Public finance experts and a member of San Antonio City Council are questioning whether City Manager Erik Walsh is being transparent about what scrapped plans for a major downtown hotel may mean for how the city pays for its portion of the Spurs’ new $1.3 billion arena.
Those concerns stem from this month’s cancellation of a 1,000-room convention center hotel, which was expected to produce significant tax revenue to help the city pay for the proposed downtown arena.
Through a spokesperson, City Manager Erik Walsh maintains the change in plans won’t hinder the city’s ability to pay for the arena. Even so, Walsh, over the past two weeks, declined to answer the Current’s request to show the math upon which the city has based its revenue projections.
Instead, after those two weeks of inquiries, the city manager agreed to a closed-door meeting with members of the media to discuss financing details.
Those weeks of radio silence are troubling to J.C. Bradbury, a Kennesaw State University economics professor who specializes in sports and entertainment districts.
“If they’re unwilling to show you those projections, that’s a huge red flag, because they could have shut this story down if they had them,” Bradbury told the Current. “There’s a reason why they won’t show you those projections.”
The City of San Antonio initially said it would cover its $489 million share of the arena cost, in part, via sales and beverage tax revenue from economic development within a 3-mile radius of Hemisfair — an area officials referred to as part of the Project Finance Zone, or PFZ, for the sports facility. The new arena is to be part of Project Marvel, a major city-led project to develop a bustling sports-and-entertainment district downtown.
“Let me remind folks, the arena doesn’t happen without the investments that are part of Project Marvel,” former San Antonio mayor Ron Nirenberg, one of the proposed district’s chief architects, said during a February public appearance. “It’s part of the funding mechanism. If those developments don’t occur that are part of Project Marvel, there is no arena.”
In early presentations to City Council, staff said insinuated the proposed 1,000-room convention hotel was to be one of the big tax contributors used to finance the arena. The hotel was to go into the current location of San Antonio Water System’s (SAWS) downtown chiller plant at the intersection of Bowie and East Market streets.
However, that plan went sideways early this month when SAWS officials backed away from plans to move the plant — which cools water for buildings at and around Hemisfair — citing the exorbitant cost. Moving the plant would run more than $300 million, they said.
Given the size of the hotel, experts said it seems likely that its cancellation would have an impact on revenue projections for the PFZ, and, therefore, the public financing available for the basketball arena. The project was even slated to house the University of Texas at San Antonio’s new School of Hospitality.
However, in recent comments provided through a spokesperson, City Manager Walsh said the convention center hotel was never part of PFZ revenue projections.
Red flag?
For reference, city staff asserted in past presentations to City Council that the PFZ would generate $2.5 billion in tax revenue to help pay for the arena and other facets of Project Marvel over the next 30 years.
When asked recently, neither the city nor Spurs Sports & Entertainment (SS&E), which owns the Spurs team, would provide information on where that projection came from or even work through math showing how that’s possible.
That’s a red flag, according to Kennesaw State’s Bradbury.
“The reason these analyses are done is to justify what’s already been decided,” Bradbury said. “It doesn’t make sense not to release these things. If they’re unwilling to share the numbers, then it’s a good sign those numbers are not kosher.”
If the city’s revenue projections end up being way off the mark, then taxpayers could be in for millions more in costs, Bradbury said.
“If there is a revenue source that is guaranteed from some other means, then that $2.5 billion projection doesn’t matter as much,” Bradbury said. “If the bonds are backed by the full faith and credit of the city and the county, then bondholders don’t care about these projections. But if they aren’t, and they won’t show how these numbers were generated, then the numbers are probably some non-credible BS they paid someone to generate.”
Walsh initially agreed to a sit-down interview with the Current to go over the projections. However, he backed out last week, opting instead for a closed-door meeting this Wednesday with members of the media prior to a council briefing on where Project Marvel stands.
That briefing was ordered by San Antonio Mayor Gina Ortiz Jones, a Project Marvel skeptic. Jones declined to be interviewed for this story.
CSL International, the firm that conducted the economic impact study, is owned by Sixth Street Partners, a global investment firm that’s also a majority stakeholder in SS&E.
In her pushback against Project Marvel, Jones called that relationship a conflict of interest and unsuccessfully urged council to approve a “strategic pause” for the project so the city could pay for an independent economic impact study.
Questions over economic impact report
In reports last year, the San Antonio Report and TV station KSAT attributed the $2.5 billion tax revenue projection to an economic impact analysis outside consultant CSL International conducted for the city.
However, City Spokesperson Brian Chasnoff said that was inaccurate, telling the Current via email that CSL International’s study was only focused on “the potential economic impacts of the new Sports & Entertainment District.”
“The study found the Downtown District could bring more than $18 million in economic activity over 30 years,” Chasnoff said.
“CSL’s forecast did not include a new Spurs arena or a second convention center hotel,” Chasnoff said.
However, a rendering of the proposed hotel was featured in the CSL International report at least three times.
What’s more, CSL International’s document states that its projections “assumed the district could feature 1,920 new residential units, along with 445 new hotel rooms across two or three properties.”
On behalf of Walsh and the city, Chasnoff declined to comment on what those other hotel projects were, if not the convention center hotel.
Council in the Dark
At least one city council member, District 4’s Edward Mungia, said he’s also concerned that Walsh’s office hasn’t provided numbers to show the hotel’s cancellation won’t affect the city’s ability to pay.
A devout Spurs fan who voted in favor of the non-binding Memorandum of Understanding (MOU) for the new Spurs arena late last year, Mungia is now raising questions about Project Marvel after receiving what he called mixed messages from Walsh.
“I have not seen these projections,” Mungia told the Current.
Mungia said Walsh initially told him and the rest of City Council that at least some of the projected revenue from the PFZ could be used for infrastructure improvements around Hemisfair as part of Project Marvel. However, Walsh now recommends that the funding go exclusively towards the arena, the councilman added.
“What came out of that discussion is that the PFZ can be used for infrastructure work related to the project,” Mungia said. “So, that’s been my pitch too. Why aren’t we using the PFZ? Or you need to give me a reason why you’re not recommending tapping into that fund to pay for infrastructure related to the entertainment district.”
Curious timeline
Geoffrey Propheter, a professor specializing in public finance at Colorado State University, told the Current that Walsh’s reluctance to share numbers may be because they don’t exist in a hard-and-fast form.
At this stage in a major sports district project, revenue projections, including the specific uses of a PFZ, may be a rough estimate. Indeed, City Council has yet to approve a final MOU, which would lock the city into its deal with all parties involved.
“Leading up to the non-binding MOU vote, it’s a premise, and lawmakers will typically justify voting ‘yes’ on the non-binding MOU or letter of intent without that information, because they’re saying, ‘This is just a vote to progress to the next stage.’”
However, the city’s timeline for moving ahead on Project Marvel does raise eyebrows, Propheter added. Namely, city officials have said they plan to purchase the land where the arena is set to be built no later than Dec. 31.
“Typically, you’re not going to purchase the land until after the final vote,” Propheter said.
No final vote on the MOU has been scheduled as of press time.
“The MOU is not a legal obligation to do anything,” Propheter said. “That doesn’t mean city officials can’t just go ahead and start moving ahead. The political optics, though, are suspect, because you’re signaling to the world that the city manager and city management team know which way the wind is blowing — [people who], in theory, are supposed to be taking direction from City Council.”
Those optics can be politically damaging, Propheter added, noting that it’s rare for an elected official to change their mind on an arena project between the non-binding vote and the final vote — unless there’s a clear scapegoat.
“Admitting you’re wrong is a very hard thing to do,” Propheter said. “It’s very human to make mistakes, but politicians don’t want to defend that publicly.”
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