construction would begin two years into the TIF.
In the case of the Truman Hotel TIF, developer Puri Group of Enterprises would benefit primarily from a portion of the city's lodging tax. Up to $8.89 million in costs - about 15.65 percent of the total project budget - would be reimbursed with 50 percent of the lodging tax generated at the property, with the remaining TIF-reimbursable costs covered through new property tax revenue.
The terms of the TIF also would require the Puri Group to annex two of its hotels - Hampton Inn and Comfort Suites - currently just outside city limits, with the new lodging tax revenue from those properties making up for the lodging tax the city would forgo from the new Truman property hotels.
City Attorney Drew Hilpert estimates the TIF funding would be about 60 percent lodging tax-driven and 40 percent property tax-driven, with a $30.1 million net benefit to the city over 25 years.
Several local hoteliers and residents weighed in during the public comment portion of Thursday's meeting.
Scott Ehrhardt, owner of Ehrhardt Hotels; Trey Propes, director of operations for Ehrhardt Hotels; Mark Randolph, president of Premier Management Inc. and operator of Baymont Inn & Suites and Fairfield Inn & Suites; David Wallace, general manager of Baymont Inn & Suites; and attorney Tim Sigmund, who has assisted them in representing their opposition to the TIF - as well as Ted Stewart, who previously operated hotels in Jefferson City for several decades - all voiced concerns.
Those concerns hinged on whether the Puri Group had overinflated its costs in the project budget, which could have made the project falsely appear to require public assistance.
"The Puris - they are good operators, and they know their numbers. But so do we," Stewart said. "We talked a lot during these discussions about how much they're going to bring to the city with (annexing) these two hotels. They just failed to mention that they closed almost as many rooms as they're opening, so they are not increasing anything - they're replacing."
Ehrhardt, Propes and Randolph previously made their position known through a letter distributed to city officials last week, primarily disputing the Puri Group's construction cost per room, land acquisition cost, developer fee and other soft costs.
"The bottom line is all of these items can be controlled by the developer," Randolph said. He estimated a more accurate total cost for the project would be about $17 million less than the Puri Group's budgeted $56.798 million total cost.
Vivek Puri, executive vice president and general counsel for the Puri Group, has told the News Tribune previously the other hoteliers' estimate doesn't account for additional expenses like demolition of the current buildings, removing utilities, and building with higher-quality steel rather than wood.
But, even adding 15 percent for those factors, Randolph contended the project was still $12 million over budget.
"It is easy to come out here and put prices out when it is not your own project," answered Dr. Raman Puri, vice president and chief financial officer for the Puri Group. "What we build is not what they build. They build cheap hotels that are out of wood structures. Their franchises are expresses compared to what we build - full-service, five-star hotels with complete kitchens and complete banquet facilities. Our buildings are concrete construction; our buildings are custom-designed and furnished. They're not cookie cutters like what they're building."
The project did pass a "but-for" determination, which determines whether the project could reasonably be completed without public assistance, conducted twice by the third-party firm, Springsted, on behalf of the city.
The second report revised some budget lines, including the land acquisition cost and developer fee, after several parties voiced concerns initially. That but-for determination estimated the project's profitability without public assistance at 8.61 percent - at the low end of the 8.5-13 percent range of profitability for similar projects within the market. Springsted determined the project did pass the but-for determination based on the 10.48 percent average profitability of that market range.
"I take exception to having the numbers reduced, but even with your numbers reduced, the project does not meet the threshold of 10.5 percent, which is the average rate of return," Vivek Puri told commissioners Thursday.
The Jefferson City Public Schools Board of Education decided Wednesday to oppose the TIF for similar reasons, with both JCPS representatives on the TIF Commission - Superintendent Larry Linthacum and CFO Jason Hoffman - voting "no." The district previously opposed the TIF's original terms, which included reimbursement through 100 percent of new property tax.
If the TIF were to be approved, construction would begin on the first phase immediately with a projected completion of fall 2017, and the second phase would begin in fall 2018 with a spring 2020 projected completion.
The redevelopment plan includes building two new hotels, one featuring a restaurant, both connected to a renovated version of the existing 24,000-square-foot meeting space on the property.
The first 18-month phase of construction would demolish the Truman Hotel's three outer buildings and replace them with a 121-room Holiday Inn & Suites, which would include a Cheerleader Pub and Grill restaurant.
After the Holiday Inn & Suites had been operational for a year, the second phase would begin - demolishing the main Truman Hotel building to replace it with a 131-room Courtyard by Marriott hotel. The second phase would also renovate the Truman's existing 24,000 square feet of conference space.
The Puri Group estimates the project would generate $33.29 million in increased tax revenue for the local taxing jurisdictions, as well as $62.8 million in hotel payroll, over 23 years.
Previous coverage:
Board opposes TIF project for 'philosophical' reasons, June 23, 2016
New Truman Hotel funding plan proposed, June 19, 2016
Truman Hotel TIF decision delayed again, June 1, 2016
JCPS expects new TIF proposal, May 24, 2016
Developer meets with JCPS board to discuss TIF, May 10, 2016
Truman Hotel TIF meeting rescheduled, April 12, 2016
Schools historically have little power in TIF decisions, April 10, 2016
JCPS balks on proposed Truman Hotel TIF, April 6, 2016
Truman hotel seeking Tax Increment Financing for proposed developments, March 20, 2016
Truman Hotel closes, Dec. 4, 2015