State funding for a hotel and conference center in downtown Frederick sparked a controversial floor debate in the Maryland Senate this past session.  The state approved granting $4 million for the Downtown Frederick Hotel and Conference Center, leading to Frederick County’s own Senator Michael Hough voting “nay,” alone, on the entire capital budget.

Michael Dresser reports in today’s Baltimore Sun that the public funding for the project – $31 million in total, including state, county and city sources – still requires a number of state and local approvals, including sign-off by the State Board of Public Works. It appears the debate over the project is far from over. From the article:

State Sen. Ronald N. Young, a Frederick County Democrat, said the project is a priority for the city’s growing high-tech and biotech business sector.

“They think they can do international conferences here. They need a first-class hotel,” he said. “It’ll definitely spark other businesses in the area.”

But to others, the project is a colossal boondoggle. These opponents say it’s a textbook example of crony capitalism — a subsidy for wealthy developers. They say it would be out of scale in the historic downtown and would require the demolition of at least one historic building.

State Sen. Michael J. Hough, Frederick County’s other senator, compares the project to the Rocky Gap resort in Western Maryland and the Hyatt Regency in Cambridge — two money-losing ventures in which the state invested two decades ago.

“I’m not exactly sure why the state is still investing in hotels, given our track record,” the Republican lawmaker said. Rocky Gap lost money for years before casino gambling was permitted there under new ownership. The Cambridge resort continues to lose money, according to the Department of Legislative Services, but the state was repaid in 2006 and local officials insist it has stimulated growth in that Eastern Shore city.

A majority of the Frederick County delegation to the General Assembly opposed spending state money on the hotel project, but Young persuaded his fellow Senate Democrats to insert the expenditure in the capital budget. The Senate prevailed in negotiations with the House, and Gov. Larry Hogan did not contest the decision.

Even without most of the delegation, the project has powerful local support. The city government, led by Republican Mayor Randy McClement, is on board. The county executive, Democrat Jan Gardner, backs it. The Frederick County Chamber of Commerce and other local business groups have it on their wish lists.

“We believe it’s the next real game-changer for our community — not a boondoggle,” said John Fieseler, executive director of the Tourism Council of Frederick County. He said accommodations downtown are limited; the few bed and breakfasts are always full.

The Maryland Public Policy Institute, a nonpartisan public policy research and education organization whose mission is “to formulate and promote public policies at all levels of government based on principles of free enterprise, limited government, and civil society,” penned a not-too-positive report on the potential deal last September.

The Institute reports that the deal would distort the hospitality market in the Frederick area; raise hotel taxes on other hotels; “rewards political skill, not business acumen”; may violate the state law giving the county the authority to impose the hotel tax; provides full-service hotel benefits that jeopardize business opportunities for neighboring eating, drinking and other service establishments; and gives too much administrative authority to the county tourism council, which it reports is “a trade group comprising some 300 members engaged in visitor businesses.”

Additionally, it cites:

Heywood Sanders, a professor of public administration at the University of Texas, San Antonio who specializes in hotels and convention centers, says upscale, full-service conference center hotels almost never make financial sense in the downtown of small cities like Frederick. The extra costs involved, both in capital expenditure and operations, just aren’t justified by any extra revenue they generate. The many activities involved in a full-service hotel are also very difficult to manage, he says. However, the bigger problem for Frederick is that the hotel’s anticipated top customer, the federal government, limits “per diem” lodging rates to about $100 and mandates that they will only be paid if the lodging is at least 50 miles from employees’ workplaces. The proposed upscale hotel is aiming at $160 per night rooms, and Frederick is a scant 43 miles from the White House.

The Baltimore Sun refers to the City of Frederick’s economic development director:

Richard Griffin, economic development director for the city, said the opposition to the hotel, “although very expressive,” is small. He said the project is expected to bring 280 jobs and have $26 million in annual economic impact.

Griffin said public-private partnerships are typical for such projects. He pointed to a Marriott hotel-conference center built in North Bethesda with state help and regarded as a success.

“Everyone’s waiting for this project to get going so they can jump in and begin the process of the full realization of the east side of downtown,” he said.