The following letter was submitted to Odessa Headlines by Midland City Councilman Dan Corrales.
Dan Corrales is not against a downtown hotel. However, as a genuine fiscal conservative I am not an advocate of the price tag taxpayers are expected to foot the bill for.
So how did we get here? This is the third time a taxpayer funded hotel has been brought before council, though this one is quite different. The previous deal with Midway from Houston for $30 million published in the MRT involved $15 million in cash from the Midland Development Corporation (MDC) and another $15 million in incentives like tax abatements from the City. There was no RFP last time, two city councilmen pushed it through. One no longer serves on council.
So how is this different? Taxpayers are now being asked to contribute $45 million in cash from MDC, three times the previous amount and $28 million in incentives in addition to street and off-site improvements that may be funded by the Downtown TIRZ. MDC derives its revenue from sales tax so when you buy a gallon of milk or a piece of lumber you pay that tax. Make no mistake that is your taxpayer money Midland.
So why has everyone attached an inaccurate price tag of $45 million to the project? The $28 million in incentives was never communicated to the public. That is where my $80 million dollar estimate came from which was not a lie, not fake news, but in actuality spot on.
So what did you the public not know? Here is the breakdown:
$9.3 million in City Hotel Occupancy Tax (HOT) (7% of revenue) rebate for 10 years $8 million in State HOT tax (6% of revenue) Rebate for 10 years $5 million in Property Tax Rebate for 10 years (smart not to call it an abatement) $4.7 million in State Sales & Use Tax Rebate for 10 years
$280,000 Development/Permitting Fee Waiver one time
$200,000 Construction Materials Sales Tax Rebate one time
$250,000 Removal of Energas Improvements one time
$250,000 vacation of Colorado Street
$70,000 vacation of Alley on Midland Land
TOTAL INCENTIVE VALUE $28,115,423.50
TOTAL CASH $45,000,000
TOTAL CITY & STATE FROM CITY COUNCIL $73,115,423.50
This does not include street and off-site improvements such as water and sewer big enough to service a hotel which will involve major road work around it and likely over $1 million.
This does not include incentives other tax entities may offer which would likely be pursued as they were with Bass Pro Shops. For example:
$4.5 million from Downtown Midland Management District (DMMD) $1.7 million in County Property Tax
$1.3 million in County HOT tax (1%)
$1 million in Midland College Property Tax
$1 million in Midland Hospital Property Tax
TOTAL TAX ENTITY INCENTIVES $82,615,423
You read that right there is a total of $82 million in possible incentives, $73 million plus City Council will vote on Tuesday. Historically City Council approves it first then the other tax entities fall in line and grant them. Reach out to your County, MC, Hospital elected officials and DMMD to voice your concern. Should this pass they are next on the agenda, literally.
So what is the DMMD? The DMMD derives its revenue as a taxing entity would only exclusively from downtown properties. It promotes the revitalization of Downtown Midland by providing incentives to encourage economic development, infrastructure improvements and events. Learn more at www.DMMDTX.com. Here is the distinct difference between Centennial and Hogan Park in terms of the conservancies. The taxpayer pays half of the maintenance for what was never a city park – Centennial. That’s about $1 million a year that is split 50/50 between the DMMD and the City which the Midland Downtown Park Conservancy uses to take care of the park. The QOP Conservancy did not have a DMMD and Hogan IS a city park. The QOP Conservancy wanted the $2 million plus a year over 65 years with a board that did not include a majority of taxpayer representatives. Centennial has 3 the Downtown Conservancy picks, and 3 City Council picks and one mutually agreed upon. QOP picked 4 and Council 3. So these were not the same conservancy structures at all.
Back to the hotel. What else don’t you know from your municipal government that has elected officials that stated they are advocates for transparency?
The request for proposals (RFP) from the City and MDC was for proposals that could be developed on one city block where the Western United Life building was. The commission chosen to score the proposals was comprised of 3 council members, 3 MDC members and Sara Harris the executive director of MDC. Scott Dufford, John Norman, and myself represented Council and Brad Bullock as well as Chairman Chase Gardaphe served on this committee.
The goal was to select the best proposal. There were four including 1 from Chicago, 1 from DFW and 2 from Midland. Did you the taxpayer know that one proposal was from Insignia Hospitality Group owned and operated by a Midlander that has successfully built hotels in Midland, Odessa, Houston and a number of other cities? They planned to build a Marriott Branded Hotel (the same brand in Odessa) by the Sports Complex before the RFP was issued. Has the banking reference and funding, the plans, and a hotel franchise to do it and offered to build it downtown on this block with ZERO incentives from the taxpayer except the land. The name should sound familiar. They were turned down the last time the hotel agreement was given to a non-Midland developer when council passed it. Why?
He has over 25 years of experience himself and comes from a family of hoteliers, that goes back to their first hotel in 1983 in Texas. So why was his proposal rejected? No cost to the taxpayer? No $80 million dollars in taxpayer incentives that would remove property tax collection that helps keep yours low. No hotel motel tax rebate, 13% of revenue the hotel generates, that removes funding from our HOT Tax Advisory Board that pays for the convention center, funds nonprofits including the Chamber of Commerce and Hispanic Chamber of Commerce and events like the Menudo Cook Off and Midland County Fair. Because MDR was going to be a transformational project. Or so it seemed.
MDR proposed a 2 block proposal that would put the hotel on the parking lot of One Wall Plaza owned by Franklin Mountain Permian which Paul Foster an El Paso billionaire has an ownership interest in. Franklin Mountain owns the Bank of America Building, One Wall Plaza, the First Capital Bank building and others. They purchased them from ERP, Energy Related Properties that proposed the 53 story Energy Tower proposed in 2013. What was MDR’s ask at the time? They wanted the last Santa Rita deal of $30 million. This is important to note because it will change.
Why does Paul Foster matter? The MDR group touted Paul Foster’s experience in hotel development and operation in El Paso and success in placing a baseball stadium downtown. This was a formidable alliance with Midlanders that had no experience in building a hotel or managing one.
Back to the project, the hotel goes on the One Wall parking lot and there would be a skybridge connecting it to a parking garage on the Western United Life building parking lot with ground floor retail space for shopping. Colorado street would be partially closed so the hotel opens up onto the park. Council members met with an attorney from El Paso that worked with Paul Foster as well as another businessman in addition to the Midland group and we were shown a video of all Paul Foster had done. Transformational indeed.
Where did things start to change? Something went south with the idea of the parking lot of One Wall being used for the hotel. Months later Council was informed that the skyscraper, One Wall would have to be purchased by MDR which would include a price tag of approximately $10 million. What use is a high rise building with no parking? Minimal. So how could they believe the parking lot could be conveyed separate from the building? I don’t know. But it is a bridge too far. Paul Foster is also no longer part of the deal so the $150 million dollar hotel is being built by a group with no experience in hotels nor do they have a brand. No Marriott, no Hilton. No points if you stay there. Points matter.
MDR then comes back to council stating they may not be able to procure that building and wanted the option to submit an alternate proposal where they only develop the one block that all other proposals had originally submitted as the RFP required. Where is the rub? MDR doesn’t want the Santa Rita deal for $30 million with $15 million in cash. MDR wants 3 times more cash, $45 million plus another $30 to $35 million in incentives for approximately $80 million dollars, Not fake news. More money from the taxpayer but the project gets smaller in scope. Give us the money and maybe you’ll get an apple or maybe you’ll get an orange but give us $80 million all the same. If you are in shock, you should be because I was. Your City Council to date hasn’t made a counteroffer. Why? Why the rush to push this through?
Paul Foster is no longer part of the deal. 50% to 60% of the total cost to be funded by taxpayers but no one has experience building a hotel. We also don’t get to see the pro forma or their business plan as to how a $1 million dollar a key/room hotel stays solvent. The Odessa Marriott has struggled with being profitable, not just because of COVID but other economic factors.
From a legal perspective we have issues as well. A governmental body ought not score a project on one proposal then turnaround and grant it to a possibly different proposal. How is that fair to anyone who submitted a proposal for the RFP? It is not. The others who submitted a proposal have standing to sue the city.
Where is the transparency from your government on this taxpayer funded deal? Why is one council member the only person making the effort to be transparent? This information about the incentive cost of $28 million was not in the MRT, the TV News, the MDR website, MDR’s media day where questions were limited, it is no where else to be found except City Hall ………… and possibly someplace else.
Banks do not fund 50% to 60% of a hotel, without a pro forma, without a hotel brand, without experience in building and managing hotels. But this isn’t a loan. It is a gift at taxpayer expense that doesn’t have to be paid back. The scrutiny then merited by elected officials should be even greater than that of a banker, scrutiny that is more risk averse than a financial institution that is in the business of making money. Yet your council has not even met in executive session to discuss the finalized agreement which was not ready before City Council and MDC board members received an invite for the emergency meeting Monday January 22nd at 10am.
By the time you read this they have voted and passed this at MDC’s board meeting. It is a disservice to taxpayers and a dereliction of duty to vote for this. The question is do your elected of<icials have the taxpayer’s interests at heart or someone else’s? No one with acute business acumen would approve this. That is why I will vote NO.
According to the Texas Public Policy Foundation, which has several Midlanders on its board, Corporate welfare occurs when the government favors certain businesses in the form of direct subsides, tax credits, or favorable regulatory schemes. Sometimes this practice is referred to as “economic development.” This label creates a damaging misconception about corporate welfare, which leads to economic contraction rather than expansion.
True fiscal conservatives do not selectively adhere to their principles. The “Do as I say not as I do” approach is not genuine. We cannot call ourselves one thing one day and something else the next. That my fellow Midlanders is hypocrisy and has no place in local government, especially not the Midland I grew up in.
Yours very sincerely and respectively,
Dan Corrales
City Councilman At-Large