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Staff offers rosy economic forecast for second convention center hotel

Monday, November 8, 2010 by Michael Kanin

Representatives from the City of Austin’s Economic Growth and Redevelopment Services Office have told the City Council that a new convention center hotel could bring widespread economic benefits, including up to 1,200 new jobs for the city.

 

Those figures were presented as part of a briefing last week on the possibility of building a second hotel in the immediate vicinity of the convention center. They were predicated on the idea that such a project would greatly expand the number of conventions that the city could attract.

 

Still, those predictions caused some concern among Council Members. Indeed, both Laura Morrison and Bill Spelman wondered about different portions of what they’d heard.

 

City staff brought in economist Jon Hockenyos, a consultant with TXP Inc., to look into the numbers. Hockenyos put forth three scenarios—conservative, moderate, and hopeful takes on what a new hotel could bring.

 

Under the conservative estimate, Hockenyos projected nearly $14 million in “direct new net spending.” That figure, he said, could grow to roughly $25 million in secondary economic dollars. As a result, he predicted that the city would see just over $1 million in new tax revenue and 351 new jobs.

 

The moderate figures show $26.7 million worth of new spending, which would spin-out to $48.6 million in secondary activity. There, Hockenyos sees $1.6 million in new city taxes and 682 new jobs.

 

At his most hopeful, Hockenyos suggested that the city could bring in nearly $46 million in new spending and $83.6 m in secondary activity. Those numbers would also bring in almost $2.5 million in additional taxes and 1172 new jobs.

 

Hockenyos said that the most likely of these estimates is the moderate one.

 

Morrison was direct. “We did some estimates back in ’98 when we went forward with the Hilton and I’m wondering how good our guesses were about the future,” she said.

 

Economic Growth Deputy Director Rodney Gonzales noted that he wasn’t yet in his position then. “I know there has been some discussion lately about the Austin Convention Enterprises—about that performance,” he said. “I can tell you this…the debt is being serviced so they are certainly making the revenues to service the debt.”

 

To finance the construction of the first convention center hotel, the City of Austin contributed $15 million directly. The project was primarily financed through a series of bonds issued by Austin Convention Enterprises, Inc. That company was set up in 2000 as a non-profit corporation that would finance the project.

 

Spelman asked about the profit motivation for the future hotelier. “Can we reasonably expect that…whoever builds this thing is going to make as much money off of this as they would their next alternative—is this going to be a particularly lucrative investment or not?”

 

“I’ll be honest,” replied Hockenyos, “I don’t know the answer to that.”

 

When asked about potential incentives that the city might use to court a new hotel, Gonzales would not comment. He told the Council that “for the deals that we do…they are net positive.

 

“So when we go through and compute the economic analysis, we ensure that the city is on positive foothold from day one,” he added.

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