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| 12/4/2009 8:28:00 AM | Email this article • Print this article | Acceptable risk
Risk of financing redevelopment project pales in the face of doing nothing
Ed Nadolski
EDITOR IN CHIEF
The logical question that pops into the minds of many Burlington residents when they learn the city is willing to extend a $1.5 million loan to a hotel development group is, "Why is the city willing to go where banks won't?"
At the heart of such questions is the sentiment that it's foolish to put taxpayer money at risk for what is essentially a private enterprise.
The answer to the question is found amid the various factors of a wide-ranging redevelopment package designed to prime the pump of private enterprise to inject a new vitality, and thus viability, into the city's downtown.
That's what redevelopment is all about. And rarely does it occur without some incentive from government.
The litmus test, of course, is whether the public investment pays dividends. In simpler terms: Do the likely returns to the community outweigh the potential pitfalls and risks?
In this case, at least, they do.
The hotel is just one component of a redevelopment package that also includes a retail center and a parking garage. Each individual component relies to a certain extent on the success of the others.
The $5.3 million hotel proposal got pinched in a tight credit market that made it nearly impossible for the development group to obtain private financing. Commercial lenders are saddled with problem loans brought on by the crash of the economy and face a regulatory climate that makes it prohibitive to extend credit to projects such as the hotel.
In a more normal lending climate, the hotel would have likely sailed along with banks competing to finance it.
Other factors that favor the success of the project:
History. The first phase of downtown redevelopment - the Riverwalk - has been a smashing success. The project has transformed a blighted, contaminated industrial strip into an aesthetically pleasing commercial and recreational corridor. The current proposal is an extension of that first phase and neatly ties the Riverwalk into the heart of the downtown, creating a destination point in the process.
Public incentives. The tax incremental financing districts used to spur development of the Riverwalk have performed so well that they are on schedule to be closed out years ahead of original target dates. By using a similar combination of revolving development fund loans, TIF loans, possible grants and a newly created environmental TIF district, the latest proposal is poised to ride the same wave of success.
Local investment. The vast majority of the investors in the hotel/retail redevelopment are residents of the Burlington area and have a vested personal interest as well as a financial stake in seeing it succeed.
Risk. Even if the city is left holding the tab for the hotel financing, it's unlikely that a taxpayer bailout will be needed. In a worst-case scenario, according to city officials, the TIF district would be forced to remain open until its originally scheduled date and the city would have to hang on to the property until it could be marketed for another use.
While it's understandable that many people are wary of any public investment in the current economy, this is the type of project that has the potential to be a powerful local stimulus package.
The construction projects will create jobs for local contractors, and the completed enterprises will create jobs and services for local residents.
Is there risk? Certainly. But it pales in comparison to the risk of doing nothing.
Opportunity is knocking.
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