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Madison room tax revenue drop prompts questions over proposals

By Paul Snyder

Madison’s looming budget deficit likely will force some city leaders to cast a critical eye on new hotel proposals.

“I would say we need to have an increased focus on these projects’ economic impact,” Alderman Bryon Eagon said. “We have to look at what the city can support in this market and be on the lookout for a type of hotel we don’t have.”

Revenue shortfalls will leave Madison’s budget more than $3 million short at the end of the year, said Dean Brasser, city comptroller. In the economic downturn, he said, it is not a surprise, and the city can bring the budget back into balance by tapping into the reserve budget, which now contains about $29.5 million.

“Even if we take the money out to balance the budget, the reserve is still at about 12 to 13 percent of next year’s proposed spending,” he said. “Our goal is 15 percent. So we’re a little low, but the reserve will still be healthy.”

The bigger issue for the city, Brasser said, is to try to better project revenue each year. This year, the city fell short on projections for building permits and room tax revenue.

With construction down, the drop in building permits is not a big surprise. But city leaders expected the room tax to bring in $9.1 million by year’s end. Brasser said it is now projected to bring in $7.5 million.

“It is interesting that a lot of these hotel proposals are still coming to fruition at a time when the economy is down and so is travel,” he said. “The room tax has always been a very stable revenue source. Now it kind of reflects the general malaise in the economy.”

If the city can’t fill up the rooms it has, it should be wary of letting developers build more, said Tom Ziarnik, general manager of the Doubletree Hotel in downtown Madison.

“I don’t think building more is a good idea, and I don’t think they’re all going to be built,” he said. “The city as a whole saw a drop of about 15 percent in occupancy this year, which puts hotels back to the kind of business we were doing in 2005.”

Doubletree does not anticipate an increase in 2010, but that might not stop other developers from pushing their projects.

Steve Yoder, president of Madison-based Apex Enterprises, said just because the economy is bad now does not mean it will be bad in three years. Apex wants to build an estimated $100 million new hotel to be constructed across the street from the Monona Terrace Community and Convention Center, and the company likely will submit plans by April for city approvals.

“Of course we’re concerned,” he said. “Every step of the way we’re concerned. But you just have to keep pushing forward and put together a plan that shows this project can be paid for. If it can’t, then we don’t do it. It’s as simple as that.”

Many hotel projects planned for Madison ¬— including proposals from De Pere-based Beechwood Development LLC, Oshkosh-based Supple Group and Milwaukee-based Marcus Corp. — were either put on hold or cancelled in 2009. The only major plan before the city right now is the estimated $90 million redevelopment of the Edgewater Hotel.

Alderman Chris Schmidt said Common Council members should be aware that rooms in the city are not filling up, but he said neither developers nor the city should shy away from proposals.

“We have an idea what kind of demand there is in a normal economy, which calls for a bit more,” he said. “I don’t know what things will be like in five years. Right now we’re dealing with a depression caused by forces beyond whether or not I feel demand is there.”

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