MARIETTA - After the City Council approved a new lease and franchise agreement that turned its hotel and conference center into a Hilton, Mayor Bill Dunaway trumpeted the success in a December 2007 guest column.

The mayor praised the deal as the end of a successful progression the city made since 2002, speaking of the "terrible contract" the city had with its original hotel operater, Sentry Hospitality, that was "totally unfair" to taxpayers, causing the city to "lose millions of dollars starting in 1996." Dunaway bragged about finding a way to buy out the remaining years of Sentry's contract and finding an "honest" operator to lease the hotel and conference center - Dallas-based Remington.

"I also think, with this lease, you could say that the city is no longer in the hotel business, that the city is the landlord of an operation that is paying off the debt and one day the city will be free and clear of that debt," Dunaway wrote.

But less than a year after Dunaway inked those words, the city was faced with a having more debt, not less, on the hotel. While the lease payments Remington pays the city are fixed, the payments the city makes to pay off the $30 million in bond debt it owes on the Conference Center are not. So when interest rates on the bonds increased last fall, Remington's lease payments to the city no longer covered the debt.

Since November, that amount has reached $540,000, according to city finance director Sam Lady. To avoid paying that sum, the city restructured the loan - and here is where the Journal receives differing explanations from city officials.

The Journal met Wednesday with the city's bond advisor Gordon Mortin, of investment firm Morgan Keegan, and city attorney Doug Haynie.

Mortin said, before the city bought up the bonds, the city's Board of Lights and Water's reserve and the city reserve combined were about $50 million. The city's portion made up about $12 million.

Mortin said the city wrote a check for $11 million to buy up bonds in February, leaving it with $1 million in cash reserves and $11 million in Conference Center bonds. (Mortin called back later to say it actually wasn't February, but November when the city began buying up the bonds.)

The City Council never voted on dipping into its reserves to buy the bonds, nor was there anything in the minutes about it, Haynie said.

Explained Mortin: "That's within the purview of the finance director to make the investment of city funds."

Yet Lady told the council Thursday that the rainy day reserves of both the city and the city's Board of Lights and Water were never used to buy up the hotel bonds, contradicting the city's bond advisor.

Whatever the case, the overall proposal the council is being asked to approve Wednesday is to pay off and cancel the $30 million left in bond debt on the Conference Center by:

* using funding set aside for Board of Lights and Water construction projects;

* have the Downtown Marietta Development Authority issue up to $35.5 million in new bonds, and then use those new bonds to pay for the BLW projects;

* and use the Remington lease payments on the Conference Center to pay down the new bonds.

After Mortin's presentation to the council on Thursday, he stepped out into the hall and began discussing the matter with Steve Tumlin, the front-runner in the Nov. 3 mayoral election. Tumlin, who said there were less details in Mortin's presentation than there were in the $25 million parks bond Dunaway is urging voters to approve on Nov. 3, questioned the wisdom of Mortin's proposal, prompting Mortin to exclaim: "I don't write the laws."

Responded Tumlin: "Well, I follow them."

Tumlin said he is still studying the plan before he comments on what he makes of it.

Of the seven-member council, only Grif Chalfant has objected to the plan, asking why it's being rushed for approval on Wednesday.

Dunaway doesn't see any rush.

"Every fact is on the table, and how long does it take you to decide the facts? It doesn't take me that long," Dunaway said.

Dunaway said the payback on the hotel bond debt was not originally set at a fixed rate for a reason.

"Because of the way the market was, that was beneficial for the city. If anybody had an idea that this would happen, we could have made an awful lot of money in the stock market," Dunaway said.

"It's trying to protect the city. I use the old phrase 'the ox is in the ditch.' We've got to get the ox out of the ditch by getting it to a fixed rate. We have an asset to the city. We made a silk purse out of a sow's ear and the Hilton Conference Center is a credit to the city. It's helping the city with tourism and everything else. There's no reason to sell it," he said.

Dunaway said back when the council approved the lease with Remington and the franchise agreement with Hilton in December 2007, "It was the final deal as far as Remington and the Conference Center goes. This refinancing has nothing to do with Remington or the Hilton. It just happens to be where the bonds are. There wasn't a stock market guru that could have forecasted what was going to happen in 2007."

Dunaway said he has an accounting background but not a finance background.

"This is something that's pretty difficult to put your arms around. When you start dealing with the bond market you're dealing with an entirely foreign breed of cat," he said.

While the city's bond advisor, Mortin, may be welcome at City Hall, he is not welcome at the county government offices after he infuriated Cobb Board of Commissioners Chairman Sam Olens by helping the city of Kennesaw divert millions in county commission and Cobb school board taxes through PILOT (payment in lieu of taxes) bonds to subsidize a development at the intersection of Cobb Parkway and Kennesaw Due West Road. The city of Kennesaw conducted the proposal in secret without alerting the school board and county government about it and without asking permission.

The move prompted state Rep. Earl Ehrhart (R-Powder Springs) to author legislation earlier this year that would outlaw Kennesaw or any other city from making such a deal again without approval from all governments impacted.

As it happens, Atlanta bond lawyer Earle Taylor, who irked Ehrhart when he said he intended to educate Ehrhart on the subject of PILOT bonds, is the bond attorney for Marietta, working with Mortin on the Conference Center finance restructuring.

Mortin said he and Taylor are expected to receive a fee of 1 percent, or about $350,000, from the city should the council agree to reissue the new bonds.