Proposed state incentives could create unfair competition and harm economy

By: The Gazette editorial
July 24, 2013 Updated: July 24, 2013 at 8:15 am

State subsidies should not be for sale, nor should they do more harm than good. That's why we question the wisdom of Colorado's plan to gift hotel giant Marriott International with $81.4 million in government funds.

When government helps fund a large stadium or museum - or something else the market might not otherwise finance on its own - the funds are intended to help the economy without harming competing interests. When voters asked government to help them buy a new stadium for the Denver Broncos, they believed it would help keep football in Denver to the benefit of the community. There was no concern about the subsidy causing a competitive disadvantage for a competing interest.

Up in Aurora, Marriott developers plan to build the state's largest hotel and convention center only 9 miles from the passenger terminal of Denver International Airport. It would compete with, and likely harm, all other hotels and convention centers in the state - many of which came about with relatively minimal, if any, government handouts and at substantial risk to private investors.

The $824 million, 1,500-room behemoth stands to harm Colorado's economy at-large, not just hotels that will compete with it for conventioneers. That's because the hotel will be a one-stop shop in which visitors can meet, shop and eat without getting even 10 miles past the doorstep of DIA. Visitors who today frequent multiple locations throughout Denver and other Colorado communities may fly to DIA, step into the mega convention center then turn around and leave without spending a dime on food, fuel, attractions or taxes in any part of Colorado beyond the hotel's boundaries. It will become a gift that never stops taking from those who gave it.

A 2011 study by Greenwood Village-based Hospitality Real Estate Counselors Inc. - for the Denver Metro Convention & Visitors Bureau - estimated a third of the business for the Aurora project would come from existing Denver-area hotels. The project could drain $186 million from the Denver-area economy alone in the first four years it is open. This is not new business; this is existing Denver-area business that will shift from a tax-paying base in the Denver area to a nontaxpaying project in Aurora.

It will also hurt Colorado Springs, as visitors won't even see the exits for I-225 or I-25 before reaching what may be their final Colorado destination. Even worse, developers who secured the big subsidies have effectively sold the giveaways to a third party that did not pitch state officials on the merits of the project and have already changed its scope.

The subsidy for the proposed hotel is $81.4 million in state sales tax rebates, in addition to a whopping $300 million Aurora will pay for this opportunity to corner our state's convention and tourism trade at the expense of other tax jurisdictions. Without adjusting up for inflation, Colorado and Aurora taxpayers will sacrifice a combined $381.4 million so Marriott developers can rob Colorado taxpayers for the benefit of a public company based in Bethesda, Md.

When the state's portion of the giveaway was approved last year, Gaylord Entertainment Co. sold it as a means to help fund Gaylord Rockies Hotel & Conference Center. Since then, Gaylord sold its development and management business and thereby sold the Aurora proposal - including the Colorado and Aurora subsidies - to Marriott. In effect, Gaylord persuaded two government entities to boost its asset portfolio and then sold to the highest bidder. If allowed to stand, expect other developers to attempt this sinister maneuver of brokering state and municipal subsidies.

State taxpayers may not even get what was originally promised. Marriott's developer for the project, Houston-based Rida Development Corp., has already estimated a project that comes in $89 million less than the $824 million proposed by Gaylord, creating an even higher subsidy-to-investment ratio in favor of Marriott.

Adding to the insult is the fact that, based upon Gaylord's analysis at the time of its application, upon completion Marriott will own or manage 48 percent of the market for convention hotels in the Denver area. It would be a colossal embarrassment to Colorado for the state to finance creation of a near-monopoly, which will not only harm existing firms but do it without generating any tax revenue.

Government subsidies of this size and scope, especially to a for-profit venture that could do more harm than good, are unprecedented in Colorado. The Gazette sides with 22 Colorado hotels that recently asked the state to revisit this ill-fated decision. Please don't move forward with a gift that could hurt taxpayers, existing businesses and Colorado's economy. It's diametrically opposed to the intent of economic development incentives.

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