Making Dollars And Sense Out Of City Rec Center Funding
There are three options to pay for Mayor Stephanie Rawlings-Blake’s $136 million plan to overhaul aging city rec centers. But no matter which one city leaders choose, at least one economist says they should choose wisely.
The mayor prefers her plan to sell four downtown parking garages, which she submitted to the city council a year ago. Council President Jack Young has yet to schedule a hearing on that. Instead, he proposed last week selling the money-losing, city-owned Hilton Hotel next to the convention center.
Rawlings-Blake says Young should know the city would lose money on that deal.
“The unfortunate part of this is we’re still talking about it as if it’s a real option,” she said. “It’s not an option if you’re trying to put dollars on the table to build recreation centers.”
The city floated more than $300 million in bonds in 2005 to build the hotel. Mayoral spokesman Howard Libit says the city would have to pay a big penalty if it sells the hotel before September 2016. He didn’t say how much.
Dennis Coates, a University of Maryland Baltimore County economics professor quoted in Young’s press release last week announcing the call for the hearing, said selling the hotel was “philosophically and economically the right thing to do” and called the hotel “a valuable piece of property.”
Young failed to respond to requests for comment.
Steve Isberg, an associate finance professor at the University of Baltimore, cautions that the city says the city should make sure there is more to gain than lose by selling either the hotel or the garages.
“If they’re providing substantial revenue to the city – even more so than what they would provide in tax revenue – it would be logical for the city to hold on to those assets and not dispose of them,” he said.
The Hilton has not turned a profit since it opened in 2008. It lost $5.6 million last year.
Isberg says the city would have to pay off the bond debt before putting the hotel on the market. Then it comes down to how much the hotel is worth, if there are potential buyers and would there be enough to fund the rec centers.
“There are a lot of complications including how much that outside buyer’s going to put back into the building to keep it current; keep it in shape and keep it marketable as a commercial property,” he said.
Selling the parking garages could get complicated as well. Isberg says the city would lose a steady money maker if the garages became private property. There is also a possibility the buyer could turn the garages into something else if there are no covenants to prevent the conversion in the sale contract.
“If it makes economic sense for that buyer to buy the property, knock down the garage and put up a set of condos; that would be a market transaction and a market decision,” he explained.
The third option would be to hold on to the garages and the hotel and assign a portion of the revenue from them to fund rec center renovations. But the mayor says that doesn’t make sense.
“The amount of revenue that you would get would not support what we’re trying to do with rec centers,” she said. “I’m looking to put 40 to 60 million actual dollars on the table to build recreation centers.”