Adding insult to this injury to the republic is the fact that taxpayers helped subsidize the hotel’s renovation. And this is nothing unique. In fact, American taxpayers have long spent billions of dollars nationwide subsidizing hotel construction — with some cities outright owning major hotels — all in service of an economic theory that makes no sense: that the way to save crumbling American cities is public investment in hotels.
The idea is usually that a hotel will boost economic development by increasing tourism or helping to increase business at a city’s (usually also publicly financed) convention center. There’s also an allure to hotel jobs because they can’t be outsourced, unlike so many other positions in 21st-century America. A call center, for example, can be in another nation, but a housecleaning crew can’t.
But the economic theory behind these hotel projects is deeply flawed. Building a hotel doesn’t draw people to a city. Under the best circumstances, it’s a deeply inefficient method of investing public funds. Under the worst, it’s flushing money down the drain. It’s time for officials to stop sinking public dollars into such projects and instead prioritize things that offer far greater benefits to the citizenry.
Researchers peg the rise of publicly subsidized hotel projects to the era of President Jimmy Carter, when the politics of urban renewal took off. At the time, cities were in decline because of white flight, and crime rates were on the rise. Officials, however, saw the potential for revitalizing certain urban areas, particularly downtowns, via federal spending.
The main program used to achieve this was the Urban Development Action Grants program, which dispensed about $4.5 billion to support 3,000 projects in 1,200 cities across the United States. In 1983, The Washington Post noted that UDAG money had been used on 59 hotels, from Maryland to Michigan to Missouri. Half of the cities that received UDAG grants used one on a hotel; about a quarter of UDAG money went into those projects.
The UDAG program eventually fizzled out, at least in part because of the opposition of the Reagan administration, which claimed the grants “politically reshuffle the national economic pie, not expand it.” Congress reduced its funding and then eliminated it in the late 1980s, but the program did, as one researcher noted, create “a new model for private sector and public sector collaboration in economic development,” one in which public funds were plowed into private properties in an attempt to engineer benefits to neighborhoods that weren’t materializing on their own.
Every time you hear about a “public-private partnership” that could save a distressed area, the same idea is at work. Then, as cities reversed their declines in recent decades and once again began to grow and draw in millennials attracted to urban living, tourism and its amenities became key parts of the economic strategies local lawmakers banked upon, keeping hotels as a popular partnership target.
Investing in hotels had the double advantage of a clear connection to the tourism industry and, depending on how they were financed, being projects that could be portrayed as supported only by tourism dollars. Such was the case when Washington subsidized a Marriott next to its convention center in 2009; Mayor Adrian Fenty made it sound as though all the money spent would be recouped only via taxing tourists (which wasn’t really true but worked as a sound bite).
By 2014, a survey found, more than $8 billion in public money had been spent on 118 hotels nationwide. Of those, about 30 percent were financed entirely with public money. The list of recipients is a who’s who of the nation’s hotel titans: Marriott, Hyatt, Hilton, you name it.
The Trump hotel is no exception, albeit funded by the federal government, rather than a state or city, which is perhaps fitting considering where it’s located: in Washington’s Old Post Office building, which was completed in 1899 and used as the capital city’s main mail-sorting site until World War I. Because the goal of the project was economic revitalization in a part of downtown that’s considered somewhat sleepy, and via a building that is on the National Register of Historic Places, Trump received public money for undertaking it.
Specifically, he benefited from the National Park Service’s historic-rehabilitation tax credit, which provides developers with 20 percent of the cost of redoing buildings certified as historic structures. That put about $40 million of public money into Trump’s hotel, which opened in 2016.
This was nothing new for Trump. He has been collecting public money for his hotels for as long as he’s been a public figure. For example, he received a 40-year property tax break on New York’s Grand Hyatt hotel, his first major development in the Big Apple. To date, it has cost the city $360 million, and it doesn’t expire until next year. And that sort of hotel largesse is commonplace.
Several cities took the idea of partnering with a hotel corporation a step further by owning hotels outright. The first was Chicago, which opened the Hyatt Regency McCormick Place in 1998 in an attempt to bolster the fortunes of its convention center, after developers evinced little interest in putting a private hotel nearby.
Today, publicly owned hotels are all over. Baltimore, for instance, fully owns the Baltimore Hilton, which cost $300 million and was open for a decade before turning its first profit. Trenton, N.J., built a Marriot for $46 million, only to sell it for $6 million just a few years later. Phoenix built and opened a Sheraton for $350 million — and then sold it for $255 million, shortly after it finally started turning a profit. These cities barreled headlong into the hotel business and years later had precious little to show for it except debt and regret.
And that lack of success makes sense because there’s something a bit circular about the logic of these deals: Hotels supplement thriving tourism businesses; they don’t create them. If tourist demand isn’t high enough to entice a private hotelier to come to town, chances are the city operating its own hotel isn’t going to change the equation.
In other words, just because you build it, doesn’t mean anyone will come.
All of the money that governments sank into hotels could have been spent on the things that actually create and sustain economic growth: education, health care, infrastructure and programs to improve the quality of life for a city’s workers.
In the case of Trump’s hotel in Washington, tax breaks have put taxpayers in bed with a corrupt institution. But all over, we’ve been asked to pay to either support the biggest hotel corporations in the country or have our cities own hotels outright. This is an economic choice that lawmakers need to put to sleep.