VAIL VILLAGE HOMEOWNERS ASSOCIATION, INC.

President - Alan Kosloff Secretary - Ellie Caulkins Treasurer - Patrick Gramm Executive Director - Jim Lamont

Directors: Judith Berkowitz - Dolph Bridgewater - Bob Galvin - Ron Langley - Bill Morton - Gretta Parks - Richard Conn

 

           To: Alan Kosloff, Board of Directors, Membership, and Interested Parties

           From: Jim Lamont

           Date: March 14, 2005

           RE: VVHA Vail Conference Center Position Statement

The Town Council is scheduled to consider the fate of the proposed Vail Conference Center during the next several weeks, and a final decision is planned for May. The Homeowners Association believes it is appropriate to state a recommendation and explain the reasons for its position on this matter. Its position is taken after spending the past two years monitoring the deliberations of the Council and of its appointed advisory committee.

Recommendation: The Homeowners Association recommends that the Town Council not proceed with the Conference Center Project now, but submit the issue of whether to proceed to a second public referendum as soon as possible.

The need for and benefit to the community of the proposed Vail Conference Center have not been established. After nearly two years of transparent and collegial consideration of professional documentation, skepticism remains as to the value to the community and the financial viability of this project. Also, changing circumstances since the voters approved funding for the project, indicate that the community is recovering from its economic malaise, and need not take the risk of a potential ongoing public subsidy for a conference center. There are better development opportunities emerging for Vail which build upon the communityís well-established attributes, rather than striking out in a new speculative direction with the Conference Center. These opportunities can spread benefits broadly throughout the community. The Conference Center will not. Its financial benefits will flow to a relatively narrow segment of the business community, at substantial cost to other businesses and taxpayers.

Additionally, industry professionals have advised that a community must have unanimity of purpose to support a major conference center. In Vail, on the study committee and among the Town Council, this unanimity of purpose does not exist. Much has changed from the time when the proposal was brought to the voters. Today, there is much better information available about the risks and benefits of the project. This is critical information that the voters should have had, but did not have to make a reasoned decision on this critical question at the time of the original vote.

Finally, the Town of Vailís bond counsel in recent months has determined that the funding approved by the voters does not require the Town Council to build the project. The counsel has also recommended procedures for terminating the Conference Center taxes and the disbursement of residual revenues, should the Town Council not proceed with the project.

Examination of Issues and Detailed Support for Recommendations: The following review amplifies the recommendation and rational. It describes issues involved with the proposed Vail Conference Center which raised serious and sufficient questions that the proposition should be returned to the voters for a decision as to whether to proceed. The following changing conditions head the list of reasons to reconsider the project.

Voters approved the Center for a specific site that would not adversely affect adjacent property owners and was adjacent to a proposed hotel to be privately developed on private property. Changing to another site will result in serious impositions upon adjacent property owners and could require the investment of additional public resources to build a hotel on public property.

Voters may not have been aware that as taxpayers they would be liable to finance any unanticipated ongoing operational deficit from Town funds that could cause other public services to be curtailed or require additional tax increases.

Voters were unaware of industry wide conditions that could cause the Center to be caught in the crossfire of a nationwide war for conference business, and to be severely underutilized.

Voters were not informed that the conference center would benefit relatively few businesses and that it could compete with skiing and cultural tourism and perhaps cheapen the quality of the Vail experience. Voters were also not told that there are more promising tourism markets to develop.

The Town of Vail, at this time, given the demand for competing public improvements, cannot afford going into a new, highly competitive business.

Many other aspects of the Conference Center proposal which are interlinked with these were considered. The following is a discussion of elements of these which contributed to the Homeowners Associationís recommendations.

The Need For An Informed Electorate: In 2002, when the Vail Center fund was approved by the electorate, information about the experiences of other municipalities with conference centers, the risks of the project and likely costs and consequences to the community were not fully developed; only a brief period of review and public discussion was possible. The voting electorate was not well informed. Vail can vote now, in 2005, on a well-informed basis, and the decision can truly reflect the wishes of Vail residents.

Economic Conditions Are Changing for the Better: The Vail Center was conceived at a time when a path for the communityís economic revitalization was not clearly charted. Again, two years later, it is. The center is now out of step and could become more of a hindrance than an asset in the communityís economic resurgence. Public subsidies to prime the pump of economic reinvestment are no longer necessary. Several large privately financed hotels and commercial and residential projects have begun or are beginning construction this spring. The pre-sales success of the Vail Square Arrabelle project will serve as an even larger incentive to redevelop surrounding properties.

Estimated Construction Costs are Increasing: Project managers are confronting a difficult job developing an acceptable construction budget for the project as the architectural design process proceeds. If, the schedule is delayed, it is speculated by project managers that anticipated increases in interest rates and other factors, could cause costs to exceed the budget. Furthermore, the change in location from its original site could result in unacceptable traffic circulation and related costs. There appears to be insufficient funds to do the project right. Although the intent is to guarantee construction costs by means of a contracted Guaranteed Maximum Price (GMP), there is no totally secure means to prevent cost overruns.

The Business Plan Appears Unrealistic: The consultantís booking plan assumes that the Center can meet it financial projections by hosting conferences throughout the non-ski season. Testimony received from independent industry sources indicates that nationwide, summer is the low season for the conference business, with spring and fall being the high seasons, and winter being in the middle. Vailís spring, with it unpredictable weather and the near universal truancy of its local residents and business owners away on mud season vacations, will all but eliminate it from consideration by meeting planners. The growth prospect for expanding summer tourism, independent of the Center, will lessen its ability to rely upon the long-term availability of low cost hotel rooms. These more persuasive realities leave Fall, as the only open season for the Center to maximize its productivity. Alone, it appears this season is insufficient to attain the fiscal requirements of the Center. Independent operators advise that the Vail project should add $1 million to its pre-opening marketing budget. Additionally, it was advised that personnel salaries and benefits were below current market rates. These sums have not been budgeted and funds are not available under the Centerís current financing arrangement. There is concern that marketing funds will have to be redirected to the Center and away from promoting the larger business community.

The Financial Plan Implies Risk to the Taxpayers: There has been no scenario provided which does not obligate the Town of Vail and its taxpayers to underwrite the Centerís financial debt should its business plan fail to attain its projections. The financial plan does not show that the facility will be self-sustaining, let alone profitable without material public subsidy. What has been shown is a plan to privatize the Centerís profits, while passing the building costs and shortfall in operational revenues on to the taxpayers. There has been no way found to create a "firewall" that shelters taxpayer exposure to future tax increases should the operational deficit exceed the cash flow projections upon which the Centerís business plan is predicated.

There is Exposure to Higher Taxes: Vail taxpayers appear to be exposed to tax increases resulting from un-projected increases in costs. Underlying any tax increase, all commercial and non-improved residential property taxpayers will pay a disproportional higher tax levy than residential property owners. These increases will place an even heavier load upon an already burdened business community. In all likelihood, revenues generated from convention business will not be distributed widely throughout the business community. A few large nationally connected hotels with food and beverage operations will most likely be the prime beneficiaries. Conferees will be a captive market spending most of their time in the Center, eating their meals there and staying in hotels that can provide the largest block of rooms at the lowest price. Residential interests have little or no incentive to support a property tax increase, as there is no evidence they will receive a tangible benefit from the Center.

Should a tax increase be required to increase tax revenues, as a yardstick to raise $1 million from each type of Town of Vail tax that could be used to pay for the un-projected expenses of the Conference Center, the increase in tax rate would be: property tax 1.9 mils, sales tax .46%, lodging tax .28%. Currently the level of Town of Vail tax rates are as follows: property tax 4.69 mils, sales tax 4.5%, lodging tax 1.5%. The tax rate for property tax rate for commercial and non-improved residential property is assessed at nearly 3 Ĺ times the rate paid by residential property owners. Commercial and non-improved residential property account for 34% of all property tax revenues collected with residential property accounting for 66%. Any increase in taxes would require a vote of the electorate.

Is there a Bailout Strategy: There is now ample evidence nationwide that there is a commonly used bailout strategy being applied throughout the industry, whereby the construction of a conference or convention center is only a precursor to other speculative development, i.e. flagship hotel, often requiring further public subsidies. The master plan for the proposed Vail Center already contemplates such an investment. Public land would be converted to private ownership, thereby underwriting the profitability of a hotel development that would provide a dedicated bed base to support the conference facility. The success of these types of bailouts has received less than unanimous endorsements. The obligation of the taxpayer is only deepened if the bailout proves unsuccessful. By several accounts, many centers nationwide are in this no-other-way-out predicament.

A Better Use For Funds - Emerging Skiing and Tourism Markets: Vailís winter and summer marketing efforts have yet to tap into the emerging global market potential in Europe and elsewhere. The strength of the European currency (euro) over the dollar is already positively influencing other Colorado ski resorts and Vailís economy this ski season. Financial experts believe that the buying power of the euro in America will be sustained over the long-term. The depth of the European skiing and tourism market that would come to Vail, based upon outward appearances, could be considerable. Redirecting a portion of the communityís marketing effort to Europe could bring immediate response by next ski season and can build every year thereafter. It will be three years, at a minimum, before any revenues begin to flow from the conference center, and then it is still a loosing proposition for taxpayers. One of the most essential (and expensive) components of the marketing equation is already in place, direct international airline service from Europe to Denver/Eagle.

Limited Group Marketing Options: The proposed Vail Conference Center falls into the "premium niche market" category because of Vailís stature as a premier destination resort. The Vail Center must expect to compete in the highly competitive and demanding market of corporate and professional associations. Many of these groups can be accommodated in existing and planned hotel facilities. Vailís stature is considered by some industry authorities to be a deterrent to attracting one of the largest segments of the conference market, SMERF (Social, Military, Educators, Religious, Fraternal). It is reported that SMERFís are spendthrifts and shy away from potential political criticism that results from hosting their meeting in a premiere resort, which is perceived as an extravagant expenditure. Nationally, SMERFís dominate the summer non-prime conference season, which if promoted locally could stifle the growth of Vailís summer cultural tourism efforts. Should the Center have to rely on the SMERF market, there is the potential it will downgrade the quality of the Vail product and experience. It is reported that the national conference and convention industry remains in disarray due to national and international political circumstances. As these circumstances appear to be long lived, stability in the industry should not be expected in the near term, even though conditions are improving in some segments of the market.

 

Troublesome Competitive Experience: It is noted that a new center similar in size to Vailís proposal has recently been opened at the Broadmoor Resort in Colorado Springs. Conference facilities in some metropolitan regions similar to that proposed for Vail are reported to be doing well in the corporate and professional association markets. However, Vail is not located in a major metropolitan region and the nearby Keystone Conference Center has its own challenges. According to Town of Vail consultant studies that have been presented to the public, the Keystone, Colorado Conference Center had an annual net loss of $3.637 million last year. The Vail taxpayer cannot afford the potential for losses at this scale.

Site Planning Questions: The relationship of the proposed structure to the surrounding neighborhood and streets raises questions. The sheer size of the structure dominates its adjacent residential neighbors. There could perhaps be a more sympathetic relationship that accounts for the potential expansion and redevelopment of the adjacent sites. The Centerís exterior floor overreach onto an adjacent street right-of-way, presuming a right that would be denied to private property owners. Link to Vail Conference Center architectural concept plan by Fentress Bradburn Architectsí on the Homeowners Associationís web site.

Stress on Traffic Circulation: The complex and competing demands upon traffic circulation surrounding the combined Lionshead parking structure and conference center site are extreme to a fault. The interests of the mountain operator, the Town of Vail, and the Colorado Department of Highways (CDOT) are at cross-purposes. The design and budget for traffic circulation and aesthetics of the South Frontage Road is limited. It could be more imaginative and efficient, if the accommodation for on-street parking were removed and redundant through or turn lanes reduced, making provision for high capacity rotary circulation (roundabouts) feasible where space permits. Other, less onerous traffic circulation issues exist and remain unresolved for East Lionshead Circle. CDOT has yet to approve the master plan for the South Frontage Road. It is not likely that CDOT will concede any right-of-way to the Town for its circulation, because it will want to insure ample space to add additional lanes to the Interstate in the future.

Limited Ease of Community Access: The committeeís consultants report that meeting planners believe that the logistical challenge of getting to and from Vail is a potential detriment to the success of the conference center. Congestion by ground or air transportation from Denver and elsewhere is a growing challenge both on Interstate 70 and at the Eagle County Airport. Long-term construction projects associated with the contemplated expansion of I-70 will only exacerbate the frustration of accessing Vail during those seasons that the center is to be in peak operation. There has been no analysis presented of the impacts of this to the viability of the Vail Center. Likewise, no information has been presented that analyzes the capacity of the Eagle County Airport to provide regularly scheduled flights that would be able to serve the needs of the conference center. No analysis has been made of the demand or methods to finance collateral improvements at the airport. There have been no publicly known negotiations between Vail, the Eagle County Airport Authority, and County officials as to expectation of improved air service and systems necessary to support the Center. Corporate executives, a target market for the center, require dependable and efficient access. An informed source reports that these requirements are sometimes not attained at the Eagle County Airport. Currently, summer service to the Eagle Airport is very limited.

Vail is now experiencing investment, growth and in many ways true renewal. The Town Council has an opportunity to allow the voter to relieve the Town of a risky and perhaps very costly legacy. It should do so.

Contact Vail Town Council: Email: towncouncil@vailgov.com; Voicemail: 970-479-1860; Fax: 970-479-2157; US mail: 75 South Frontage Road West, Vail, CO 81657. Additional Information is available on the Associationís website. Please forward to appropriate parties.