COVINGTON - Initial projections on hotel/motel tax revenues earmarked to pay off $23 million in bonds for the civic and conference center project were "overly optimistic," according to officials, and more conservative figures are now in circulation.
Original projections by investment banking firm Merchant Capital indicated the bonds would be revenue neutral by 2021, with a cumulative surplus seen by 2023. A cumulative surplus of $19.9 million was estimated by the year 2040.
After a resident challenged the accuracy of the numbers, Merchant Capital revised its figures and produced two new spreadsheets - one with a "modest" scenario and another with an "aggressive-revised" scenario, both of which show drastic revisions.
The modest scenario indicates the bonds would not become revenue neutral until 2029, with a cumulative surplus of only $405,869 by 2040.
The aggressive scenario projects a deficit through 2025 with a cumulative surplus of $8.6 million by 2040.
In both projections, the average daily room rate was reduced and occupancy rates were also reduced. Even so, to meet the projected revenues, the new hotel that will be part of the civic center project would need an occupancy rate of 74 percent for almost every year through 2040, and existing hotels would need a 50 percent occupancy rate. Hotel-motel taxes are expected to be used to help pay for the project.
The initial numbers were "overly optimistic," said John Boothby, president of the Covington-Newton County Chamber of Commerce and chairman of the joint task force overseeing the project.
Boothby said Merchant Capital used data from the hotel industry, so the information was based on regional numbers rather than being specific to Newton County.
"The numbers were challenged by someone in the community for accuracy. We're glad people are looking at the numbers. We're not trying to do anything untoward. The numbers are out there for everyone to see," Boothby said.
The county and city authorized the issuance of $23 million in revenue bonds for the project in August. Commissioners had previously allocated $5 million in special purpose local option sales tax revenues for the project.
Both government bodies agreed to increase the hotel/motel tax from 5 to 8 percent, with the additional revenue to go toward paying off debt service. The increase requires approval from the Georgia legislature and is set to be introduced during the 2009 session.
The hotel operator will also make payments to offset debt in lieu of paying property taxes.
PR Hospitality of Buford will fund construction of the $12 million, 116-room hotel.
"The goal is to keep it revenue neutral to the taxpayer," Boothby said.
But Jerry Bouchillon, a county resident and the former city attorney for Covington, doubts that's possible.
Bouchillon spoke before both the City Council and Board of Commissioners this week to express his concerns about the project. He said officials are being "financially irresponsible" and are "relying on projections prepared by and for those with a vested interest in the project."
Bouchillon said he voted for the SPLOST that allocated funds for the civic center, but added that since then, the public portion of the project cost has risen from $10 million to an estimated $28 million, plus interest.
He said even the new moderate assumption may be too optimistic.
"Neither projection takes into account the costs to the city and county for making up cash shortfalls until the income catches up with debt service and prior shortfalls are caught up," Bouchillon said.
He also questioned the funding sources for furnishings, operations, utilities, insurance and maintenance.
"It appears those promoting this project have failed to consider the significant additional costs that will be borne by the local taxpayer if this project proceeds as now proposed. Bad projections in a rising economy might lower the taxpayer's exposure; however, in a shrinking economy the projections could result in a local taxpayer bailout of major proportions," he said.
Proponents of the project have said it will be a major economic development engine, creating new jobs and drawing more retail and restaurants to Covington.
The project includes a 1,200-seat civic center and 6,000-square-foot conference center. The hotel will feature a restaurant, fitness center, pool, concierge lounge and lobby lounge. It will likely be a Hilton Garden Inn or Doubletree Hotel, according to developer Phil Riley of PR Hospitality.
The building will be located adjacent to the Newton County Administration Building on Usher Street.
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