Public-Private Development Partnerships: Working with Municipalities on Tight Budgets

By Larry K. Kimball Director of Hotel Development, C. W. Clark, Inc. | August 14, 2011

Public-private partnerships are a proven structure that often results in mutually-beneficial deals that incentivize new hotel developments for municipalities. Many of these deals are controversial because public or redevelopment funds are involved and sometimes the developer benefits more than the municipality over the long haul. In any case, this deal structure may be in jeopardy over the next few years. Municipalities throughout the U.S. are on the proverbial financial ropes and that is not good news for prospective hotel developers. We will discuss how we got here, where it is headed, and best practice strategies hoteliers can use to obtain financial incentives in future public-private partnerships.

Where Has All the Municipal Money Gone?

Higher Pension Costs

The influence of public sector unions is a primary reason municipalities face and will continue to face tough choices between providing or cutting existing services and imposing new tax increases. A recent University of Chicago and Northwestern University study estimated that states face a $3.92 trillion nationwide shortfall in unfunded pension liabilities for the period 2008-2023 (1). That is just the states, not the municipalities which are as follows:

“It is worth noting that the same issues also arise for the many municipal and county pension plans in the United States. According to the U.S. Census of Governments, local plans in aggregate held $0.56 trillion in assets as of June 2007, which is about 20 percent of what state pension plan assets were at the time. According to Pensions and Investments, as of September 2008 the largest of these local plans were New York City ($93 billion in assets), Los Angeles County ($35 billion in assets), and San Francisco County ($14 billion in assets). If local plans were as underfunded as state plans, underfunding would be $0.90 trillion using Treasury discount rates"(emphasis added) (2).

State “Loans”

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Hotel Spa: Oasis Unplugged

The driving force in current hotel spa trends is the effort to manage unprecedented levels of stress experienced by their clients. Feeling increasingly overwhelmed by demanding careers and technology overload, people are craving places where they can go to momentarily escape the rigors of their daily lives. As a result, spas are positioning themselves as oases of unplugged human connection, where mindfulness and contemplation activities are becoming increasingly important. One leading hotel spa offers their clients the option to experience their treatments in total silence - no music, no talking, and no advice from the therapist - just pure unadulterated silence. Another leading hotel spa is working with a reputable medical clinic to develop a “digital detox” initiative, in which clients will be encouraged to unplug from their devices and engage in mindfulness activities to alleviate the stresses of excessive technology use. Similarly, other spas are counseling clients to resist allowing technology to monopolize their lives, and to engage in meditation and gratitude exercises in its place. The goal is to provide clients with a warm, inviting and tranquil sanctuary from the outside world, in addition to also providing genuine solutions for better sleep, proper nutrition, stress management and natural self-care. To accomplish this, some spas are incorporating a variety of new approaches - cryotherapy, Himalayan salt therapy and ayurveda treatments are becoming increasingly popular. Other spas are growing their own herbs and performing their treatments in lush outdoor gardens. Some spa therapists are being trained to assess a client's individual movement patterns to determine the most beneficial treatment specifically for them. The July issue of the Hotel Business Review will report on these trends and developments and examine how some hotel spas are integrating them into their operations.