Glory days? Staunton bets its future on the past

Nothing illustrates Staunton's past glory, decline, rebirth, and new ambitions better than the renovation of the Stonewall Jackson Hotel.

Built in 1924 at a cost of $440,000, the 96-room colonial-revival luxury hotel featured a towering lobby ceiling with celestial light fixtures, ice-water on tap in all the rooms, and it hosted such luminaries as Amelia Earhart.

Unfortunately, as the railroads waned and car culture created suburbia, historic downtowns across the country decayed. In particular, roadside and airport hotels and motels made old places like the Stonewall Jackson obsolete. By the late '70s, the Jackson had become a dilapidated flophouse.

In the late '80s, Staunton began a slow and deliberate process of reviving its downtown area by restoring its past, an initiative that's still gaining steam. For years, Economic Development director Bill Hamilton had dreamed of restoring the Stonewall Jackson, but for years it just wasn't economically feasible.

"It's not a large– go, go– market we have here," says Hamilton. "So we had to plan carefully and be patient."

First, other development projects like the Blackfriars Playhouse, the renovation of downtown streetscapes, and the New Street Parking Garage had to set the stage. "There was a lot of preparation in rounding out the local market with attractions like the playhouse, and infrastructure like the parking garage," Hamilton says. "It was difficult, but we had to learn to let the market direct us."

Last October, the Stonewall was finally restored to its former glory. The impressive lobby is as it once was, complete with the original 1924 Wurlitzer organ on the mezzanine, believed to be the only one of its kind in existence and worth an estimated $100,000.

In addition, 56 new rooms have been added, including 11,000 square feet of conference space. The 96 existing rooms were renovated into 68 larger rooms. In a odd quirk dictated by historic tax credits, many now-superfluous original room doors remain– but don't open.

Add to that a restaurant, a hot tub, a fitness room, and a swimming pool, and you have a 124-room luxury hotel ready for business in Staunton. The question is, will this goose fly?

A national trend

At a cost of over $20 million– over $10 million of which was contributed by the city – the project represents a major gamble on Staunton's future. To succeed, the city needs to generate at least $700,000 a year in additional tax revenue by 2008 to keep up with payments on the $10 million in general obligation bonds it issued to raise the money. In addition, the city can't back out of the deal the way private investors can.

According to Heywood Sanders, a nationally recognized expert on community development policies, it's a risky gamble. Sanders, a professor in the department of public administration at the University of Texas at San Antonio, warns that every Staunton taxpayer could wind up paying for the investment.

Thanks to a recent IRS ruling, says Sanders, cities can issue general obligation bonds to develop hotels and conferences centers with private investors.

"It's a relatively new thing," says Sanders, "where cities bear the full brunt of the risk of developing a hotel."

In the past, issuing bonds was a way for towns and cities to fund projects for the common good, like schools, hospitals, and sewer systems. Essentially, the new IRS ruling allows cities to play developer, while allowing private developers to invest in projects like the Stonewall Jackson with less financial risk.

"Meanwhile," Sanders adds, "many of the things a private investor faces, a city doesn't." For example, a city can issue general obligation bonds to raise money without having a source of income or providing any collateral. It's simply based on the promise that the debt will be paid through taxation or revenue from the project funded. According to Sanders, these partnerships have been largely disastrous.

For example, in Myrtle Beach, South Carolina, a similar private/public luxury hotel project is in trouble just four years in. After financially struggling for three years in its partnership with Radisson Hotels, the city of Myrtle Beach was forced to partner with another independent contractor who changed the complex to a Sheraton. Recently, the city began debating whether to turn the hotel into condominiums. To keep the hotel afloat, Myrtle Beach is paying $5 million out of its hospitality fund.

In Trenton, New Jersey, the downtown Marriott, developed with city assistance, operated at a $2 million loss in 2005. In fact, mayoral candidate Tony Mack is running on the issue. Arguing for more aggressive marketing, Mack says he doesn't want taxpayers to have to foot the bill for a financial bust.

In Bay City, Michigan, operators of a new downtown Doubletree hotel/conference center, yet another private/public development project, owe the city $4 million and have defaulted on their first two payments.

Of course, closer to home we have Charlottesville's own hotel fling. The City ended up spending $11.3 million to bail out the owners of the Omni in the late 1980s and early '90s, forcing the City to double the lodging tax and create a meals tax to cover the expense. Today, the subsidy continues as the Omni owners hold a 75-year lease on 4.39 acres of prime downtown land for just $24,000 a year, a fraction of the market value.

The fundamental problem here, Sanders suggests, is that the private operators of these hotels simply don't have the same incentive to succeed that they would if they were shouldering more of the financial risk.

Risk and reward

On a Q & A about the Stonewall Jackson Hotel project posted on Staunton's website, the city's investment in the project is justified by explaining that private investors, who typically fund motels and conference centers near interstates and airports, simply aren't willing to take the financial risk of funding similar projects in downtown business districts. In other words, these business professionals don't think it's a good investment, but with the help of Mr. and Mrs. Staunton taxpayer, they think they can make this work.

Even Hamilton hints at the idealism of the hotel project by referring it as an "indicator to businesses and developers that we're trying to create a first-class community development project in Staunton." In other words, Hamilton and the rest of Staunton are hoping that businesses and developers will appreciate the risks the city has taken to bring this hotel to life.

"If this doesn't work in Staunton," Sanders worries, "you may have lost the opportunity to develop other more useful and practical projects. You may have put too many fiscal eggs in one basket. But, of course, we'll have to wait and see the numbers."

Indeed, for Staunton's sake, we hope the numbers for the Stonewall Jackson Hotel are everything the city hopes they'll be.

The new Stonewall Jackson Hotel is Staunton's $22 million bet on the city's future.
PHOTO BY DAVE MCNAIR

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