Savannah City Council unanimously approves controversial bond deal to support hotel development

Yesterday, the sometimes-divided Savannah City Council voted unanimously to approve a bond issue that will allow the massive Riverside Plant Project to move ahead. The vote may have been overwhelming, but the public debate has been extremely contentious over the past week.

First, a little context for those of you who aren’t in Savannah. If you’ve been here in the last couple of decades, your trip has almost certainly been impacted in some way — whether you knew it or not — by the decommissioned power plant at the west end of River Street. The brick portion of the building is pretty grand, but the large unused lot forced the Riverwalk to come to an abrupt end, discouraged pedestrians, and severely impacted business potential near the intersection of River Street and Martin Luther King, Jr. Boulevard. Here’s a shot I took of Plant Riverside a few years ago from a boat in the Savannah River:

Developer Richard Kessler (the man behind The Kessler Collection of luxury hotels, including the Bohemian and Mansion here in Savannah) has been working for several years on a massive redevelopment project that would involve preservation of the oldest portions of the power plant plus new construction to both the east and west.

Here’s a detail from the master plan documents submitted to the Metropolitan Planning Commission in 2014:

Click here to see many more details about the project.

From the beginning, the project required public involvement, planning, and investment. The Riverwalk will be extended west of MLK, and there will be streetscape upgrades and new pathways, including a grand public staircase connecting River Street to the Montgomery Street corridor. These are great improvements, in my opinion, and collectively these efforts will promote connectivity in ways that will unlock some of the economic potential of the northwest corner of Savannah’s famed Historic District.

But recently Kessler and company requested that the city issue $33 million in bonds to finance the construction of the parking garage, which would be built and managed by Kessler, with about 240 spaces reserved for public use. (Apparently Kessler has maxed out his ability to finance the project independently.) It’s also worth noting that the cost per space in the garage is very high relative to estimates from around the country, and I haven’t seen a clear detailing of the reasons for the high price, although the numbers are likely inflated by the fact that the garage will apparently be encased within a luxury hotel building.

And keep in mind that this is the same project that prompted the state of Georgia to dramatically raise its minimums for tax credits on certain projects. All told, Kessler was already set to get $26 million in tax credits at the local and state level.

Jim Morekis of Connect Savannah wrote a column questioning the deal last weekend:

But the longer you look at it, the less reassuring it becomes, and the more questions it raises.

The oddly specific, customized wording seems to exacerbate concerns that a one-off public project like this could inspire a legal precedent for future developers to point to for their own purposes, as long as there is some quantifiable public benefit.

If this developer gets a bond issue by “requesting” one, why shouldn’t they request their own as well?

The Savannah Morning News editorial page called on council members to table the proposal and consider it further:

For example, is it fair for government to favor one developer over others? What is the proper role of government in supporting private enterprise? Should government be in the business of picking the “winners” and “losers”? While public-private partnerships are increasingly common, the city’s approach so far has been erratic.

Despite vocal public opposition at yesterday’s council meeting and intense anger on social media, the mayor and aldermen voted unanimously to approve the $33 million bond issue. From Eric Curl today in the Savannah Morning News:

Under the agreement, the developer would make all of the payments on the bonds and at least 237 spaces would be available for public parking in the 488-space garage that would be surrounded by hotel rooms. Kessler would retain all the parking revenue, but he would be responsible for maintenance and operating costs. He would also pay the city $100,000 per year for 30 years and then $50,000 per year for 20 years after, according to officials.

An amendment proposed by Alderman Estella Shabazz to require Kessler to put his existing properties up as equity, as well as guarantee a minimum level of minority contractor participation and a pay level of at least $15 per hour, failed to garner support from the rest of the council.

There were some concerns raised by members of the public that the deal would leave the city responsible for the bond payments if Kessler were to default.

Mayor Eddie DeLoach spoke forcefully on behalf of the bond because of the new jobs — allegedly 700 — and the $10.25/hour minimum pay for hotel employees, which is required because of the tax credit agreement with the state.

Is there risk for taxpayers? Certainly some. Does this feel like a government picking winners — and giving the wealthiest investors even bigger advantages? Yes. Does this seem especially problematic as many Savannahians are questioning the massive growth in tourism in recent years — an increase that many feel challenges the very identity of the city? Absolutely.

But would I have voted against it? No. From the SMN again:

Alderman Van Johnson said the deal may be unfair because they are assisting a single developer when there are others he would like to help, but the project’s size and impact was unique.

“This is a massive investment,” said Alderman Van Johnson. “This is property that has been an albatross around this city’s neck and no one has been able to do anything about it.”

On balance, the risks seem small, and the upsides are huge. We already knew that public investment would be needed to facilitate the hotel development, so now we’ve expanded the public role to support the financing in return for a guaranteed 200+ public parking spaces.

Maybe it’s also worth noting that Savannah council members won’t be up for re-election until 2019, so at that point they might be able to point to a largely finished project.