Good Money After Bad

The City of Baltimore decided to do an extensive investigation into the city-owned Hilton Hotel. And their decision on this matter shows exactly why you don’t do stupid stuff like build city-owned hotels in the first place:

There’s too much money tied into the city ownership of the Hilton Hotel to put it on the market, Baltimore City officials said Thursday. 

City officials said the hotel is not for sale and that they would expect to lose tens of millions of dollars by putting it on the market. They said restructuring the debt is not an option, and they believe the hotel will turn a profit in 10 years. 

This study indicates the Hilton is outperforming other hotels in the city and that holding onto it will pay off down the road.

Read the whole thing.
The city has lost money on the hotel for years because it could never meet the revenue projections promised by its supporters, something that some enlightened observers predicted in 2005 given its comparison to similar projects in other cities that had been completed at the time. Since then the hotel hasn’t exactly been swimming in profits; just last year the hotel had to withdraw money from their reserve fund in order to pay their bills after running up over $54 million losses since its opening. 
Of course, any sale of the hotel would certainly create political headaches for one Governor Martin O’Malley. Remember the city-owned hotel was O’Malley’s brainchild all along. Once created, O’Malley used the construction of the hotel to engage in one of his favorite sports; throwing development dollars to Democratic operatives. The hotel wound up being developed by Ronald Lipscomb, notorious developer, Democratic fundraiser , and boyfriend of disgraced former Mayor Sheila Dixon. Despite his flaws and issues with jurisprudence, O’Malley called Lipscomb a man of vision, talent, and commitment to the greater good.” And to top it off, O’Malley was able to create the hotel, enrich a crony, lost the new Hilton company headquarters to Virginia despite his support of a public financed hotel, and then attempt to blame former Governor Bob Ehrlich for the failure of the hotel when it was preordained to fail in the first place.

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Needless to say that selling the hotel would be an admission that Martin O’Malley failed, something that the Governor can ill-afford to have as he embraces on his Titanic-like Presidential campaign.

While there are obvious political reasons that would make Mayor Stephanie Rawlings-Blake want to protect O’Malley and her Democratic cronies, there is no legitimate reason to keep the hotel in city-controlled hands. With $54 million in losses and counting, there is no reason to believe that the Hilton is going to turn a profit at any time in the near future. In a city, as I have noted before, that is in serious financial straits, a city that has crumbling schools, dilapidated infrastructure, and not enough police in order to keep basic order in all parts of the city, something has got to give. If the City sold the hotel right now and was able to get out from under the cost of operating the hotel and the cost of the debt service of the hotel, it would in a small way reduce the fiscal burden that the city faces, and would cut the City’s losses at around the $54 million mark where it currently sits. The City would then be able to redirect the funds from the occupancy tax (which are partially funding hotel operations right now) back into the City general fund so that it can be used for City-related endeavors which are not related to competing with the private sector.
Baltimore’s inability to admit defeat and sell the Hilton is just another example of how city elected officials either don’t understand basic economics or don’t take their role as fiscal stewards seriously. It’s time for the city to cut its losses, get out of the hotel business, and try to focus on fixing the myriad of problems facing Baltimore. 

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