$150 Million in Lost Tax Money Later, Another Sorry Tale Of Government "Investment" Hopefully Comes to An End

Years ago I wrote about the Sheraton hotel the city built:

For some reason, it appears that building hotels next to city convention centers is a honey pot for politicians.  I am not sure why, but my guess is that they spend hundreds of millions or billions on a convention center based on some visitation promises.  When those promises don't pan out, politicians blame it on the lack of a hotel, and then use public money for a hotel.  When that does not pan out, I am not sure what is next.  Probably a sports stadium.  Then light rail.  Then, ?  It just keeps going and going....

When Phoenix leaders opened the Sheraton in 2008, they proclaimed it would be a cornerstone of downtown's comeback. They had one goal in mind: lure big conventions and tourism dollars. Officials argued the city needed the extra hotel beds to support its massive taxpayer-funded convention center a block away.

Finally, we may be at an end, though politicians are still hoping for some sort of solution that better hides what a sorry expenditure of tax money this really was

Phoenix has entered into exclusive negotiations to sell the city-owned Sheraton Grand Phoenix downtown hotel —the largest hotel in Arizona — for $255 million.

The city signed a letter of intent with TLG Phoenix LLC, an investment company based in Florida, to accept the offer and negotiate a purchase contract, city officials announced Tuesday evening.

But the deal faces criticism from some council members concerned about the loss to taxpayers. The city also attempted, unsuccessfully, to sell the hotel to the same buyer for a higher price last year.

If Phoenix ultimately takes the offer, the city's total losses on the taxpayer-funded Sheraton could exceed $100 million.

The city still owes $306 million on the hotel and likely would have to pay that off, even after a sale. That would come on top of about $47 million the city has sunk into the hotel, largely when bookings dropped due to the recession.


In addition to taking a loss on the building, Phoenix would give the buyer a property-tax break — the city hasn't released a potential value for that incentive — and transfer over a roughly $13 million reserve fund for hotel improvements.

By the way, the hotel -- after just 9 years under city ownership -- will require a $30 to $40 million face lift from the owner.  Why do I suspect that part of the sales price problem is that the government, like with every other asset it owns, did not keep up with its regular maintenance?

Update:  Phoenix is in the top ten US cities in terms of hotel room capacity, so city government of course detects that there is a market failure such that the city ... needs more hotel rooms, so it gets the government in the business of building more.  Good plan.


  1. iceberg:

    Hey Coyote, thanks for the scoop. Any other distressed government-boondoggle/featherbedding/reelection -campaign assets out there for the bidding?

  2. SamWah:

    Governments do love to spend taxpayer money, unwisely.

  3. ErikTheRed:

    Stupid big-government Democrats burning huge piles of taxpayer money in... oh, wait, never mind, that's the Republicans again. Seems like the only choice is how money is wasted, as opposed to not wasting it at all.

  4. Bloke in North Dirset:

    There's a defunct blog called Burning Our Money and it was run by a former UK Treasury official. He used to document stories like this and always referred to the government as The Simple Shopper. He reckoned it was Ok buying paper clips but anything more technical was beyond it.

    It's quite depressing reading but here's a goof place to start: http://burningourmoney.blogspot.co.uk/2007/11/shunning-simple-shopper.html

  5. james:

    The problem is that governments can't go bust.

    Unless they are Argentina or Greece.
    Then they learn their lesson.
    Oops, I think I've got this the wrong way round somehow. Help!

  6. mlhouse:

    The way to stop this is to stop allowing municipal bonds to be tax deductible, and hence able to be issued at lower rates.

  7. steamboatlion:

    " the deal faces criticism from some council members concerned about the loss to taxpayers"

    The chickens are coming home to roost now but it was the decision taken by politicians to get into the hotel building business that flushed the $100 million down the toilet. Yet the current crop of elected officials seem completely unable or unwilling to make that connection.Color me surprised.

  8. Thane_Eichenauer:

    I don't imagine this would have stopped the City of Phoenix. It would have increased costs but the Phoenix city council isn't investing their own money, they never cared about profitability in the first place.

  9. mesaeconoguy:

    It’s actually worse – the total tab is upwards of $210 - $225 billion with all fees and tax credits included.

  10. Rich Abbott:

    You can substitute Baltimore for Phoenix and write the same story. These city officials must be given the same playbook written by developers and bond underwriters.