And Governor Carcieri calls the proposed $17-million subsidy for Vincent Mesolella Jr.'s hotel plan "the most egregious case of inside dealing that I have ever witnessed in my years in this state."

08:00 AM EDT on Friday, June 25, 2004

BY GREGORY SMITH
Journal Staff Writer

PROVIDENCE -- To thrive, the Rhode Island Convention Center needs hundreds more hotel rooms to be built nearby, Convention Center Authority Chairman David A. Duffy said yesterday.

But he and Governor Carcieri continue to insist that the state can get them without taking the risk of lending a significant amount of money to a hotel developer.

Duffy said help already is on the way for the convention center in the form of two projects: the conversions of the Masonic Temple on Smith Hill into a luxury hotel with 250 rooms, and of two old commercial buildings downtown into a boutique hotel with 80 rooms and suites.

Work is supposed to begin in a matter of weeks on converting the Masonic Temple to a Marriott Renaissance hotel. Construction is under way on the Hotel Providence, as the boutique hotel will be called, with an opening scheduled for late fall.

Carcieri and Duffy, the governor's appointee to the authority, are fighting a proposed $17-million state subsidy for developer Vincent J. Mesolella Jr. to build a hotel on the site of the John E. Fogarty Building.

Under the proposal scheduled for a vote in the House this afternoon, the state would instruct the authority to issue $17 million in bonds and loan that sum to Mesolella, a former state representative, in order to help him build a 250-room hotel on a site across the street from the convention center.

The $52-million, all-suites hotel would be linked to the convention center by a pedestrian bridge.

Having done scant research, legislators are trying to rush a deal through, although its contents are unsettled and sketchy, and it would leave the authority virtually no room to negotiate project details later, Carcieri and Duffy say.

"The only thing we know is that the General Assembly is poised to hand former state Rep. Vinnie Mesolella $17 million with no strings attached," Carcieri said at a news conference. He promised to veto the bill if it passes.

"Make no mistake about it," the Republican governor said. "This is the most egregious case of inside dealing that I have ever witnessed in my years in this state."

Mesolella, a Democrat, was a longtime leader in the Democrat-controlled House.

Duffy and Carcieri pointed out that the proposed bill does not spell out how large a developer's fee Mesolella would command.

In effect, Duffy said, legislators want to issue Mesolella a license to "go fishing" for a hotel flag and the rest of his financing from private sources.

Mesolella said he was not able to reply immediately to the criticisms, but would be free to speak today.

Mesolella has an open-ended development option for the Fogarty Building from its owner, the Providence Redevelopment Agency. Duffy agrees that would be the best site for a hotel to serve the convention center.

Given the expressions of interest by competing developers on building a hotel, Duffy said the authority can come up with a much less-expensive arrangement for a hotel. He suggested that the state withhold the subsidy, and if Mesolella fails to develop a hotel with private financing, scoop up his option when the Redevelopment Agency becomes tired of waiting and do a no-subsidy deal with another developer.

Proponents of Mesolella's deal contend that private investors around the country are disinterested in hotels associated with convention centers, but would be attracted if there is a public subsidy.

They say that the recent collapse of a proposed deal to build an all-suites hotel about a block from the convention center -- although the hotel would have had a prime location near GTECH's planned downtown headquarters -- proves how difficult it is to obtain private financing for a hotel at a reasonable cost to the borrower.

What the convention center needs, according to Duffy and James P. McCarvill, executive director of the Convention Center Authority, is a block of reasonably priced rooms within easy walking distance that can be regularly committed for convention use months or even years in advance of a given event.

McCarvill, event planners and others have been saying for several years that the convention center would be well served if 800 to 1,000 rooms were added to the existing downtown stock of 1,600 rooms, which includes the state-owned Westin Providence hotel.

The convention center would seek to tie up about 50 percent of those additional rooms -- all it could reasonably expect to get on average -- in order to attract larger, more lucrative conventions, McCarvill said.

Having more rooms available, according to this school of thought, also would help the Rhode Island Convention Center stave off growing competition from convention centers in other states.

State taxpayers keep the doors open at the convention center -- at last word the annual subsidy is about $16 million -- based on the concept of economic spinoff. Meetings and events at the convention center generate trade for Rhode Island businesses and add jobs. The resulting tax revenue, officials claim, more than offsets the subsidy.

If the state subsidizes Mesolella's project, a lawyer for the Providence Biltmore hotel has said that the hotel's owners might be forced to convert their downtown landmark to condominiums or apartments.

When the authority sought bids for a state-subsidized hotel in 2002, the co-owners of the Biltmore competed but lost. They offered to expand the Biltmore by 300 rooms and to build an extended-stay hotel on the lawn of the Westin. The authority members at that time preferred Mesolella's proposal.

Also yesterday, Duffy said the Mesolella subsidy would jeopardize a project that is more important to Rhode Island than a convention center hotel: a merger of the state-owned convention center with the city-owned Dunkin' Donuts Center that would assure the latter's survival.

He disclosed that a tentative merger deal would require the authority to issue $35 million to $40 million in bonds to rehabilitate and equip the outmoded Dunkin' Donuts Center.

The $17 million in bonds for Mesolella, added to $40 million in bonds for the merger plus bond-issuance costs, altogether would require the authority to exceed its borrowing limit, he said.

The General Assembly could raise the limit in order to accommodate both projects, but Duffy questioned whether legislators would be willing. They have been complaining about the size of the state's debt, he said.

An unsigned compact has been presented to General Assembly leaders, but they had questions about the state's costs and are unwilling to grapple with such a substantial matter late in the Assembly session, Duffy said.

"It's up in the air," he said.

A well-conceived hotel project is more important to the convention center than the merger, but the rehabilitation of The Dunk is more important to all Rhode Islanders because of the athletic and music events that it hosts, Duffy said.

"Someone will have to rescue the [Dunkin' Donuts Center] before too long," he said, because it is deteriorating and the city cannot afford to continue subsidizing its operations and fix it up, too.

With a report from staff writer Scott Mayerowitz.