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Convention center funding cut over concerns of deal

The Boston Convention & Exposition Center.

Matthew J. Lee/Globe staff

The Boston Convention & Exposition Center.

A Massachusetts Senate committee Friday stripped $110 million from a bill to expand Boston’s largest convention center amid accusations that the money had been added as a hidden subsidy to build a towering hotel near the facility.

The Senate’s committee on bonding made the change after Gregory Sullivan, the state’s former inspector general, called the bill “a sweetheart deal” for the future developer of a planned 1,000- to 1,200-room headquarters hotel across from the Boston Convention & Exhibition Center.

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The bill originally authorized a $1 billion expansion of the South Boston convention hall to help attract larger events and meetings. Earlier this year, the proposal was amended to add $110 million — the same amount as a funding shortage identified for the headquarters hotel in financial statements by the Massachusetts Convention Center Authority.

Though the bill does not explicitly earmark the $110 million for a hotel, thefinancial statements estimate that the authority would need to raise that much money to help a private developer build the massive hotel at an estimated total cost of $700 million.

Sullivan raised questions about the revised expansion bill at a Senate hearing this week and called it a “sweetheart deal” in a Globe column by Jeff Jacoby on Wednesday. The column reported Sullivan’s accusation that the additional $110 million amounted to a hidden subsidy for the developer of the headquarters hotel project.

In an interview with the Globe on Friday, James Rooney, executive director of the convention authority, said the $110 million was included as a security reserve to make up for any potential shortfall in funding to pay off debt for the expansion. He said the reserve would help market the bonds to finance the expansion and reduce overall borrowing costs.

Rooney said he did not know who suggested that the reserve fund should be included in the bill. If approved by the Legislature, the proposal would allow construction of the expanded convention center to start within 18 months and be completed in 2019.

‘I don’t think there’s the faintest chance it’s a coincidence that the amount added to the bill is $110 million.’

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In a June 4 letter to Sullivan obtained by the Globe, Rooney denied the money was ever meant as a subsidy for the hotel that would be built on property owned by the Massachusetts Port Authority near D and Summer streets.

“Nowhere in this bill is there a mention of Massport or the headquarters hotel project,” Rooney wrote. “And nothing in this bill changes the laws which govern the way that hotel project procurement process will be conducted.”

Sullivan said he was pleased the Senate committee changed the bill, saying the move was necessary to prevent public funds from being misused. In an interview, he accused Rooney of “sneaking” a hotel subsidy into the broader convention center expansion bill without disclosing it.

“It’s not a small amount of money,” said Sullivan, now research director for the Pioneer Institute, a nonpartisan public policy group. “I don’t think there’s the faintest chance it’s a coincidence that the amount added to the bill is $110 million.”

The Senate’s bonding committee amended the bill to remove the $110 million and added language preventing the convention center authority from using any of the expansion proposal’s funding for a hotel project. The bill would permit the state treasurer to borrow an additional $100 million for a reserve fund if it was deemed necessary to sell the bonds.

“I am satisfied with this bill that the taxpayers’ interests are protected,” said Senator Brian A. Joyce, a Democrat from Milton who chairs the bonding committee. “At the end of the day, this expansion does increase construction jobs and permanent jobs, and will have a significant positive impact on the greater Boston economy.”

The committee voted Friday to recommend the bill for approval by the Senate, which could vote on it as early as next week.

The House of Representatives last week overwhelmingly approved the expansion measure at the higher $1.1 billion amount. The House and Senate versions will have to be reconciled before final passage of the legislation.

A top official with Governor Deval Patrick’s administration said it is not unusual for bond bills of this size to include a reserve fund, but did not recall discussing that provision related to this project.

“It has always been the intention that only $1 billion be expended on the expansion of the convention center, and the Senate bill is consistent with that,’’ said Scott Jordan, undersecretary of the Office of Administration and Finance.

In addition to the removal of the $110 million, Joyce’s committee amended the bill to reduce the term of bonds for the expansion from 40 years to 30 years, a change he said could save taxpayers up to $480 million. It also inserted language allowing the inspector general’s office to review any procurement contracts connected to the project.

Rooney has been pressing for the expansion of the convention center and construction of more hotel rooms since 2009. He has said the center needs more exhibit space to compete for larger trade shows and meetings. It also needs thousands of additional hotel rooms to accommodate show attendees, Rooney has said.

The initial bill filed last October by Representative Nick Collins of South Boston and Senator Linda Dorcena Forry of Dorchester called for $1 billion to fund a convention center expansion plan. It would increase the overall size of the facility by 60 percent by adding 355,000 square feet of new exhibit space, as well as new ballrooms and conference rooms.

Three months ago, a new draft of the bill increased the funding to $1.1 billion. The change became the subject of questioning during a Senate bonding hearing on the expansion Tuesday. Sullivan also testified.

The funding of the convention center expansion and the hotel project has generated months of debate.

Bonds funding the expansion of the hall itself would be repaid with existing taxes on hotel rooms, taxi rides, rental cars, and other tourism-related activities in Boston and Cambridge.

That project would more than double taxpayers’ investment in the South Boston convention hall, which initially cost $850 million to build in the late 1990s. Rooney has said the expansion would increase the facility’s economic impact by $184 million a year, or 35 percent, and create thousands of construction and permanent jobs.

In their public descriptions of the project, convention authority officials have always said the headquarters hotel could require between $100 million and $200 million in public assistance. Construction of such large hotels typically requires public support because private developers are unwilling to accept the entire financial risk.

Mega hotels were recently built in Dallas and Houston completely with public financing. Washington, D.C., approved a 50 percent subsidy for a 1,200-room Marriott, and San Diego provided a 21 percent subsidy for a 1,200-room Hilton, among others.

In Boston, the 793-room Westin waterfront hotel next to the Boston Convention & Exhibition Center was built with $33 million in public funds that covered about 16 percent of the total development cost. That hotel opened in 2006.

In pursuing construction of the larger headquarters hotel, the convention center authority has said a similar subsidy would be needed to fund the project. Last week, the authority announced that several major hotel companies have expressed interest, including Hilton, Hyatt, Omni, Marriott, MGM, and Starwood Hotels & Resorts.

The authority has said it will solicit formal bids for the hotel project later this year. The submission of those bids will determine the final amount of public assistance that would be needed to move forward with construction.

Related coverage:

Jacoby: Convention center plan is a‘classic sweetheart deal’

Jackson: Convention center plan is a‘classic sweetheart deal’

5/29: House approves plan to expand convention center

Casey Ross can be reached at cross@globe.com.
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