Public subsidy for a convention hotel in S.L.?

Salt Lake City is considering subsidizing a convention hotel in an attempt to lure more conventions to the city. According to Bob Farrington, the city’s economic development director, the subsidy is necessary because the market isn’t working efficiently or rationally. Rich Rosa of Utah Hospitality believes the proposal is not financially viable and could come back to bite taxpayers.

Watch this video report to learn more about the proposal and what Farrington and Rosa said about it:

httpv://www.youtube.com/watch?v=1ebXtTdev7o

What do you think? Should Salt Lake City subsidize a convention hotel?

Here’s the script for the video: 

VOICE-OVER: Every city wants to host the biggest and best conventions and Salt Lake City may be next in line to go to great lengths to lure the business. A 1,000-room convention hotel would help capture more conventions, says the Salt Lake Convention and Visitors Bureau, but why should Utahns subsidize it?

BOB FARRINGTON: “In Salt Lake City’s case, while there’s no decision made about how and where it might be done, I think, conceptually the fact that large complicated projects have some sort of public-private participation in some way is not an unusual occurrence. In fact, for most projects that have been built in downtown Salt Lake City over the last 20 years, there is some element of public funding or public involvement.”

VOICE-OVER: In a Salt Lake Council meeting last August there was talk that the hotel itself would be privately funded and built and the public subsidy would be used to fund the hotel’s public meeting space and parking garage. Bob Farrington, Salt Lake’s economic development director, says the free market could not fund an expensive project like this because without a public subsidy, the room rates would hover around $350 per night.

FARRINGTON: “The cost to build it and room revenue that you can generate just are not matched. So I guess like in many things in life, while we might desire to have markets operate sort of totally efficiently, that one isn’t always the case. And I guess also, if every other community would sort of unilaterally disarm they we would maybe be on perhaps a little more level playing field, then markets might work a little more rationally.”

VOICE-OVER: Rich Rosa, vice president of operations at Utah Hospitality who currently owns two hotels in Salt Lake City, says this proposed hotel would not be financially viable.

RICH ROSA: “The minute we bring a thousand rooms in here we now take this market into a different direction and all of a sudden we are now competing against a government business – it’s got government written all over it – and they have to make their payments just like we have to make our payments. The bottom line is, it’s not going to be financially viable eventually because if it was financially viable, a company like mine or a company that could come from outside someplace would see that ‘Wow, we need this big hotel in Salt Lake for this big convention center because all these conventions are going to come in.’”

VOICE-OVER: Another concern of Mr. Rosa’s is adding a 1,000-room hotel to the downtown market would cause the occupancy rate to drop even more.

ROSA: “Currently the market in Salt Lake for 2011 only ran 65.3 percent for downtown and the airport. So you combine that and they’re talking about 70 percent to make it financially viable, and with bringing 1,000 new rooms into the market it dilutes the market; occupancy has to drop overall. If the government partially funds some of this or all of it, it all comes down to falling down on the taxpayer.”

VOICE-OVER: In the August council meeting, the favorable vote was to begin gathering more information and go forward with a request for proposal on the hotel. The RFP did go out, and a committee will meet on Friday, April 13, to review the responses. So what do you think? Should government get involved in the hotel business? Where do we draw the line? For Sutherland Institute, I’m Alexis Young, reminding you that public policy changes lives.

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  • FM_SLC

    Yes the government needs to be involved in the hotel business in this situation.  SLC is missing out on several large conventions that require a convention hotel adjacent to the convention center.  Mr. Rosa makes some very good points, a 1,000 room hotel would canabalize the occupancy rate based on current business, what must be taken into account though is the large increase in total rooms due to the fact the SLC will be able to attract more and larger conventions, creating an substantial increase in total number of room nights for the entire city and region.

    • Matthew Piccolo

      That may be true, that the increased supply in rooms will lead to a corresponding increase in demand for those rooms, but does that answer the question about whether government should subsidize the project? For example, if the demand for rooms would increase enough to make a new convention hotel profitable, then why hasn’t a private company already invested in one? Why does government need to get involved?

      • Darklord

         The private companies are asking only for a subsidy of public parking and meeting space.  If the County/City doesn’t want any public parking / extra meeting space they will build without it. 

        Somethings that benefit the public should be paid for with public subsidies.  No one should require private companies to pay for public features.

        • Matthew Piccolo

          From what I know, the parking and meeting space won’t necessarily be public, they’ll be part of the hotel’s operations, at least that’s how the SLC Council has been talking about it.  Either way, this raises some questions: 1) Would the developers really build the hotel without the parking lot and meeting space? and 2) Even if the parking lot and meeting space are completely public and separate from the hotel, which I doubt, is it fair to give a government-subsidized advantage to this hotel over all the others?

  • FM_SLC

    Yes the government needs to be involved in the hotel business in this situation.  SLC is missing out on several large conventions that require a convention hotel adjacent to the convention center.  Mr. Rosa makes some very good points, a 1,000 room hotel would canabalize the occupancy rate based on current business, what must be taken into account though is the large increase in total rooms due to the fact the SLC will be able to attract more and larger conventions, creating an substantial increase in total number of room nights for the entire city and region.

    • Matthew Piccolo

      That may be true, that the increased supply in rooms will lead to a corresponding increase in demand for those rooms, but does that answer the question about whether government should subsidize the project? For example, if the demand for rooms would increase enough to make a new convention hotel profitable, then why hasn’t a private company already invested in one? Why does government need to get involved?

      • Darklord

         The private companies are asking only for a subsidy of public parking and meeting space.  If the County/City doesn’t want any public parking / extra meeting space they will build without it. 

        Somethings that benefit the public should be paid for with public subsidies.  No one should require private companies to pay for public features.

        • Matthew Piccolo

          From what I know, the parking and meeting space won’t necessarily be public, they’ll be part of the hotel’s operations, at least that’s how the SLC Council has been talking about it.  Either way, this raises some questions: 1) Would the developers really build the hotel without the parking lot and meeting space? and 2) Even if the parking lot and meeting space are completely public and separate from the hotel, which I doubt, is it fair to give a government-subsidized advantage to this hotel over all the others?

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