Granite Falls Developer Addresses Project Financing
Editor, The Herald:
The Herald's publishing of a letter on May 23rd from a man regarding the Granite Falls project has compelled me to respond. I find it particularly disturbing that the letter I refer to was written by a man who sat behind me during the three hours of meetings where the County's requested involvement was thoroughly discussed.
Let me state the facts:
First, the Granite Falls hotel is not a luxury hotel. It will be included by Smith Travel in their “upper upscale” classification which also includes brands such as Embassy Suites, Hilton and Sheraton. The financing in question, a $17 million CDA bond issue, will be used to construct public infrastructure and a conference center that includes a workforce training center run by SVCC. The primary source for repaying the bonds is tax revenues generated by the hotel. The next source is a special tax lien assessment levied on the hotel equal to the largest conceivable annual shortfall. Any statement that the developers “have nothing to lose themselves should things go wrong” is absurd. The developers and hotel owners have a huge amount to lose including their $6.6 million equity investment in the hotel and their personal guarantees on the $15 million hotel debt.
It is true that the magnitude of the County's financial exposure is hard to determine. The County is being asked to replace any withdrawal from a reserve fund if tax revenues generated by the hotel can't cover bond payments. As long as the hotel operates, it will generate tax revenues. Most of these revenues are sales and use taxes paid by patrons of the hotel, not the hotel itself. Since the County is the fourth source of replenishment, a draw on the reserve fund may not even require the County to put up any funds. If the County is asked to advance funds, it has a tax lien on the hotel and can sell the hotel, appraised at $27 million upon completion, to recoup its money within 6 months of its advance.
The Supervisors spent approximately 3 hours deliberating the pros and cons of the proposal and potential County exposure. The Board received presentations and analysis from the County's bond attorney, financial advisor and bond underwriter. Only at conclusion of the meetings did the Board adopt, by resolution, its contingent intention, in principle, to enter into a contractual agreement, subject to annual appropriation, as provided by applicable state law, to replenish the DSR Funds established for the CDA Bonds. The resolution was further described as a preliminary expression of support. The actions taken by the Board to date in no way obligates the County to enter into such an agreement.
The following two votes to be taken by the Board on this matter are hardly “procedural”. Prior to the next vote, one of the documents presented to the Board will be a preliminary offering memorandum. This is a roughly 400 page document with detailed information of the project, the bonds, the financing plan, the special assessments, the developers and the landowner. The County's bond underwriter and their counsel will prepare this document for use in the sale of the CDA Bonds. After the CDA Bonds are sold and the third and final vote is taken will the County's agreement be final.
Ultimately, the Board must weigh the potential benefits of the Granite Falls project (140 permanent jobs, 100 jobs during construction, $30 million of tax revenues, increased tourism, workforce training) with the potential liability to the County. We believe that the proposed structure sufficiently mitigates the County's risk and when the public is presented with the true facts they will also agree.
Robert D. Fowler
Prince Edward Development