Challenger insists Mississippi Constitution forbids using tax dollars as collateral for private projects
By TED CARTER
Hinds County Chancery Court Judge William Singletary last week declined to approve bonds backed by Jackson taxpayers for construction of a downtown Westin Hotel.
The Mississippi Supreme Court could be the final decider on the issue if and when it rules on an appeal of a recent Chancery Court ruling in Hattiesburg that shot down the proposed use of City money as collateral for bonds for a private water and sewer plant.
In hearing the Westin bond challenge, Singletary ordered a hearing on objections to the bond sale from Don Hewitt, a local real estate developer who has been feuding with the Jackson Redevelopment Authority for several years over a host of development issues. Hewitt argued in his complaint that the Mississippi Constitution prohibits the use of public dollars as collateral for loans used to build a private project such as the Westin, a $60 million hotel Capital Hotel Associates wants to build at 315 Tombigbee St.
Project funding includes $10 million in urban renewal bonds issued by the Jackson Redevelopment Authority and backed by the city’s general fund, $20 million in bonds backed by Hinds County and $7 million in sales tax rebates from a Tax Increment Financing District that would be established for the hotel property.
“The way they have been using urban renewal bonds is that they are pledging tax revenues to enhance or [provide] private collateral for the loans,” Hewitt said. “That is against the Mississippi Constitution.”
He cited Article 7, Section 183, which reads in part: “No county, city, town, or other municipal corporation shall hereafter become a subscriber to the capital stock of any railroad or other corporation or association, or make appropriation, or loan its credit in aid of such corporation or association.”
Last week was supposed to mark a milestone for the long-planned, 204-room Westin and its developers and supporters. The contribution agreement from the JRA was to be approved by Chancery Court and ground was to be broken for the hotel.
Joseph Simpson, one of the principals of Capital Hotel Associates, said in a previous interview that it is “absurd” to argue the JRA’s funding commitment and its pledging of tax dollars strays from the state’s constitution, The federal government and other levels of government have had similar roles in urban renewal and economic development projects over the decades, he said. “If that is the case, you would never have a Trustmark Park or a Nissan plant,” he said.
Hewitt has previously been involved with developers seeking to build a convention center hotel in downtown Jackson. The Westin would ensure the convention hotel does not happen, at least any time, soon, Hewitt said, citing an over-supply of Central Business District hotel rooms should both properties get built.
Hewitt’s filing cites the deal Jackson and the JRA had with Transcontinental Realty Investors, or TCI, for the convention hotel. As with the Westin, city taxpayers would have backed the bonds for the convention hotel, according to Hewitt.
“The Jackson Redevelopment Authority and the City of Jackson attempted to use the same unlawful financing structure to fund the failed TCI Convention Center Hotel in November 2011,” Hewitt said his in his legal filing.
Hewitt said the City conceded the deal’s exposure of taxpayer money. “The City of Jackson’s financial advisor, Porter Bingham of Malichi Group, stated that the City’s role with TCI was to back the Urban Renewal Bonds that TCI pledged to pay off,” Hewitt said.
“All that the City is doing is loaning TCI its credit,” Hewitt said in a public comment he attributed to Bingham.
That the City could be left holding the bag was “one of the concerns the council has,” Hewitt said in a further comment he attributed to Bingham.
The mayor at the time, Harvey Johnson, was candid in interviews in 2010 and 2011 about the exposure the convention center hotel placed on city taxpayers. He insisted, however, that market studies showed that room rates and occupancies would be sufficient to pay off the more $50 million in bonds the project would require.
Hewitt’s filing also cites a recent Chancery Court ruling in Hattiesburg that forbade Hattiesburg from using general fund tax dollars as collateral for a privately owned water and sewer plant. That case – Groundworx v. City of Hattiesburg – has been appealed to the Mississippi Supreme Court.
A separate challenge to the JRA’s bond funding arrangement with the Westin developers failed after Circuit Judge Tomie Green tossed out the complaint in early January. Green ruled that Jackson lawyer Herb Irvin had failed to file the challenge within the required 10 days of the City Council’s February 2014 approval of the loan commitment.
Irvin had raised the same constitutional issues in asking Green for a declaratory judgment on the legality of the City guaranteeing the loan of a private business.
Capital Hotel Associates intends to repay the bonds from hotel revenues. It projects average nightly room rates of $145. Recent Smith Travel surveys have put rates for downtown hotels in the mid-to-high $60s and low $70s.
TCI gave room rate projections similar to those of the Westin developers in pitching plans for the convention center hotel, planned as a Crowne Plaza. Such lofty expectations worried some metro Jackson hoteliers queried at the time. They noted that the $150 TCI projected was significantly higher than rates other Crowne Plazas around the country charged. Should the hotel fail to reach its rate targets, it would be forced to lower rates and put pressure on other Central Business District properties to lower rates, the hoteliers said.