Check Out Time

UPDATED BELOW

Trenton’s City Council is set to meet this evening at 5:30. One of the items on this evening’s Agenda is Resolution #13-204, authorizing another cash transfusion to the struggling Lafayette Yard Hotel, now in its last five weeks as a Marriott-branded property. Tonight’s resolution is for an amount of $200,000, which will add to the $295,000 voted by Council in March to the hotel’s governing body, the Lafayette Yard Community Development Corporation (LYCDC), to provide cash flow to pay outstanding bills. These measures approved by Council this year are only prelude to additional sums likely to be at least $3 Million,  the sum that has been estimated (as “a Lower-End number,” remember) would be required to renovate and upgrade the facility and cover transition costs to a new hotel brand, Wyndham Hotels, and a new management company.

The prospect that Council will approve this resolution looks a little more remote this morning. North Ward Councilwoman Marge Caldwell-Wilson, who voted for the $295,000 in March, is quoted in this morning’s Trentonian as saying she’s had enough, and would not vote tonight to approve the additional request of $200,000. “I’m not going to vote for any more money for the hotel unless they can start pursuing a buyer,” she said in the article written by David Foster.  In addition, she has stated she would not vote to approve the $3 Million in renovation and transition funds. If she follows through with these intentions, and joins her three Council colleagues – current President Phyllis Holly-Ward, Zachary Chester and George Muschal – who voted against the Hotel in March, that majority of four would be enough to kill the transition plan. The Hotel would be forced to close, and the City would put the property for sale.

To me, this is good news. There is no sound business case to be made that this property will turn around under a Wyndham flag, when it has failed for over a dozen years under a Marriott flag. The taxpayers of this City and State have invested enough money it will never see again. We will continue to pay for many years to come until all its debts are paid, even if the hotel were to close its doors today. There is simply no reason to add to that debt by selling more long-term bonds, which is the only way $3 Million could be raised by the City. Ms. Caldwell-Wilson agrees with that. Also from this morning’s Trentonian: “I’m not even going to support bonding because that just increases our debt.”

That debt, as quoted in this morning’s Trentonian, in other recent press pieces on the matter including articles in this space, and in the LYCDC’s own Historical Financial Review written in February, is stated at being a little under $31 Million Dollars. And that is true, as far as being the debt that is the responsibility of the LYCDC, and therefore of the City of Trenton.

But there is another piece of long-term debt, being carried by the State of New Jersey and totaling $18,250,000 that has been missing from all current conversations about the future of the Lafayette Yard Hotel. To me, news of this additional amount only emphasizes to me what a boondoggle this has been for over a dozen years, and makes me adamant that this boondoggle simply has to stop.

A reader who has personal knowledge of the transactions involved years ago pointed out to me that the State participated in the long-term financing of this project, which cost $43.6 Million Dollars to construct. In addition to direct loans to LYCDC which are listed in the Historical Review at $4,162,158, the State issued about $14 Million in bonds to help pay for construction. Those bonds, like the $14,050,000 issued by the City, were intended to be paid back from profits earned by the Hotel.

Of course, that never happened. Instead, the City has been assuming payments on those bonds out of its own budget (almost $1.4 Million in Fiscal Year 2012, nearly $800,000 in FY 2013), and will continue to do so for several years to come.

The State, in 2008, acknowledging that the Hotel would default on its obligations to service the State bonds, refinanced its Lafayette Yard debt by a process called “defeasance,” in essence designating the proceeds of another property to pay the debts of the Hotel. That action is described in this April 14, 2009 memo by Caren Franzini, then the Chief Executive Officer of the NJ Economic Development Authority (EDA). The refinanced sum came to $18,250,000.

The State’s Hotel debt was defeased by designating a Payment in Lieu of Taxes (PILOT) for its property the Capitol Plaza building at Lafayette and Warren Streets, to pay the annual debt service. That means that a PILOT, of about $1.4 Million annually (my estimate, I wasn’t able to confirm that number) that normally would be paid to the City of Trenton by New Jersey to help pay for Trenton’s budget, instead goes to pay for the Hotel. [UPDATE: My reader tells me that the annual amount of the Capitol Plaza PILOT is about $1.9 Million in 2013, gradually rising to $2.7 Million in 2020, when the State bonds are paid off. ]

Let that sink in.

There’s about $1 Million per year that the City pays out of its own budget to pay off the debt of the hotel. And the State is paying well over $1 Million a year – money that could be coming to the City – to do the same thing.

The total amount of debt that the Hotel is responsible for, on the City’s books and the State’s, is not $31 Million, but closer to $50 Million.

The plan before City Council would add at least another $3 Million Dollars to that amount. And the prospects of paying any of that off through profits to be earned by the hotel do not look any better now than they have for the last dozen years.

With these additional considerations in mind, Ms. Caldwell-Wilson’s intention to oppose any further public funding of the hotel looks to be the only responsible position.

Mr. Foster’s Trentonian piece quotes a few of her colleagues as being in agreement. South Ward member George Muschal said, “[T]axpayers have had enough. I ain’t giving them nothing, absolutely nothing. It was zero when I first took office and it’ll be zero until I’m out of office.” He also favors selling the hotel, as does Ms. Holly Ward: “Everyone keeps saying they don’t want to sell the hotel for cheap. We’re going to have to.” Mr. Chester could not be reached by Mr. Foster for his article, but he is on record as opposing further aid to the hotel.

All this may mean that the City’s process of checking out of the innkeeper business and selling this white elephant begins tonight. I sure hope so.