Baltimore’s foray into the hotel business was dealt twin blows yesterday as the city-owned Hilton admitted it couldn’t pay its debt service from current revenues and employees of the city-financed Hyatt Regency threatened to boycott the luxury hotel.

Close to 100 Hyatt employees and their supporters crowded into the City Council’s chambers last night in support of a resolution calling on the Chicago-based chain “to abide by the terms of its agreement with the City, including the direct hiring and employment of all employees.”

The resolution, introduced by Councilwoman Mary Pat Clarke and supported by all 14 Council members, also calls on Mayor Stephanie Rawlings-Blake “to encourage the Hyatt Regency Baltimore to enter into a Labor Peace Agreement which protects the city against lost revenues due to boycotts and other labor disputes.”

Hyatt has been engaged in a long-running dispute with hospitality workers’ union Unite Here Local 7. In January, the hotel settled a complaint, brought by the National Labor Relations Board, of alleged intimation and improper firing of four employees who supported the union.

Roxie Herbekian, president of Local 7, said Unite Here has a national boycott of Hyatt Hotels, but has not activated the boycott in Baltimore “because it would cause financial problems for the city.”

City Has Equity Stake in Hyatt

Baltimore shares in the profits of the Hyatt Regency in return for subsidizing construction of the hotel in 1979 with a $10 million federal grant and infrastructure improvements.

To this day, the Mayor and City Council own the land where the hotel is situated on Light Street, and entered into a management agreement with Hyatt that called for the hotel to hire employees “directly,” rather than rely on temporary or subcontracted labor.

Herbekian and colleague Jeff Nelson said Hyatt has been violating the agreement for years. The hotel once had 45 housekeepers directly on the payroll, the union charged, while today nearly all of the positions are held by full-time “temps” who receive roughly $2 an hour less pay.

“We are absolutely committed to a peaceful resolution,” Herbekian told the Council’s Labor Committee, noting that a boycott could impact on millions of dollars of future hotel bookings.

There were no representatives from Hyatt at the hearing. The hotel’s general manager, Gail Smith-Howard, sent a letter expressing surprise at the resolution and asking for the opportunity to meet individually with Council members, Clarke said after the hearing.

She added that her resolution seeks to establish  the same labor practices at the Hyatt that are followed by the Hilton Convention Center Hotel, whose workforce is partly represented by Unite Here and the International Union of Operating Engineers.

Financial Woes at Hilton

The Hilton’s future is threatened not by labor strife, but by a growing debt burden that is causing the city-owned hotel to dip into surplus funds and a hotel occupancy tax – which is suppose to go into the city’s general fund – to cover its bond payments.

Yesterday, the Baltimore Development Corp. disclosed that the Hilton had to use $1 million in reserve funds and $1.55 million in occupancy tax receipts to help pay interest and principal due on March 1, 2013.

Exit Strategy?

While a public bailout is not imminent, Harry E. Black, director of finance, outlined a scenario where the city might need an “exit strategy,” which could mean restructuring the hotel’s debt or even selling the property.

The second semi-annual payment is due September 1. It will increase to $11.7 million (from $7.9 million on March 1) as bond insurance and principal payments kick in, the BDC’s Dylan Baker told the City Council’s Taxation, Finance and Economic Development Committee.

Capital Hotel Management LLC, which was hired by the city to oversee the hotel’s assets, blamed the “great recession” for causing general revenues to dip $10 million per year below original projections. But Vice President Michael Doyle said revenues have rebounded from their 2011 lows, and operating expenses have increased by less than 1%.

Tom Noonan, president and CEO of Visit Baltimore, painted a sunny future for the Hilton, saying that “short-term demand is really, really growing” and the hotel has generated $384 million in “economic value” to the city since it opened in 2008.

Still, economic value does not pay principal and interest. The BDC’s Baker acknowledged that debt payments will continue to increase until the bonds are paid off in 2039.

Noting that Hilton management has consistently overestimated the hotel’s future revenues, committee chairman Carl Stokes asserted that the city needs to get a firmer grip on the property’s “true financial situation and what can be done to improve it.”