Bay State taxpayers are already helping foot the bill for the state’s budding convention industry.

Now a new proposal for a giant expansion of the Boston Convention and Exhibition Center could put the public sector in the hotel business as well.

Think the debate over whether to double the size of the state-owned meeting showcase near South Boston’s waterfront could prove heated?

Well just wait until we start talking about whether the state should pay for a huge new hotel as well to provide rooms for all the additional conventioneers the Hub will attract. For the staunchest opponents may emerge not among the usual government bashers, but within Boston’s hard-pressed hotel industry itself.

Here’s the catch: At least another 4,000 hotel rooms are needed in the blocks around the Hub’s sprawling new convention center for any expansion to be feasible.

Without a realistic plan for getting those rooms built, there will be no expansion, contends James Rooney, chief executive of the Massachusetts Convention Center Authority.

And Boston – and its proud hotel industry – loses out on a game-changing proposal that could transform the city into one of the nation’s top five meeting and convention destinations.

Yet in the midst of a brutal recession, Boston hoteliers are not likely to welcome an influx of new and hungry competitors with thousands of rooms to fill, industry observers warn.

“We have a problem today,” Rooney said of the city’s hotel capacity. “I would not advocate for a convention center expansion without a hotel strategy, without a solid hotel strategy.”

Public-Private Option

As a panel of business and civic leaders gets ready to hash out plans for a convention center expansion, one option is already emerging as a serious contender to help ease the Hub’s hotel room crunch.

That involves having either the Massachusetts Convention Center Authority or a newly created state authority float bonds to pay for a new, 1,000-room hotel and then hiring a private hotel company to manage it.

In a red state that would be called socialism. Even here in blue state Massachusetts, it sounds big government radical.

Yet given the economic times we live in, it may be the best option out there.

First off, let’s discard the idea the private sector is going to come to the rescue and start financing lots of new hotels around a soon-to-be-expanded convention center.

No dice.

Even when the economy was booming, hotel financing was tricky, with lenders only willing to take a chance on super luxury hotels, with their astronomical nightly room rates.

That’s left us with more than 20 or so four- and five-star hotels, all scrambling for a shrinking pool of ultra-wealthy customers, but no mid-priced, convention-friendly hotel in sight.

In fact, you have to go back 15 years to find an example anywhere in the country of a privately financed, convention center hotel, Rooney notes.

So that leaves option two, a privately financed hotel that gets built with lots of public assistance, from tax breaks to help building out infrastructure.

The Westin Waterfront, the convention center’s headquarters hotel, is a prime example of this.

Sounds great, but having reported on years of negotiations between Starwood Hotels and the convention center authority over the development deal for the new Westin, I’d have to say I would not highly recommend it.

The result was a highly complex deal involving lots of petty brinkmanship – one that came close to unraveling more than once and which took five years to pull off.

“It was a five-year root canal,” Rooney recalls. “The private entity wanted to minimize risk and maximize return; the government side wanted partnership.”

That leaves the public option, so to speak, having the convention center authority or another state authority float bonds to pay for a new hotel.

Rooney’s not recommending anything yet, but he acknowledges the attractiveness of the idea on some level.

Yet he’s also under no illusions that it won’t prove controversial – especially among Boston hoteliers.

Can You Say Controversial?

That may sound surprising. The giant meeting hall, after all, has been a boon in many respects for Boston’s hotel industry. It has helped keep rooms filled and rates relatively high compared to other cities.

Let’s just say support for the convention center is one thing, but the prospect of a publicly financed hotel – and thousands of additional hotel rooms – is another altogether for many local hoteliers.

With room rates under severe pressure from a down economy, Boston hoteliers are likely to view any proposal to add thousands of new hotel rooms with suspicion.

So the idea the taxpayers, in turn, would foot the bill for all this new competition is not likely to go over well.

“I think the issue of adding more hotels is by definition controversial in the hotel community,” notes Patrick Moscaritolo, chief executive of the Greater Boston Convention and Visitors Bureau. “Invariably, these discussions always get launched in the worst of times. You will get pushback not only over the number of hotel rooms and the kind, but also over what kind of subsidy.”

But that’s where the well-designed public vetting process, put together to air the potential expansion, comes in.

Rooney and Paul Guzzi, chief executive of the Greater Boston Chamber of Commerce, will help chair a panel of business and civic leaders that will spend the next year examining the proposed expansion.

And hopefully that will provide some time for Boston’s hotel industry to get its arms around this ambitious project.