The Rhode Island Convention Center Authority cleared a major hurdle Friday when Gov. Bruce G. Sundlun signed a bill allowing it to sell tax-exempt bonds for hotel projects.
The governor's signature could pave the way for the issuance of $60 million to $80 million of revenue bonds that would allow the authority to buy the Omni Biltmore Hotel from the Providence Journal Co. and purchase a parking garage linked to the hotel. Proceeds also would finance construction of another hotel, which would adjoin the convention center.
Providence hotel owners have protested the projects, which they say will create new hotels with lower borrowing costs. They also charge that the financing violates Internal Revenue Service policy because the authority intends to sell the projects to private investors.
The proposed tax-exempt financing therefore would be for private rather than public benefit, said Geoffrey B. Davis, a Ropes & Gray attorney representing the Providence Marriott.
"A private developer could not get tax-exempt financing to do this hotel," Mr. Davis said. "If the state does it, the state will use tax-exempt money to finance the hotel and its early years of operation. That will directly benefit the ultimate private purchaser. The state is obtaining a benefit for the private purchaser down the road," he said.
James J. Skeffington, a lawyer with Providence-based Edwards & Angell, disputes that charge.
"The authority is not intending to privatize these," Mr. Skeffington said Friday, denying newspaper accounts that quoted that authority's chairman as intending to sell the hotels. "The quote that was cited was taken out of context," Mr. Skeffington said. "The authority is making an investment in a hotel, and the hotel is part of the convention complex. It's not a short-term investment."
Edwards & Angell is serving as bond counsel to the authority.
For the governor, the projects boil down to sheer economics. "The benefits this project will bring to Rhode Island are enormous," the governor said in a printed statement released Friday. He repeated estimates that the entire convention center project, including the hotels, would create 1,500 construction jobs and 3,500 permanent new positions.
Also, Gov. Sundlun said, "the center will draw over one-half million visitors Rhode Island each year, and it will have an economic impact of over $3 billion on our state throughout the life of the project."
The state has pledged to make up the difference between the authority's annual net revenues and its annual debt service, probably about $10 million, according to Mr. Davis.
Now that Gov. Sundlun has signed the necessary legislation to advance the convention center and hotel projects, the most obvious potential obstacle to the project is the possibility of a lawsuit filed by owners of existing Providence hotels.
Mr. Davis stressed that even with the imprimatur of the state General Assembly and the governor, the law remains open to questions under the federal tax code. He believes the authority still intends to sell the hotels.
"The tax questions that have been raised in [legislative] hearings will exist in any event," Mr. Davis said. "They are serious questions, and they don't go away just because the legislation is passed."
He would not comment on whether the hotel owners will file suit to block the hotel projects. "We'll have to sit down and consider our alternatives," he said.
Stephen S. Szecskas of the Procaccianti Group of Cranston, R.I., has said that "the idea of filing suit has been discussed." Mr. Szecskas could not be reached for comment Friday. Procaccianti owns the Providence Days Hotel, among other properties.
Senators approved the bill by a vote of 27-to-18, indicating significant opposition to the financing, observers said. "This was probably the most contested piece of legislation with the possible exception of the budget this year," Mr. Davis said.
Even Sen. John Orabona, D-Providence, who chairs the Senate Corporations Committee and supports the legislation, admitted opposition to it was strong in his chamber. The senator said his colleagues viewed other issues in the state as more pressing.
"We have many other problems here in the state of Rhode Island," Mr. Orabona said. "They're saying until you solve the banking problem, we shouldn't do anything else."