Opinion: Grand Rapids doesn't need publicly funded hotels
Grand Rapids is a city on the rise. The downtown center is in the midst of a construction boom, particularly for new hotels. According to Experience Grand Rapids, six new hotels (with almost one thousand rooms between them) are set to open in downtown Grand Rapids within the next two years.
Despite this rapid new hotel construction, some are calling for more. The Grand Rapids-Kent County Convention and Arena Authority (CAA) is calling for a publicly owned and financed convention hotel in Grand Rapids at a cost of between $140 million and $180 million.
The CAA is a public authority that owns and operates a number of large venues in Grand Rapids, including Van Andel Arena, DeVos Performance Hall and DeVos Place, where they hope to build this hotel.
The CAA board is touting a feasibility study that predicts “an annual economic impact of $82 million” through the hotel’s construction.
In the face of such enormous economic impact, why is there a need for public finance? Shouldn’t private businesses be eager to build it? Evidently not.
In the words of CAA board member Charlie Secchia, “We would love for them to do it. We just don’t think it’s going to happen.”
Secchia provides a curious justification. He notes that the hotel is “a very skinny project,” and that “a developer with a rational fiscal responsibility would never, never start a project like this given the minimal return.”
Steve Heacock, the chairman of the CAA board, echoes him, saying the planned hotel “would require more investment capital than is justified by the potential return.”
A reasonable person, seeing that the expected return on a project wouldn’t be worth the investment, would conclude that the project isn’t good. This is an elementary economic concept. If the costs exceed the benefits, don’t do it.
Heacock, Secchia and others on the CAA board found a different solution: public finance. Specifically, funding the project through tax-exempt bonds.
Despite the complete lack of economic feasibility for private development of the hotel, they remain convinced of its value. Yet their only solution to the lack of viability is giving special advantages for its construction through public finance.
The basis for the projected $82 million in yearly economic impact claimed by the study is rooted in rosy-eyed projections of increased demand for hotel rooms, inviting new visitors by providing additional space in Grand Rapids. The study further claims that the new hotel, simply by existing, would bring a flood of new conferences and conventions to the city, including up to 11 additional major events in the first year alone.
The economy is a beautiful and complex thing. It’s made up of millions of people working toward different ends. It is not a machine, nor is it a math problem to be solved. The CAA board’s fundamental error is believing that they can control the future of Grand Rapids, with all of their projections, as they see fit.
Austrian economist F.A. Hayek once said that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
The CAA may believe that they can manipulate the city of Grand Rapids to bring in more conferences or more hotel visitors, but they cannot control the actions of millions of people, despite their hubris.
There’s a reason no private developer would take on this project; it’s simply a bad deal, publicly financed or not.
Tyler Groenendal is foundation relations coordinator at the Acton Institute.