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Council approves hotel fee waivers with timeline, wage restrictions

Thursday, June 30, 2011 by Josh Rosenblatt

Council approved waiving $3.8 million in development fees Wednesday for a 1,000-room hotel on Congress Avenue between Second and Third streets, a hotel many say is badly needed in order to increase city tourism. In return for those waivers, White Lodging Services will have to comply with a construction timeline and wage and subcontracting guidelines.


Council members were originally scheduled to vote on the waivers at their meeting last Thursday but postponed it to further study the measure before a vote. Under the terms of the agreement, the city will waive just under $3.8 million in development fees, including $3 million for right-of-way fees and $455,585 in permit fees. In addition, Austin Water utility will share with White Lodging the cost of adding a 15-inch wastewater line up to a maximum amount of $500,000.


White Lodging will invest approximately $215 million in construction costs in the project, with $100 million coming from the company itself. They will hire about 715 permanent employees after construction and pay an average annual wage of $38,000. A cost/benefit analysis of the project conducted by the city’s Economic Growth and Redevelopment Services Office estimates a net gain for the city of approximately $25.5 million over the next 10 years. 


At Wednesday’s meeting, Council members approved two significant amendments to the original resolution. The first, offered by newly titled Mayor Pro Tem Sheryl Cole, stipulates that construction begin on the project in no later than 14 months. The fee waivers would terminate if construction did not begin by then. Cole said the timeline is important because recent economic realities have resulted in long delays and even cancellations of development projects.


“There is significant concern in the public that the hotel won’t actually be built,” Cole said. “So we don’t want to have waivers sitting out there that aren’t actually being utilized, especially when we are getting requests from others to build hotels.”


The second amendment, offered by Council Member Mike Martinez, acknowledges what Martinez called “our long-term values as a city as it pertains to minority participation in our projects and our prevailing wage standards.” The provision, which will apply during the project’s construction phase, states that if White Lodging does not comply with the city’s regulations concerning both the use of (or good-faith efforts to use) minority- and women-owed contractors and subcontractors and paying workers the prevailing wage, all fee waivers will be voided.


Prevailing wages are based on federal Department of Labor statistics.


Asked what the effect of a prevailing wage policy on the construction of the hotel could be, the president and CEO of White Lodging’s Investments and Development Division, Deno Yiankes, said he thought it would limit the competitiveness of the contractor’s ability to bid with subcontractors, though he admitted there would probably only be a “slight uptick” in project costs. He asked that the prevailing wage provision not be added to the agreement. 


All three amendments stayed, however, and Council voted in favor of the fee waivers by a vote of 5 to 2, with Council members Laura Morrison and Kathie Tovo voting no.


Morrison said it wouldn’t be right for the city to sacrifice $4.5 million when it only has $13 million to allocate for social services. Tovo, meanwhile, admitted that adding a 1,000-room hotel downtown would be a “net good” but she couldn’t understand why $4.5 million would be so critical for the success of an already financed project of such size.


“This is income we’re forgoing. That’s a very important consideration right now as we look at budget gaps that will result in closing neighborhood pools and other important quality-of-life issues,” said Tovo.


The White Lodging project is actually the second major downtown hotel deal to come around recently. Last week, the San Diego-based Manchester Financial Group announced plans for a 1,035-room hotel on Cesar Chavez at Waller Creek. Site owner and local developer Perry Lorenz told In Fact Daily, “Manchester would expect the same courtesies in terms of abatements, waivers, expediting of planning review and permitting that any other developer would get that built a 1,000-room hotel that was going to benefit the Convention Center.”

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