The city’s top fiscal manager said Thursday that debt restructuring could be part of a new economic strategy for the city-owned Hilton Baltimore as hotel revenues continue to underperform.
The Hilton’s economic problems are expected to cost taxpayers an estimated $2 million this year.
Harry E. Black, the city’s director of finance, told a City Council committee that the publicly financed hotel’s lack of ability to generate enough revenue to cover its bond payments is prompting the need to create “a longer-term strategy” for the property.
That will be the topic of discussions on the problem this summer, he said. The 757-room Hilton opened in 2008 and figures show it has lost a total of $54 million since then.
The City Council approved the Hilton deal in August 2005 after then-Mayor Martin O’Malley pushed forward a plan to build the $305 million hotel attached to the Baltimore Convention Center. The hotel was financed through the sale of revenue bonds.
Under O’Malley’s plan, the bonds were supposed to be repaid over decades with income tax from the Hilton — and possibly occupancy taxes from all other hotels in the city — should the hotel fail.
That is the scenario now playing out, as the Hilton’s revenues have yet to generate enough to repay the bonds, according to testimony and a document presented to the City Council’s Taxation, Finance and Economic Development Committee.
Last month, Black revealed that the city will use $1 million from its general fund to help cover the March debt payment for the Hilton. A second debt payment due in September is also expected to be paid by taxpayers, Black said.
The money will be diverted from an expected $2.8 million in city occupancy tax revenues from the Hilton this year that were supposed to go into the city’s general fund.
The hour-long committee hearing Thursday spotlighted the Hilton’s wobbly fiscal health.
During a presentation, Michael P. Doyle, executive vice president of Capital Hotel Management LLC, a Beverly, Mass.-based hotel data firm hired by the Hilton, explained that Hilton Baltimore executives expected the 2013 occupancy rate to grow to 71 percent, a 6 percent increase over 2012. New marketing plans will seek to book hotel conferences and rooms, he said.
“We are focused on growing occupancy,” Doyle said, adding that total sales for 2013 are expected to be $52 million, a jump in the 2012 figure of $47 million.
City Councilman Carl Stokes, chairman of the committee, called the hearing because he said he was alarmed at the hotel’s lack of ability to cover its bond payments.
“Every time you’ve come in, you’ve forecast better years,” Stokes said. “With the bond payments coming due in principal and interest, the numbers jump by millions. At what point do we put ourselves in a position [of risk]?”
Black told Stokes that he expected discussions to open this summer on formation of a new fiscal plan for the Hilton. He declined to be specific about those talks, but said Mayor Stephanie Rawlings-Blake had called for such action.
“We need a good, honest discussion that is solid and frank,” Stokes told Black, adding that the city may have to devise an “exit strategy” for the Hilton deal that could include a debt restructuring or even sale of the property.
“I want us to work it out so there’s not a fire sale,” Stokes said. “I think they need to have a better management strategy.”