GALVESTON — The city of Galveston and Landry’s are at it again, squabbling this time over the 2007 budget for the island’s convention center.
The Park Board of Trustees, which oversees the facility’s operations on the city’s behalf, postponed approving next year’s budget last week, after taking Landry’s to task, suggesting the company inflated the estimated expenditures by $266,000. The improperly placed expenditure, board members claimed, made the center’s operations appear to break even, when in fact the facility is making money.
Landry’s representative Steve Greenberg maintains the board’s claims are false and said the company is accurately following the terms of the 2001 settlement agreement between the Moody Foundation, Landry’s, the city and the park board that is supposed to govern the center’s operations.
The Details
According to the draft budget Landry’s submitted to the park board last week, the company expects to receive $1.5 million from the hotel tax allocated for the facility. Next year’s estimated collections represent a 74.6 percent increase over the 2006 collections.
The budget also shows an estimated $411,333 in rental revenue, a 6.5 percent increase over this year’s rentals.
Expenses total $1.9 million, matching to the penny what Landry’s expects to receive in revenue.
But park board members got stuck on the $266,000 the company budgeted for business incentives.
They agree that the settlement calls for the incentive money, but park board chair Diana Puccetti, who was a city council member at the time the settlement was finalized, claims the funds already have been set aside and should not come out of this year’s revenue.
City Manager Steve LeBlanc agreed, saying the funds were sitting in an account, waiting for the park board to authorize their use.
The incentive funds were set aside from last year’s hotel tax surplus, profits the city and Landry’s are supposed to split. But instead of pocketing the $133,000 each was owed, the two parties agreed as part of the settlement to apply that year’s profit to an incentive pool.
LeBlanc said Landry’s officials had placed the incentive money in the 2007 budget’s expense column correctly but acknowledged the money should not be shown coming from next year’s hotel tax revenue.
One Bone Of Contention
If LeBlanc is right and the $266,000 already is available, why would Landry’s try to take it out of next year’s funds?
Some park board members said they thought the company was attempting to artificially inflate next year’s expenses to avoid paying for marketing measures requested by the board.
“If you take out the incentive money, this budget would have a $266,000 net,” said board member Betty Massey. “The money is here, but you are choosing not to spend it on marketing and personnel.”
The park board and the city agree Landry’s should include marketing in the center’s yearly operating expenses.
Landry’s argues each local hotel should bear the expense of promoting the facility individually as a way to get groups to stay in their rooms.
“That’s the biggest issue we have right now,” LeBlanc said. “All other issues revolve around that. From our perspective, it just doesn’t make sense to have individuals market (the center) when we have a manager that should be doing that.”
With a $266,000 budget surplus and nothing else to spend it on, Landry’s could find it more difficult to justify not spending something for marketing, board members implied.
But Landry’s officials maintain that the settlement agreement requires them to include the incentive money in the 2007 budget and does not allow them to access previously banked funds that are not part of the center’s operating expenses.
“There is no money set aside for the $266,000 incentive expense,” Greenberg said. “The mediation agreement provides that this is a budgeted operating expense of the Galveston Island Convention Center.”
Another Bone Of Contention
The second largest expense in the 2007 budget — $442,859 — goes directly into Landry’s pocket for legal fee reimbursement.
Landry’s paid roughly $700,000 in legal fees during the Moody Foundation’s fight with the city about the center, charges the city is repaying.
To help keep the center’s operating budget in the black, the company agreed to accept yearly $100,000 payments on the legal fee balance until 2007. Next year’s budget includes the balance of the fee reimbursement, something to which the company is legally entitled.
The request, park board attorney Carla Cotropia told her clients, was connected to the rapidly increasing hotel tax revenue.
Landry’s executives, she said, told her that since the money was available, they wanted it all now.
But park board members viewed the payment as another way to avoid budgeting for marketing and a software booking system that would allow the board’s Convention and Visitors Bureau staff to check the center’s availability.
Both Landry’s and bureau sales teams can book the center, but only the Landry’s team has full access to the booking database that shows when the center is available.
But Landry’s officials have said the existing system is adequate.
“We are currently providing CVB access to the database on a daily basis, and Landry’s feels that budgeting computer software is an unnecessary taxpayer expense,” Greenberg said.
Park board members want next year’s budget to include a computer that will allow bureau team members to tap into Landry’s system, but Cotropia said she did not expect the company to comply without a judge’s order.
“I do not believe the booking issue will be resolved in this budget,” she said. “We will probably have to go back to court.”
The park board will reconsider the convention center budget during a special meeting Wednesday.
What: Park board meeting
When: 3 p.m. Wednesday
Where: 2504 Church St., Suite 200
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Who gets what?
The Galveston Island Convention Center is owned by the city but managed by Landry’s. The company receives hotel tax funds to cover operating expenses, and the city uses another portion of the hotel tax money to pay off $30 million in bonds sold to finance the facility’s construction and to build reserves for capital improvement projects.
Once the reserve accounts have reached their maximum limit, excess money flows into a profit pot that the city and Landry’s split.
As hotel tax revenue continues to grow, so do the potential profits.
If the projected 2008 tax revenue meets expectations next year, the center will have roughly $700,000 left at the end of the year. But with hotel tax revenue growing an average of 10.3 percent every year for the last four years, a much larger budget surplus seems likely.
The estimated surplus has led some park board members to question whether the convention center is overfunded.
