GOP HQ Hotel in Cleveland: A State-Owned Enterprise
By Anthony Jerdine
When Republicans gather in Cleveland to formally nominate Donald Trump for president in July, their headquarters will be a brand new hotel whose very existence contradicts party orthodoxy on private enterprise, less government and lower taxes.
Were the Hilton Cleveland Downtown located in in Havana, or in Moscow during the Soviet era, Republicans in a diplomatic mode would call it “state-owned.” Those favoring Trump’s aggressively plain English would call it a communist hotel.
That’s because Cuyahoga County taxpayers own the hotel—not that they had any say in the matter.
The Cuyahoga County Commissars – er, sorry, Commissioners – forced taxpayers three years ago to pay for the $276 million hotel, which is scheduled to open June 1 and connects directly to the Cleveland Convention Center, where the party will nominate its presidential standard bearer.
The taxpayers own everything in the hotel, including the signs that say “Hilton.”
How did this come to pass? The county spent years trying to attract private investors to take on this project. After none did, it forced taxpayers into underwriting it. The hotel got built through a convoluted series of transactions involving the city, the county and others so the land would be tax-exempt. The city and county will collect no property taxes, but the schools will be made whole, said Jeffrey Appelbaum, the lawyer on the project and a construction expert.
The hotel is being paid for with an increase in the county sales tax that is expected to raise $20 million per year for 20 years. In addition, the county added a 1 percent excise tax on hotel rooms. The excise tax from the Hilton will be cycled back to cover the bond payments, meaning guests will be hit for a small part of the cost.
Appelbaum said the hotel was built for much less than a private developer would have spent, which appears to be true. Still, that efficiency is hardly an argument Republicans would buy into just as they reject national single-payer healthcare even though it would be much cheaper than our disorganized nonsystem system of sick care, and it would remove a huge burden from small business owners.
Republicans also wouldn’t be crazy about the origins of a lot of the hotel inventory, which runs directly counter to Trump’s “Make America Great Again” slogan, under which he assumes a president posses dictatorial powers. Trump says if elected he will order companies like Carrier, Ford and Nabisco to build factories only in America and slap punitive tariffs on foreign-made goods, powers not granted the president under the Constitution.
The flatware and furniture offend the Trump creed. While extolling the private enterprise system after dinner, Republican delegates will put Spada brand cake forks into their desserts. The 5,400 forks, made in Indonesia, cost local taxpayers $10,314, or $1.91 each. The hotel could have bought flatware from the only American maker, Liberty Tabletop in suburban Syracuse, N.Y.
The top-floor bar, with views of Lake Erie, features sofas, bar stools and other furniture from Astoria Imports, a Florida firm that has factories and warehouses in Mexico and Asia, as well as some domestic operations.
Trump may be more comfortable with the sourcing of the banquet napkins, table clothes and table skirts, which cost Cleveland taxpayers $92,526.48. They came from a division of Mount Vernon Mills, which made clothing for the Confederate Army, though the company says its work for the 19th Century traitors was performed “under protest.” It also notes that the mill owner concealed this work for the Confederacy from Union General William T. Sherman, who decided against burning it to the ground after an evening of hospitality from the owners.
But it’s how the hotel came to exist in the first place that should offend Republicans. It required more government, not less. And what if the hotel does not generate enough revenue to pay the bondholders? On the surface the bonds are called revenue bonds, not general obligations of Cuyahoga County. But that’s a clever deceit. If revenue falls short the county must appropriate money to make up the difference, even if that means raising taxes, to ensure that the bondholders get fully paid.
Local boosters soon made a promise of “300,000 visitors and $330 million in spending” if they could just get a taxpayer owned convention center for medical conferences and a hotel, as reported by Roldo Bartimole, an 83-year-old self-employed journalist who has offered independent and critical assessment of Cleveland area government for a half century.
Bartimole said the whole idea was just another way to pick the pockets of taxpayers for the benefit of the local oligarchs. He also railed against a tax increase to subsidize, forever, the Cleveland Browns football team, Cavaliers basketball team and the Indians baseball team, two of which are owned by out-of-town billionaires.
To justify making taxpayers build a hotel a local group ordered up a study from PKF Consulting in Philadelphia. With lots of lots of tables and charts showing that the hotel would not just succeed, it would rent out so many rooms at rising prices that over the next five years it should expect that 17 cents out of every dollar of revenue would become net profit. This being a government-owned hotel technically it’s a net surplus, but the idea remains the same.
Experience suggests this was a paid-for fantasy report. Around the country there are now at least 33 taxpayer owned hotels. Like communism in practice they have not done well. The one in St Louis was an utter failure, sold off for about 32-cents on the dollar.
Other big convention hotels, both those owned outright by taxpayers and those with heavily subsidized private owners, have “a checkered past,” said Heywood T. Sanders, a University of Texas-San Antonio professor and author of the book Convention Center Follies.
He notes that the trend toward taxpayer subsidized hotels traces back to the late 1970s with Urban Development Block Grants or UDAGs. “We say the H in UDAG is for hotel, but it’s a silent H,” Sanders joked.
From 1978 to 1989 a quarter of all UDAG money went for hotel projects, in all 60,000 rooms added at 236 hotels that were new or renovated, political scientist Richard D Bingham wrote in his 1998 book Industrial Policy American Style.
The new trend is toward not subsidizing hotels, but having taxpayers own them. A study in December, published in the journal Cornell Hospitality Quarterly, concluded from analyzing 21 of these hotels that they are bad for private enterprise.
Proponents claim taxpayer-owned hotels will increase business and thus benefit existing hotels. But the study found that taxpayer owned hotels “tend to erode the key performance metrics of competitive hotels in the market.”
So just remember the next time you are told that Republicans are the party of free enterprise, less government and lower taxes that they chose as their national party convention headquarters what they would call a communist hotel built here in America.
About the author: Pulitzer Prize winner and recipient of an IRE medal and the George Polk Award, David Cay Johnston is author of five books and the upcoming The Prosperity Tax: A New Federal Tax Code for the 21st Century Economy. He is a Distinguished Visiting Lecturer at Syracuse University College of Law and Whitman School of Management, and also writes for The Daily Beast and Tax Notes.