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Controversial Tax Break OK’d Despite Opposition From Hotels

(photo by Mike Dunn/KYW)

(photo by Mike Dunn/KYW)

Mike Dunn Mike Dunn
Mike Dunn is City Hall bureau chief for KYW Newsradio 1060. He covers...
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By Mike Dunn

PHILADELPHIA (CBS) — It was hotel versus hotel as City Council members today gave initial approval to a tax break for a developer who wants to build two new hotels in Center City. Existing hoteliers cried foul.

Mayor Nutter wants to give a tax break worth about $33 million dollars for a planned hotel complex at 15th and Chestnut Streets. Julie Coker of the Convention and Visitors Bureau told City Council’s Finance Committee that these particular hotel brands — “W” and “Element” — would be unique to the city.

“You’re talking about a product that can come into a market and build demand. It will come with demand,” Coker said.

And Coker said the added 700 hotel rooms are sorely needed.

“There are over 15 large associations that we have been unable to book in Philadelphia due to the lack of the large blocks that we have. So (the new project) gives us the ability to host not just one large convention, but also to able to host two mid-sized conventions simultaneously,” Coker said.

But a coalition of existing hotels in the city argued against the tax break, known as a TIF for Tax Increment Financing. Benjamin Rowe, CFO of the Kimpton Hotel, said even if the TIF proves to be break-even for taxpayers, it would cost other hotels much-needed customers.

“We don’t dispute that this project will generate substantial tax revenue and jobs, but it will do so at the expense of existing hotels,” Rowe said.

And Rowe predicted that the tax break will actually end up costing taxpayers to the tune of about $12 million dollars.

The new project is proposed by Brook Lenfest and Jeff Cohen of Chestlen Development. The 15th and Chestnut site once held an office building that was torn down after the 1991 Meridian fire and is now a parking lot. Cohen told the committee that without the tax break, the new hotels won’t be built.

“I can assure you that this project will not proceed without the TIF and other public investments,” Cohen said.

But Cohen faced skepticism from some members of City Council’s Finance Committee, including Wilson Goode. He asked John Grady, President of the Philadelphia Industrial Development Corporation, how much profit the developer stands to make.

(Goode:) “What’s the profit margin on this project?”

(Grady:) “I don’t have that number in front of me; I’d be happy to get it to you. I would guess that its…”

(Goode:) “You don’t know what the profit margin is?”

(Grady:) “I don’t have it in front of me…”

(Goode:) “How much money are they going to make off the project?”

(Grady:) “I would guess that its in the 10-12% range…”

(Goode:) “How much money is that? How much money are they going to make off the project?”

(Grady:) “I don’t have the number in front of me…”

(Goode:) “That’s funny. That’s hilarious.”

Goode then pursued the same question with Cohen.

(Cohen:) “I can’t tell you the dollar amount actually… I don’t recall it, but I know its a single-digit return.”

(Goode:) “You can’t tell me the dollar amount? How much money you’re going to make off this project?”

(Cohen:) “On a cash-on-cash basis, no.”

(Goode:) “That’s funny. I’ll be voting no.”

In the end, the Finance Committee approved the tax break, but only after the developers agreed to boost the goal of hiring city residents from 50% to 75%, and after they reached a deal with the hotel workers union on what’s called a “labor peace agreement.” Second District Councilman Kenyatta Johnson said the debate was ironic, as some of opponents received tax breaks years ago.

“Now the hotels are going to war with one another, because one hotel’s getting a TIF. But several other hotels received TIF bonds as well,” Johnson said.

And the battle among the hoteliers left at-large Councilwoman Blondell Reynolds Brown scratching her head.

“I am absolutely awestruck at how professionals from the same industry could look at identical data and end up at totally different places,” Reynolds Brown said.

The plan now goes to the full council for a vote.

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