Jekyll Island embraces its rural side to win federal loan guarantee
The Atlanta Journal-Constitution
By Dan Chapman
August 4, 2013
Jekyll Island offers big-city amenities even the most sophisticated Atlantan can enjoy: golf courses, a waterpark, an exquisitely restored historic district, hotels topping out at $479 a night, and ocean-side homes going for $700,000.
Little about Jekyll evokes rural Georgia.
Yet state and federal officials, desperate to arrange financing for a high-end hotel, embraced a loan guarantee program intended to boost development in rural communities. The U.S. Department of Agriculture will guarantee two loans totaling $15 million taken out by developers of the under-construction Westin Jekyll Island. It’s one of the largest guarantees ever approved for a project in Georgia.
Wrangling the guarantee underscores the financial gyrations the state is undergoing to transform the state park into a convention hub and tourist destination. Last fall, the Authority came up with roughly $7 million in bed-tax revenue and other financial incentives spread out over a decade. Earlier, they tried to tap a special tourism tax break, but the governor quashed the plan as unfair to competing hotels.
“Jekyll is not a rural area – it’s a state park, a commercial (district) with some residential,” said Rep. Jeff Chapman, a Republican from nearby Brunswick and frequent critic of government subsidies for private business. “That money should be focused on helping rural areas to develop, not to help a Westin.
Quinton Robinson, who runs USDA’s rural development office in Georgia, said the Westin fits the agency’s rural eligibility requirements.
“I’m from a little small town, Gordon, near Macon. That’s rural,” he said. But “our regulations are very limited in giving us the ability to have discretion to say this (project) has more of a rural purpose than another.”
The Jekyll Island Authority has struggled for years to revitalize the business district. The state-controlled Authority loses millions of dollars in revenue each year without a convention hotel.
The recession and its aftermath kept banks from investing in resort properties – at least a half dozen financial institutions passed on the opportunity to cover the Westin’s construction costs, according to Authority documents.
“The convention center is not sustainable without lodging adjacent to it,” said Eric Garvey, spokesman for the Jekyll Authority. “The Westin is not only important in terms of convention business, but it will have a stimulative effect on the rest of the projects on the table at Jekyll.”
Long revitalization road
Jekyll’s long list of amenities include pristine beaches, a National Register historic district with a four-star resort hotel and three golf courses that lured thousands of Georgians to the barrier island this summer.
But the island has struggled the last decade to revitalize its biggest money maker — the retail-hotel district. Musty hotels, an outdated strip shopping center and the old convention center turned off visitors and convention-goers alike.
A Greensboro, Ga. developer proposed a $350 million convention-hotel-condo-retail project in 2007 only to have the recession, and public opposition, kill the so-called Linger Longer project two years later.
Two prime beachfront hotel lots remain empty. Trammell Crow, a Texas developer, leases the properties for $350,000 a year.
A mid-range Hyatt Hotel, planned for the retail-hotel district alongside the convention center, has been talked about for two years yet can’t get financing. The island’s stores and shops remain stuck in temporary trailers.
But there is progress. The taxpayer-backed $40 million convention center opened last year. Holiday Inn plans a hotel on a rundown motel site. And the Westin, finally, broke ground in May.
“We’re really optimistic; we’re having a great year,” Garvey said, adding that hotel revenue island wide rose 5 percent the last fiscal year. “Sure, we would’ve liked to have gotten everything done and all would be rosy. But it would’ve been very difficult to open that hotel at the depth of the recession.”
The 200-room Westin is the latest linchpin for the Authority’s redevelopment plans. Without it, the convention center can’t fill its dance card, or pay off its bonds. Ground-breaking was scheduled for September 2012 with a mid-2014 opening. Delays will cost the Authority nearly $4 million in anticipated 2014 bookings.
The USDA’s Business and Industry Guaranteed Loan Program’s goal is to “improve the economic and environmental climate in rural communities,” according to USDA. Loans must be used to save or create jobs, promote renewable energy or water conservation. Developers may buy a business, build or expand a building, purchase equipment, install pollution controls or provide working capital or start-up costs.
“Its most stringent requirement is that businesses need to be located in rural areas,” the USDA states. Rural means any location with fewer than 50,000 people. Not only does Jekyll Island fit the criteria but so does neighboring St. Simons Island, with its million dollar homes and congested summertime traffic, according to a USDA eligibility map.
“It is a perversion of the federal program to use those funds for an oceanfront hotel at a state park,” said David Kyler, executive director of the Center for a Sustainable Coast, which opposes unbridled growth. “Between the government subsidies and the lease breaks, the hotel developer is playing the state and federal agencies for a sucker to make extra profit.”
What is rural?
The median income in Glynn County, home to Jekyll Island, is $46,386, about a thousand dollars less than the state median. Of Georgia’s 159 counties, Glynn had the 32d highest income in 2010, according to the Census Bureau.
Even USDA isn’t sure what rural exactly means. The agency uses “multiple rural definitions … which often leads to unnecessary confusion and unwanted mismatches in program eligibility,” according to the agency’s Economic Research Service. A rural community can be 2,500 residents or fewer. Or 20,000 or fewer. Or 50,000 or fewer, depending on which USDA loan program is used.
“We’re constrained by the statutory language that says if the location is less than 50,000 people then the program operates. We can’t question whether it looks rural or looks developed,” USDA’s Robinson said. “If the USDA were not guaranteeing some of these loans, would a lender take the risk in some of these rural areas?”
One of the Westin’s developers received a $10 million loan guarantee – the typical limit – from USDA to defray construction costs. Another got a $5 million guarantee for equipment and furnishings.
USDA has guaranteed 99 projects over the last five years, including nursing homes, convenience stores, agricultural processors, hotels, a biofuel plant, a trucking company and casket company. None received more than $10 million in business and industry loan guarantees. USDA officials say a few guarantees larger than $15 million were given prior to 2008, including a 1998 loan for a Vidalia onion grower.
In fiscal 2012, USDA made nine loan guarantees in Georgia totaling $42 million. The Westin received more than third of that amount.
“Did somebody else in Georgia, who might’ve been more deserving of rural development money, get shortchanged because of the Westin?” asked Rep. Chapman.
Robinson said if the Georgia program runs out of money, the USDA’s national loan guarantee program can pick up the financial slack.
The Jekyll Island Authority commissioned an economic-impact study that justified the slew of incentives and tax breaks given the Westin. The hotel, by 2016, will contribute $22 million in direct economic benefit to Glynn County and the state of Georgia, according to the report. And the hotel will employ 116 permanent workers.
“The USDA program is intended to support job creation and the people employed will be coming from western Glynn, Brantley and Wayne counties,” spokesman Garvey said. “Those are absolutely rural counties, and they need jobs.”