The Government as Innkeeper

Plenty of room at the Hotel Tampa

As if market rigors in a city where hotel occupancy rates average only 70 percent weren't rough enough, the hotel industry in Tampa, Florida, is about to face a new, tax-exempt competitor: their own city government.

"If a first boondoggle doesn't succeed, try, try again" appears to be an operating motto for the city of Tampa. In 1990, the city launched a $140-million downtown convention center, with the hopes that it would revitalize downtown. The convention center isn't profiting as planned, so officials are now contemplating spending another $141 million on a convention hotel, which they have decided is essential to the success of the convention center, as well as the aquarium and hockey arena they are also building.

The city has given itself an edge by becoming the first commercial hotel to obtain tax-exempt non-profit status from the IRS. It will also be exempt from local property taxes, and is pursuing an exemption from Florida's state sales tax.

The historical record doesn't look promising for the hotel's success. A study of 25 government-run convention centers cited in a Heartland Institute policy paper indicated yearly operating losses averaging 42 percent of revenue. Attempts at entering the hotel business by governments have fared little better: Visalia, California's ownership of a Radisson Hotel has cost taxpayers there $20 million in spending and debt, and the state of Washington lost at least $100 million in a financing deal with Red Lion Inns.

The Hillsborough County (where Tampa is located) Hotel and Motel Association isn't thrilled at the prospect of having to face a tax-exempt competitor with the city government behind it to cover all losses. Its executive director, Robert B. Morrison Jr., wrote the Tampa City Council that the feasibility study the city commissioned to prove the market validity of the hotel contained "an annual $2-3 million discrepancy in the revenue projections" and did not compare their market with the markets in Orlando, Miami, or St. Petersburg, other big Florida cities that are the likeliest competition for Tampa in the convention market. Morrison says the HCHMA might pursue a legal challenge to the hotel's property-tax exemption on the grounds that such an exemption can't be made until the project is built.

The Tampa City Council is awaiting the final portions of the feasibility study before they vote on a bond issue sometime in October. Most of the city council, and even the Chamber of Commerce, seems eager to go ahead.

While Tampa's finance director, Bob Harrell, has questioned the motives of the hotel association in opposing competition, HCHMA President Heinz Gartlgruber says, "We wouldn't be opposed to a new hotel if an entrepreneur came forward. We are opposed to one publicly financed by bonds. You can always come up with plausible-sounding numbers in a feasibility study, but in the worst-case scenario who will pay in the end are the taxpayers."