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Groundbreaking
Gastonia (projected)
Cost: 10.5 million
Size: 29,600 sq ft
Occupancy: 350 Banquet
40 to 60 classroom
Location: downtown
Primary funds: Hotel Occupancy
Tax
Features: meeting rooms,
expandable exhibit space,
classrooms, catering kitchen
Parking: parking deck (fee) |
Statesville
Cost: 5 million
Size: 32,000 sq ft
Occupancy: 600 Banquet
400 classroom
Location: downtown
Primary funds: Hotel Occupancy
Tax
Features: meeting rooms,
expandable exhibit space,
classrooms, full kitchen
Parking: free |
Evidently everybody is going to a conference if it is in Gastonia. At least
that is what our city leaders want us to believe. As the city gets ready to break ground on the new conference center the mayor and city manager were all a glow as the Gaston Gazette interviewed them for an article about the project. They were full of confidence that they were doing the right thing and everybody would eventually see how this one project was going to save Gastonia. (The last part was our interpretation of what they said)
Anybody that has spoken out against the New Gastonia Conference Center has been dismissed as negative or a vocal minority. Yet, almost daily we hear ordinary citizens complain about the how our city leaders are going ahead with a project that nobody wants. We took a poll some months ago and 89% of respondents were against the idea of the city spending money
on a conference center downtown. Of course what do ordinary citizens
know? The mayor was quoted in the Gazette article as saying, "The
naysayers? God bless them." For those of you that are not from the South, when you say "bless your heart" or 'God bless them" it is the polite way of saying "screw you". You can say anything negative about anything or anyone as long as you follow it up with one of those phrases and it makes it all better. Nice try Mayor, but we still say you are wrong and your quaint southern expressions do not not sway us. We are Southerners too so try this one, the public is getting the short end of the stick because the mayor is half cocked and countin her chickens before they hatch.
In the table above, to the right, we have compared some basic figures about the Gastonia conference center and the Statesville conference center. We used Statesville because Mayor Stultz has referenced this facility on may occasions as proof that the one in Gastonia will be a success. All this really told us was that Statesville (a smaller city) built a bigger and cheaper facility than Gastonia (a larger city). The Gazette article didn't really give us any insight either. All we learned from that was that Statesville never expects to turn a profit on their building. Luckily for you, we have been researching this topic for about a month now. What did we find? Keep reading and try to keep your temper, it really can make your blood boil.
Our Research
We started by researching conference centers and facilities. We included facilities because there are so many hotels that are capable of hosting events similar in size to the one proposed for Gastonia and they will compete in the same market. There are over 100 cities and communities in North Carolina that have facilities that will compete with Gastonia. The conference center market has become so flooded that many facilities are specialized. Raleigh has the Biotechnology Center which specializes in hosting events for bio-tech companies only. Then there are plenty of facilities such as Ridgecrest which is a Christian facility in the North Carolina mountains which caters to religious groups. What would Gastonia's specialty be?
If you can figure out the answer to that one then let us know. The mayor and city manager keep talking about all of the tourism this building will bring in but others that are experts in this field keep referring to local events such as weddings and reunions. Well, which is it. Are we going to end up with a building that really is geared to cater to everyone and therefore not really the special destination that anyone wants to go to? In an already crowded market you have to do something to stand out. You have to be special and find your niche market. Copying everybody else will not bring success.
We also researched the preliminary plans for several facilities that have already been built and what the studies showed prior to construction. The first thing that jumped out at us was that every single study listed hotel rooms that were adjoining or included in the same facility as very high importance. This was followed closely by food/dining and entertainment. Well, Gastonia is not doing too well so far. Gastonia's facility does not have a specific target group to market too, it doesn't have hotel rooms, and it doesn't have dining or entertainment. Oops. We almost forgot that the city was giving $700,000.00 to someone to open a restaurant. (how much do McDonald's franchises go for these days?) So what else? Why do the city leaders think this is going to be such a huge success?
Statesville Knows Best
As we mentioned earlier, Statesville said they don't expect to turn a profit. Kenny Roberts, the Statesville Civic Center Director was quoted as saying, " community convention centers are not designed to make a profit." John Wilderman, of the Wilderman Group stated in the Gaston Gazette article that you can ,"create a facility that will not be a drain on the city". It should be noted that The Wilderman Group was paid $114,000.00 to advise the city about what to include in the facility and also on marketing it. The Wilderman Group is currently negotiating with the city to mange Gastonia's facility but it appears that deal is already sealed. A look at their website already list the Gastonia Conference Center as one of their clients. It is a shame that Gastonia hired a South Carolina company instead of one that was local or at least in the same state. It seems that everybody else acknowledges that these types of facilities do not turn a profit and should not be expected too. Our City Manager, Jim Palenick, proudly declared on February 4 of this year in a Gaston Gazette article however, that the Hotel Occupancy Tax would be used for debt service and operating expenses for the first few years until it could start turning a profit. Now remember that Jim Palenick is the same person who tried to do this very project with a hotel included and also another project the Big Splash. All failed projects. This newest project did not require voter approval however, so why should he care if it fails or not. Nobody was able to stop him this time and the city council just sat there and let him mortgage the city. Seriously, he did mortgage the city. Four fire stations are being used as collateral for the bonds that are being issued to finance this project. Palenick has already applied for jobs in other cities so he probably won't be around to clean up the mess if it fails.
Statesville never expected to make a profit but some how Gastonia does? We don't think so. Our feelings are that this was more of the same old rhetoric that we have learned to expect from the city manager to get what he wants. Every single conference or civic center we have reviewed, that was owned or run by a municipality, is in the red. Gastonia's will be no different. Of course the Wilderman Group will expect to make a profit but it seems Gastonia has become experts on lining private individuals and companies pockets with tax money. Just look at the Worthy Foundation sublease or some of the other downtown fiasco's. While the city bleeds money the private sector is lapping it up. It should also be noted that out of about 10 different cities that we studied, only one saw any measurable growth in their downtown that could even be slightly attributed to a conference center. This particular one was built in the early 1990's so the economy may have been the biggest factor but it would be hard to measure. Statesville has not seen any growth to their downtown as a result of the construction of a conference center.
The Numbers Don't Add Up
Did you know that our City Manager, Jim Palenick, gets help with the complicated finance schemes from none other than Merrill Lynch. You know, the company that along with Lehman Brothers and some others were faulted with almost collapsing the entire US economy. As it turns out, it was Merrill Lynch that advised Mr. Palenick to use the fire stations as collateral for the conference center bonds. Lucky for us we found a video where Merrill Lynch is explaining why their customers should buy these very same bonds. Not that it is illegal but it seems odd that the very people telling the city how to finance their bonds are also the same people telling investors which bonds they should buy. Isn't something like this what put us in a recession?
Watch the video by clicking HERE |
We went back and reviewed the initial proposal that Mr. Palenick made to the City Council. His proposal includes the projected figures for the Hotel Occupancy Tax and how that money would sustain the facility at least for the next 23 years. He stated that he wanted to be very conservative so he figured in a 0% increase for the tax revenue. Salisbury, another nearby city with a conference center did a similar conservative approach. They figured that their tax revenue would only increase 3% even tough it was projected to increase by 4 to 8%. They built their facility in 2004 and it was projected that by 2010 it would be at least breaking even. We are sure you know how that turned out. Statesville is not different. They knew they would not make a profit but after 11 years of operation the Hotel Occupancy tax still contributes 69% of the facility budget and this past year it saw a decrease of 12% in fee revenue. This is money that the city has to take from their general fund to meet bond payment obligations. They also saw a 30% drop in their investment earnings. The bad news for Gastonia is that even though Mr. Palenick said he was using a very conservative figure of 0% growth in the Hotel Occupancy Tax, hotel occupancy is down from last year so that means it is a negative number and less than zero. Gastonia is already in the red before the facility even gets built!
The whole tourism issue has us bothered as well. This facility is supposed to bring revenue into the city. Even if the facility itself is not profitable it could be forgiven if it brings revenue into the city in other ways. Tourists spend money on hotels, attractions, and dining. This does not look good for Gastonia either. Statesville only averages about 15% of it's bookings from out of town. This hardly can be considered a boom to the economy. Mooresville kept it's facility booked 89.59% of the time last year and the majority of the bookings were locally. Even with a good record of bookings they still saw a decrease of 4.97% in revenue or fees collected. They also had to make $4.5 million in renovations to their facility only after 6 years in operation. Gastonia has not taken this into account in the budget that was presented to the City Council. Salisbury, who already has a facility larger that Gastonia's, is already studying additions that they feel are going to need to be made. The facility in Hickory does a huge part of it's business with out of town meetings and conferences but it purposefully discourages local bookings and will even bump a local event if one from out of town wants the space. I am not sure this would go over well in Gastonia, especially with the (alleged) facility manager saying it will be great for weddings, reunions, and local civic groups.
The Numbers Still Don't Add Up
Nobody knows what the future holds. The mayor seems to think the conference center will eventually be a huge success. Maybe it will. (if you are a betting man that is not a good one to make). But what if it is not the huge success that city leaders think it will be? What if the area continues to lose industry and the economy get worse? What if it is as simple as nobody wants to use the facility? All of these are real possibilities. If this happens, then the city still has to make the bond payments. For the first two years the payments are interest only so that debt is not decreasing. Id the Hotel Occupancy Tax and fees from the facility are not enough then the money will have to come from the general fund. We already know that the city budget is strained so where will the only come from? It has to be paid, in all of his wisdom in order to get a little lower interest rate the city manager has mortgaged our fire stations. If you are thinking higher taxes then you are probably right. It will either be higher taxes or a cut in services provided by the city. Either option is not acceptable when you think that this facility is not even something the city needs. Getting back to mortgaging the fire stations, this brilliant financing plan was created by our city manager with the help of the financial gurus at Merril Lynch. You know the ones that were at the fore front of the Wall Street collapse. Remember, they were going to have to file bankruptcy and send the economy further in the tubes when Bank of America scooped them up for a fire sale price and the government allowed all of these shenanigans to take place. Why is it that our local government would even trust their advice?
Of course we are not experts on such matters. The city manager is probably correct when his says now is the time. Bond rates and construction costs are low right now. We just paid off other bonds so our debt really won't increase. We should take advantage of it. NOT! This is the stupidest logic we have ever heard. If you are one of the millions of Americans that is struggling to survive and just put food on the table is this the type of logic you use. Let's say that you are struggling financially. You realize that you are getting ready to make your last car payment. What a relief. Not having a car payment will certainly ease your budget and give you some breathing room until your finances improve. But then you see a really good deal on a new car. You know interest rates are low and you have good credit so why not. You are paying off your old one and the new one won't increase your monthly bills so you go for it. Essentially this is what the city is saying with their budget. But what happens if in 6 months from now you lose your job. All of a sudden that new car payment doesn't seem so harmless. You suddenly realize that if you didn't have a car payment you could probably get by. At this point it is too late. Your new car is going to get repossesed and your credit will be ruined. The same thing could happen to the city. Just because it is a municipality does not mean things can't happen. What if some of the infrastructure suddenly failed and more bonds have to be issued to cover the repairs. Suddenly there is not enough money in the budget to cover the bond payments. Not to mention that the added bond debt has lowered the city's credit rating and they will have to pay a higher rate to begin with. Now, all of sudden the city will have to cut services and raise taxes. What is really scary is using the fire stations for collateral. One of our sources inside of the city told us that the city would never let the fire stations be foreclosed on. Of course not. That is why the city received such a good rate on the bonds. No one could ever believe that a city would let it's public service buildings go into default (read article below) That doesn't mean that the city will not have to take money out of the general fund to save them though. Who mortgages a fire station? What's next, police cars or perhaps even city hall? That conference center is definitely not looking so good anymore. (not that if ever did) Not at this price.
The whole project has wrong written all over it. Wrong time, wrong place, wrong reasons. So from Sanford to Salisbury and from Hatteras to Hickory, North Carolina has it's abundance of conference centers. Now we can add Gastonia to this overpopulated list. Mayor Stultz has spoken and so it will be! Who cares what the people think. They are small and not important. Let them eat cake, uhh, I mean God bless them. Sorry, we got our selfish dictators mixed up. At least this time the mayor didn't proclaim that no tax money would be used for the project and then do it anyway.
Do the Right Thing
We would love to ask the city council to do the right thing but unfortunately it is too late for that. The city manager and the mayor have already won. They have ignored the voice of the people and the city council was more than happy to assist. Just like in Washington, they are out of touch. Perhaps they have been in office too long as well. Please think long and hard over the next year. We as citizens and as a city continue to struggle and we need to decide if we have the right leadership in Gastonia. Come November 2011, do the right thing. Cast your vote for the person(s) that you think will actually represent you and not their own selfish dreams. Elected officials are not supposed to leave a legacy of debt in order to build large useless buildings. They shouldn't be concerned with with the frills of city expansion and fancy buildings when the basic services are barely being covered. If they do their job right, future generations in better economic times will build great buildings and name them after the leaders that actually got it right during the tough times. The ones that represented the people and provided strong solid leadership even in times of economic turmoil. The ones that we wish we had now.
To Read the Deed of Trust for the financing click HERE. To read Part 2 of this article, "the $100,000,000.00 Secret" click HERE.
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Do you think that using the Gastonia
Fire Department Buildings as
collateral was a little stupid?
You have no idea.
Read how a town in Virginia may
lose their Police Station and City
Hall for doing exactly what
Gastonia is doing now. The city
leaders let greed and big
dreams cloud their judgment and
their obligation to the citizens.
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How safe are bonds and are the
tax payers as secure as our City
Manager and Mayor would have
us to believe? Click on the article
titles below to educate yourself
and then you decide.
Time Magazine
Municipal Bonds:
The Next Financial Land-mine
National League of Cities
City Fiscal Conditionss in 2010
NY Times
Small Town Big Debt
(video)
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What Experts Are Saying About
Municipal Bonds?
The National League of Cities says
municipal governments will probably
come up $56 billion to $83 billion short
between now and 2012. That's the tab
for decades of binge spending;
municipal defaults could be our
collective hangover. The average
five-year cumulative default
rate for investment-grade municipal
bonds is less than half a percent,
according to Moody's data. That's
about one one-third the amount of
corporate debt defaults. But
municipal defaults are on the rise, and
the trend is expected to continue.
CNN Money May 28, 2010
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Two Cities - Two Paths
Two Cities in the Bay Area
of California had the same
problems. They had very
different solutions however,
and the results say a lot. One
city seems eerily like Gastonia
and that is not the outcome
we want to have.
Click HERE to read the comparison
and find out how one city is
staying solvent through the recession.
hint: it's not the one that is similar
to Gastonia |
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