Public-Private Partnerships in Houston

Many government entities partner with private sector for projects as economic drivers

As budgets shrink and revenues dwindle, more and more government subdivisions are turning to the newest tool in their financial tool kits – public-private partnerships (P3s) – to help finance necessary projects they can no longer afford. Sure, a financial partner can help build a new highway, construct a new county courthouse or finance and build student housing on a college campus. But, many government entities are now also seeing P3s as economic drivers for their communities.

Several such P3 projects have been announced recently in major metropolitan areas of the state. In Waco, a private sector developer is seeking to purchase the historic Waco Hippodrome Theater to spend $2.1 million to transform it into an entertainment complex that will be open daily.

This project involves a nonprofit as one of the partners, which is becoming more common among public-private partnerships. The partnership would include the private partner develper, nonprofit partner Waco Performing Arts Company (WPAC) and the downtown Tax Increment Financing Zone board, a public entity, which is being asked to commit nearly $316,000 to the project.
The 99-year-old Hippodrome, once the city’s leading movie house, was operated by the WPAC from the 1980s until it closed in 2010 due to financial problems. If the developer buys and expands the structure, it will relieve the WPAC of any responsibility for managing the aging facility. The agreement also would lease the theater to the nonprofit on a limited basis. The developers are attempting to preserve the historic façade of the building. The goal also is to drive more people and businesses to the downtown area to revive the area economically.

As budgets shrink and revenues dwindle, more and more government subdivisions are turning to the newest tool in their financial tool kits – public-private partnerships (P3s) – to help finance necessary projects they can no longer afford. Sure, a financial partner can help build a new highway, construct a new county courthouse or finance and build student housing on a college campus. But, many government entities are now also seeing P3s as economic drivers for their communities.

Several such P3 projects have been announced recently in major metropolitan areas of the state. In Waco, a private sector developer is seeking to purchase the historic Waco Hippodrome Theater to spend $2.1 million to transform it into an entertainment complex that will be open daily.

This project involves a nonprofit as one of the partners, which is becoming more common among public-private partnerships. The partnership would include the private partner develper, nonprofit partner Waco Performing Arts Company (WPAC) and the downtown Tax Increment Financing Zone board, a public entity, which is being asked to commit nearly $316,000 to the project.

The 99-year-old Hippodrome, once the city’s leading movie house, was operated by the WPAC from the 1980s until it closed in 2010 due to financial problems. If the developer buys and expands the structure, it will relieve the WPAC of any responsibility for managing the aging facility. The agreement also would lease the theater to the nonprofit on a limited basis. The developers are attempting to preserve the historic façade of the building. The goal also is to drive more people and businesses to the downtown area to revive the area economically.

In Houston this week, city officials approved an economic development package as part of a partnership with a developer that will likely result in the construction of a 1,000-room, $324 million hotel to help serve the city’s George R. Brown Convention Center in the downtown area.

Houston First Corporation, the local government corporation that resulted after the consolidation of the City of Houston Convention & Entertainment Facilities Department and the Houston Convention Center Hotel Corporation, will provide $58.7 million in cash and $79 million in city and state tax rebates over 10 or 20 years. The developer will build and own the hotel and the developer retains the revenue generated by the hotel. Houston First will build a $32 million parking garage. Revenues from the facility will be used to cover operation costs and debt repayment, but the developer will pay an annual fee for the hotel’s use of the garage over a 50-year period – a total of $62 million. Those funds will be shared by the city and Houston First.

As the result of the partnership, a new hotel will be built to better serve the convention center area, allowing the city to attract bigger conventions, which means more visitors to the city and more dollars coming into the local economy.

The city of Georgetown has a similar opportunity in its pipeline. Developers in the Central Texas city have proposed a four-star hotel in a high-end, mixed-use development. City officials see the new hotel as an economic driver not only for the city, but the entire region. The planned $60 million hotel will feature 225 rooms and a 53,000-square-foot conference center. If this partnership and its financing methods with the city come to fruition, the city will own the conference center. Under one scenario, the city would purchase the conference center with revenue from its Tax Increment Investment Zone that draws revenue from taxes collected over a capped amount on the businesses in the district. Officials expect the hotel facility will draw other retail businesses to the area – all of which will result in increased revenue from property taxes, sales taxes and motel/hotel taxes…not to mention creating local jobs.

Government entities, and even nonprofits, are quickly realizing the benefits of partnerships with the private sector. Not only can they bring projects to completion quicker, more efficiently, less expensively and with less government risk, but they also can mean increased tax receipts, more “new” money circulating throughout the local economy and jobs for members of the local community.

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