Archive for January, 2009
January 29, 2009
The folks running Orlando’s tourism bureau have an identity crisis.
They fancy themselves as a mostly private enterprise able to control public information as they would water from a spigot. Yet they don’t mind taking millions of public dollars, which demands a higher standard of accountability.
It shouldn’t surprise anyone that conflicts keep surfacing. Those conflicts not only erode public trust, they ratchet up the demand for greater transparency.
Case in point: giving a former top executive an extra year of salary on top of a pre-existing retirement package. The salary perk added as much as $310,000 to an exit package that became worth nearly $750,000 to Bill Peeper, former president of Orlando/Orange County Convention & Visitors Bureau.
Even if the separation package were common for the industry, CVB officials still have a lot of explaining to do.
For starters, the package was never approved by the bureau’s full board of directors. A small group of directors negotiated the deal, as required under the CVB’s bylaws.
That keeps a lot of folks out of the loop, including Orange County commissioners. They’ve entrusted the CVB with millions of public dollars from tourist-tax revenues — almost $100 million over the past two years. “It doesn’t sit well with me,” said Commissioner Bill Segal.
It shouldn’t with anyone else, either. The CVB has been way too secretive about the way it does business, despite a number of dust-ups during the past few months, starting with a business-class ticket to Dubai that cost the agency $9,271.47 — seven times more expensive than a coach ticket. It was only after that story was disclosed in the Sentinel that the CVB agreed to consider changing its travel policy so cheaper tickets could be purchased.
Regarding the deal with Mr. Peeper, a CVB official explained that Mr. Peeper was a “superstar,” and the bureau didn’t want him going to a competitor.
What big secrets did Mr. Pepper hold? Would Central Florida’s tourism industry collapse if Mr. Peeper took a job elsewhere? Why aren’t other executives who leave the bureau — people who are just as likely as Mr. Peeper to know the market’s strengths and weaknesses — rewarded with lucrative noncompete buyouts?
People leave their jobs to work for competitors all the time. The CVB’s paranoia is unjustified, doubly-so because it comes at such a high cost.
The CVB needs to change how it does business, and that means much more openness — about finances, about allowing the public access to its meetings, and about allowing greater scrutiny of executive salaries and severance packages. To wit: The agency has refused to provide details on Mr. Peeper’s retirement package, including the noncompete clause. Why so many secrets?
We hope the Orange County Commission takes steps to find those answers, whether the CVB cares to provide them or not.
People in the tourism business in Pima County can say the same about our CVB. They love to give their members and the funding municipalities the “dog and pony show” with only the positive things. As mentioned before, they are not compared with similar markets efforts to attract tourist dollars. The reason they keep doing this? Our elected sheep never question them or demand more. They just sit there, nod and rubberstamp another $4million plus contract. They are never shown how the money’s spent, even most of their funding comes from taxpayers!
This and many of our other problems(Rio Never, TREO, Downtown Partnership, etc) is all about NO ACCOUNTABILITY. Not from the voters and definitely not from our elected officials. This will only be solved through grassroots business activisim and the deposing of the incumbents by the business community. Fight the power!(threw that in there for effect)
While I know that Star’s editorial staff is truly drinking the Kool-Aid. Maybe the Citizen, as they head towards that big newspaper stand in the sky, could step in and ask some tough questions of these and other overpaid fops. But I am probably dreaming….
A Regional New Year’s Resolution, By Bill Dodge, Regional Excellence: HERE
Regional cooperation has had some incredible successes, but it continues to fail to address the tough challenges in most regions. And the challenges are getting tougher, from decaying infrastructure to declining air and water quality, increasing natural and terrorist threats, accelerating climate change, volatile energy costs, and profligate growth. Without success in addressing the toughest challenges — the true test for governing regions — “bottom-up” regional cooperation will die, and along with it the ability of individual citizens and their local governments to shape their own futures.
Unless regional cooperation provides an effective tool to address tough challenges, and quickly, it will be displaced by “top down” state and national government actions in response to public frustration. And there is no guarantee that higher levels of government will do better. (We are starting to see this here in Tucson with proposals for NON PARTISAN ELECTIONS)
I draw this conclusion, reluctantly. Have I, and the many colleagues I respect, been wasting our working years practicing regional cooperation? Were our efforts to educate individuals, establish regional mechanisms, share public services, and design compacts to address timely challenges all for naught?
A resounding no! Our efforts have resulted in building some amazing regional cooperation mechanisms — from regional councils of governments to regional chambers of commerce, academic institutes, citizens leagues, and sewer and transit authorities. It has resulted in addressing pressing regional challenges in every region across the country — especially transportation challenges. Maybe, most importantly it has resulted in educating individuals on the importance of regional cooperation and engaging them in cooperative efforts.
But, alas, regional cooperation increasingly appears to be bumping up against an impenetrable governance ceiling. Whereas regional mechanisms have nurtured more sophisticated visioning, problem-solving, service-delivery, and even performance auditing capacities, most lack the powers, resources, and especially public support to address the increasingly tougher regional challenges. And the gap between the capacity of these mechanisms and the emerging challenges appears to be growing.
The “Achilles Heel” of the best of regional cooperation efforts has been the lack of “clout” commensurate with the challenges being addressed. My fear is that asking weak regional cooperation mechanisms to take on more, and more demanding challenges, will not only result in fewer successes but mortally weaken the very places that drive our and the global economy. Citizens need to break out of their “local” mindsets, consider the regional “unthinkable”, and advocate for the regional “unheard-of”, if regional cooperation is to have the powers and tools to make regions work. With the support of, not the displacement by, state and national governments. And now! …….
Stateside regions tend to quickly dismiss most options for strengthening regional cooperation. They mask their objections in our tradition of independent local governments; that government closest to the people is the best. Less frequently voiced is that weak regional cooperation reinforces the tyranny of individual local governments, especially those that are affluent, think they can take care of their own needs, and are unwilling to cast their lot with the regional hoi polloi. Some of these objections have merit in that many of the overseas actions are “top-down”, limiting local government and citizen involvement in designing regional cooperation models or participating in their activities. But, thus far, few regions stateside have been inspired to pursue “bottom-up” models that provide real powers and resources to regional cooperation, in spite of national government transportation and other funding incentives, unless mandated by the random acts of state governments, such as in California, Minnesota, and Oregon.
By Patrick McNamara, The Explorer
The cost of a new home in Oro Valley just got higher.
Last Wednesday, Jan. 21, the Oro Valley Town Council voted 6-1 to raise residential and commercial development review fees.
Councilman Al Kunisch voted against the increase.
“I think this is the wrong time,” Kunisch said about the increase.
The councilman noted the lagging economy nationwide and the nearly stagnant home-building sector of the local economy.
Last October, for example, the town approved four single-house building permits, as opposed to 18 approved the previous October.
Other town officials, though, said the increases are necessary to cover personnel costs.
“We need to get back every penny and dime that’s spent out,” Councilwoman Paula Abbott said at last week’s meeting.
The new price structure would increase the costs for development review of a 100-unit subdivision from $19,945 to $73,310. The fees have not been changed since 2003.
In fiscal 2008, development review services generated more than $2.7 million, but the department’s total expenses topped $3.2 million.
At least one Oro Valley homebuilder, however, questions that rationale.
“Why have they randomly chosen that development services should be self-sustaining when no other departments are?” asked Steve Solomon, owner of Cañada Vistas Homes.
Solomon said the town should use money generated through its 4-percent construction-materials sales tax to make up the shortfall.
Currently, construction sales taxes go into the town’s general fund.
At Solomon’s 128-lot Vistoso Town Center housing development, under construction in Rancho Vistoso, he’s already paid more than $250,000 in construction sales taxes.
“That more than covers development services for that project,” Solomon said. “It’s ludicrous to say that developers aren’t paying enough to the town to cover expenses.”
But it’s not just how the new fees and recently increased impact fees, which made it more expensive to build in Oro Valley, that have him concerned. He thinks the policies will have unintended consequences.
He thinks the ever-increasing prices will force out small builders like him and leave room only for national builders.
“I’m afraid that what it’s going to result in is that the large national builders who have deep pockets will be the only ones left building in Oro Valley,” Solomon said.
He speculates that if that happens, the town would lose its unique qualities and begin to resemble many other communities around the West, where most of the houses look the same and are built on smaller lots.
Others question the timing of the new fees when the construction industry across the country has come to a near standstill.
“I would advocate for any type of fees to be postponed until the industry gets back on its feet,” said David Godlewski of the Southern Arizona Home Builders Association.
Last December, Godlewski and SAHBA sent a letter to town officials requesting they seek alternatives to the then-proposed fee increases.
The group calculated that the change would amount to a four-fold increase in development review fees and would disproportionately affect local builders.
They proposed phasing-in the new fees over two years or, like Solomon suggested, using construction sales tax money to supplement development review departments’ budgets.
The council did not discuss any of those options at last Wednesday’s meeting.
Solomon also questioned the timing of the increases, noting the difficulty of securing funding in the midst of the current banking difficulties.
“Right now, it’s nearly impossible to get any kind of funding for construction,” Solomon said. “The financing is totally dried up.”
Putting new fees on building now, Solomon argued, would only further harm a struggling industry that, until now, had been a major part of the regional economy.
“That $2 billion economic engine is completely gone,” Solomon said.
Cost of building in Oro Valley
The Oro Valley Town Council voted in September to raise water impact fees and launch additional fees for new home construction. These prices don’t reflect the costs of development review services.
Fees for single-family homes are:
• $2,699 for parks and recreation
• $694 for libraries
• $513 for police
• $389 for other government needs
• $1,908 for transportation projects
• $7,749 for water*
• Total: $13,952
*Includes two categories of water-related fees. The figures represent the cost for a single-family home with a 5/8-inch water meter. More than 80 percent of Oro Valley Water Utility customers have that size meter. The existing water fees totaled $4,283 for a single-family home.
(Washington, D.C.) - Today in Albuquerque, New Mexico, the Rio Grande Foundation and Citizens Against Government Waste (CAGW) released the 2008 New Mexico Piglet Book, focusing on government waste, fraud, and abuse in the New Mexico state budget.
New Mexico state spending rose from $3.9 billion to $6.0 billion between 2003 and 2008, an increase of approximately 54 percent. Pork-barrel spending itself amounted to $341 million in FY 2008 and accounts for 5.6 percent of New Mexico’s $6 billion General Fund budget. Though state spending between 1995 and 2003 was relatively steady, it exploded under Governor Bill Richardson, rising from $3.9 billion to $6.0 billion. The Legislative Finance Committee projects that over the next six years revenues will rise by only 10.8 percent so the state is facing challenging economic times and policymakers should heed the calls for spending restraint. The 2008 New Mexico Piglet Book should serve as a template for reducing spending. The Piglet details some specific boondoggles, including:
The Economic Development Department (EDD) program, which received $9.3 million in 2008 in order to “build a diverse economy with high-wage, high-impact jobs that provide opportunity and prosperity for the city’s residents, businesses and entrepreneurs.” EDD features tax credits like the High-Wage Jobs Tax Credit, the Manufacturer’s Investment Tax Credit, New Markets Tax Credit, the Rural Jobs Tax Credit, the Technology Jobs Tax Credit, and the Angel Investment Tax Credit. It has also lavished subsidies on the film industry, Eclipse Aviation (which recently declared bankruptcy), and Tesla Motors (which vacated New Mexico for greener pastures in California.) Other examples include:
- $9 million to fund the X-Prize Cup, an annual air and space expo which brings together all sectors of the aerospace industry to demonstrate their capabilities;
- $1.67 million to expand and renovate the New Mexico Farm and Ranch Heritage Museum, which will include a rural life center, a special events arena, and a gallery;
- $500,000 to plan and construct a rail spur and platform at Balloon Fiesta Park in Albuquerque.
- $280,000 to put on a peace conference in Santa Fe in May, 2007; and
- $250,000 to purchase maintenance equipment for the Riverview golf course in the Central Consolidated School District in San Juan County.
Qantas closing Tucson call center
Phoenix Business Journal – by Mike Sunnucks
Australia’s Qantas Airways is closing its customer service and reservations call center in Tucson.
The center is slated to close at the end of February with 50 workers being cut, according to the airline’s layoff notification to the Arizona Department of Economic Security.
Qantas said last year it would be closing call centers in Tucson and London and would centralize such operations in Australia and New Zealand. The Tucson closure is part of bigger cost-savings effort by the airline, which is looking to trim 1,500 jobs via attrition, voluntary severance and layoffs.
Goldwater Institute separates budget myths from reality as lawmakers grapple with billion-dollar budget shortfall
Phoenix–Arizona faces one of the largest budget deficits in the nation and lawmakers are struggling to close the gap. Because half of all General Fund spending goes toward education, schools and universities will necessarily be affected by the state’s across-the-board belt tightening.
While some school administrators and special interest groups have referred to the potential budget cuts “slashing education” and “shortsighted and borderline malicious,” the Goldwater Institute would like to separate the reality of education funding in Arizona from several often publicized myths.
Myth #1: Schools simply cannot afford the budget reductions being proposed by the legislature.
Fact: The budget cuts proposed by the State House leadership amounts to a 2.5 percent reduction. Over the last five years, K-12 funding has increased by 40 percent. Reducing funding by 2.5 percent will still leave schools with more money than they had in 2008 adjusted for inflation.
Myth #2: Schools have tightened their belts as much as possible. There’s simply nothing left to cut.
Fact: Last year Tucson Unified School District lost track of millions of dollars in equipment. With similar highly publicized stories frequently surfacing, there’s room to tighten up. In addition to implementing better controls on equipment and supplies, the Goldwater Institute recommends three more ways schools and school districts can cut their budgets without eliminating teaching positions: 1.) Ban teachers from having non-classroom assignments; 2.) Ban teacher’s union employees from conducting union work on district payroll; 3.) Cut administrative bloat at the district level. Arizona has an unusually large share of non-teaching public school employees. Teachers make up slightly less than half of on-site staff in public schools, placing Arizona fourth worst among the 50 states and the District of Columbia in teachers as a share of on-site public school staff.
Myth #3: Arizona already ranks 49th in the nation in education funding and we don’t want to be number 50.
Fact: When all of Arizona’s funding streams are added up, Arizona school funding ranks in the middle of the states at more than $9,000 per student per year.
Myth #4: Suspending the tax credit for donations toward private school tuition will save money and mitigate the need for education budget cuts.
Fact: Getting children into private schools with $1,000 of foregone tax revenue costs less than the $9,000 spent on a child in the public school system. To save money, the legislature should expand the private school scholarship tax credit and move more children from public to private schools. Suspending it will disrupt these students’ educations and increase costs to the state as children return to public schools.
Myth #5: Student success will suffer if budget cuts lead to increased class size.
Fact: Research shows that students would be much better off if schools did let their most ineffective teachers go, and redistributed the students to more effective instructors. Teacher quality has been found to be 10- to 20-times more important than class size in achieving student learning gains. Schools could thereby cut their spending and improve student learning simultaneously.
Myth #6: All-day kindergarten is essential to successful child development and should not be eliminated by budget cuts.
Fact: Studies have consistently shown that any benefit from all-day kindergarten disappears by the time a child reaches the third grade, a phenomenon termed “fade out.” Also, all-day kindergarten was widespread in Arizona public schools before a specified state funding stream was created two years ago, districts can continue all-day kindergarten if it is a priority.
Myth #7: Individual districts and schools are reluctant to cut their own budgets, so the legislature should direct where cuts will be made.
Fact: Individual districts and schools will be far more effective in determining how to cut their budgets while protecting their students and employees and should be given the flexibility to set their own budget priorities.
To that point, Madison Elementary School District Superintendent Dr. Tim Ham said on January 26, 2009:
“The Madison School District understands the crisis the State of Arizona is in economically and knows reductions in education funding will be required. We would ask that districts be allowed to use any of their funding sources to meet their obligations. This would require a temporary suspension of current legal requirements. However, it would provide flexibility, local control, and equality among districts.”
Myth #8: Cuts in university funding will drive Arizona into “Third World” status.
Fact: Statewide, higher education budgets have increased by $332 million since 2004. If the full proposed FY 2009 cut of $80.5 million to ASU’s budget were enacted, it would still receive more state funding than in 2006. Northern Arizona University would lose $31 million in FY 2009, but still receive more state funds than in 2007. The University of Arizona faces a proposed $103 million cut in FY 2009, which would take it back to 2004 state funding levels.
Myth #9: Investment in higher education is critical to the future success of Arizona’s economy.
Fact: Comparing states’ higher-education appropriations and gross state products yields no evidence that spending drives economic growth. From 1991 to 2000, none of the top 10 states in greatest higher-education appropriations were among the top 10 in economic growth.
Myth #10: Cuts to university budgets will make it necessary to double tuition thereby violating the Arizona Constitution’s clause to make higher education “nearly as free as possible.”
Fact: Legal precedent has determined that “nearly as free as possible” means tuition for Arizona public universities must remain in the bottom-third of the nation. Any increase in university tuition is required to meet that standard. As it stands, tuition at Arizona public universities is very low compared to national averages.
The Goldwater Institute is a nonprofit public policy research and litigation organization whose work is made possible by the generosity of its supporters.
Our current facility is old and apparently outdated. It’s too small for big events and there’s not enough small meeting facilities for big events or something like that.
A study was commissioned in 2005 which showed a positive economic impact of a new arena – read the AZ Star article HERE.
And the beat goes on…..new arena + new high rise hotel + government funding = huge economic impact – or will it? Is the facility needed? Is it big enough to fill a market niche? Can we ever host a NCAA Final 4?
Up north in Phoenix the new $600 million convention center just opened – HERE.
By tripling the convention space, the center opens Phoenix up to large conventions and events, which can bring tens of thousands of business tourists into the city at once.
Nearly 70 groups are expected in Phoenix for 2009, said Alexandria Van Haren-Pierce, spokeswoman for the center.
The NBA All-Star Game plans to use the convention center for several events in February including the basketball theme park NBA All-Star Jam Session.
Members of the National Rifle Association are expected to bring up to 60,000 attendees to Phoenix in May.
Phoenix began making over the Civic Plaza with the 155,400-square-foot West Building.
The $600 million price tag was split between city bonds and state funding. The tab doesn’t include $18 million in upgrades to the South Building, which Phoenix bankrolled.
The 1985 facility was renovated so that the interior matches the newer North and West buildings.
(More about the Tucson Convetion Center HERE).
Here’s another look at the convention center business from Antiplanner.com
posted in Regional planning |
The director of Metro, Portland’s regional dictator planning agency, offers some insight into how government planners view such concepts as profits, losses, and sales. It is not a lot different from the way soviet managers looked at the same ideas.
Phil Stanford, a columnist for the Portland Tribune, recently commented that Metro’s Oregon Convention Center “has been losing money by the bucketload.” Two years ago, this convention center was the centerpiece of a Forbes magazine article about how cities are losing millions overbuilding their convention centers.
The pretentiously named Oregon Convention Center.
Flickr photo by Premshree Pillai.
Back in 1998, the convention center was losing money and Metro, which owned and operated it, was convinced that the solution was to lose more money by doubling its size. Portland-area voters were asked for the money to do this and they said no. So Metro did it anyway, spending $116 million on the addition.
By 2005, reported Forbes, the center was losing $5.5 million a year. But Metro was undaunted by Forbes‘ criticism, and proposed to build a new hotel next to it, saying that the city’s downtown hotels were too far away. (So what geniuses decided to build the convention center too far from hotels? Oh yes, it was urban planners.)
Anyway, Stanford is not enamored with the hotel proposal. But Metro’s executive, David Woolson, took offense at Stanford’s column and wrote a letter claiming there were some “inaccuracies” in Stanford’s article.
In particular, Woolson wrote Stanford, “you state the Oregon Convention Center ‘has been losing money by the bucketload.’ That’s not accurate. Actually, the OCC has operated in the black the last four years with its operating revenue and its share of the transient lodging tax.” (Notice that the “last four years” includes the year in which Forbes says the convention center lost $5.5 million.)
In other words, Metro doesn’t have to actually rent the convention center to fee-paying users. It is enough that someone increased the local hotel tax (at 11.5 percent, Portland’s is the highest in the state) and dedicated it to the convention center.
Now, I hope that even the planners who read this blog can spot the flaw in Woolson’s reasoning. If you have to count taxes to consider yourself “in the black,” you aren’t really in the black — even if those taxes are dedicated to your boondoggle convention center.
I suppose, for the benefit of some, I have to clarify the difference between taxes and user fees again. If a user pays a fee or tax and the money goes to whatever it is that the user is paying for, then it is a user fee no matter what you call it. But when a fee that is dedicated to a convention center is paid by motel or hotel users who aren’t going to the convention center, that is a tax.
Back in 1990, The Economist sent a reporter to the then-disintegrating Soviet Union to interview factory managers. The factories were going to have a hard time adjusting to markets, the reporter concluded, because their managers didn’t understand such basic concepts as “sales,” “profits,” or “costs.” (“Life in a Soviet Factory,” December 22, fee required.)
I’ve encoutered the same puzzlement from Forest Service officials when talking about the profitability of national forest timber sales. In the 1950s, the Forest Service was proud of being the only federal agency that actually made a profit, but by the 1980s, when it was losing $400 million a year from its timber program alone, its attitude was, “We’re the government. We don’t have to make money.”
When I would ask forest officials to calculate their profits, they would count tax dollars appropriated to them by Congress as revenues and timber sale receipts that they returned to the Treasury as costs (because they didn’t get to spend it on things they wanted to do). No wonder they lost money!
Anyone who thinks government is good needs to spend some time reading agency budgets. They may seem dry and boring, but that is deliberate: they don’t really want you to know where your money is going, so they overwhelm you with material. Just skip all the text and read the numbers. If you can’t read numbers, call up whatever school district ran your high school (another government agency) and ask for your money back (that is, the taxes your parents paid for you to go to school there) because they failed to teach you to understand and analyze numbers.
Mr. Woolson might be foolish enough to believe that taxes are “revenues” that can be counted when determining whether an operation is running in the black. It is too bad Metro was foolish enough to hire him and too bad that Portland-area taxpayers are saddled with an agency like Metro.
The Ripple Effect
Soon, a consultant will be hired to do an expansion feasibility study. “I wouldn’t go forward with a study if I didn’t think there was a possibility that the demand was there,” says Neilson. “And I think we owe it to everybody to find out.”
Hotel Pricing a Big Factor
The hotel seller’s market is having an impact on the convention business in several ways, explains Michael Hughes, associate publisher and director of research services at Tradeshow Week Custom Research, Scottsdale, Ariz. “The hotel package and capacity and pricing is the main site selection driver these days,” says Hughes. “And one of the main decision drivers for [association meeting] attendees relates to hotel quality and, most importantly, pricing.” So, assuming the center has the capacity to handle a specific group, decisions are being made based on the availability, quality, range, and affordability of hotel rooms.
Some second-tier cities, like Portland, Ore., have been able to take advantage of the shift. “Our (hotel) rate recovery is not as strong as other destinations, so we’re still a bargain,” says Matt Pizzuti, director of sales and marketing at the Oregon Convention Center. Affordability is one reason — along with being an environmentally friendly facility — why the center saw an increase in number of conventions and trade shows, attendance, and revenues last year, says Pizzuti. Occupancy is close to 60 percent at the center this year.
The Attendance Factor
Despite the haves and have-nots, the recovery is occurring, says Canton. Steven Hacker, president of the International Association of Exhibition Management, takes it a step further. He says the industry has almost completely recovered from the post-9/11 bust based on the Center for Exhibition Industry Research’s CEIR Index. The CEIR Index — which measures annual changes in net square footage of occupied exhibit space, attendance, exhibitors, and revenues based on data from over 200 events in 11 different sectors — says that all four metrics surpassed 2000 levels in 2005. “All but one or two industry sectors have not only made up the ground that they lost, but they have made gains,” says Hacker. (The index for 2006 won’t come out until next April; CEIR is an arm of IAEM). But not everyone is convinced.
Heywood Sanders, professor in the Department of Public Administration at the University of Texas at San Antonio, who caused quite a stir with his 2005 Brookings Institution study that depicted an industry in decline, says the key indicators — attendance and occupancy rates — are not back to 2000 levels. He says his research shows that while both indicators have fluctuated over the last few years, they have essentially been flat.
A Cyclical Economy
One thing that’s telling about the current environment, says Canton, is how closely the demand for space and attendance at conventions and trade shows tracks to the health of the U.S economy.
IAEM’s Hacker concurs. “It appears as though for the first time, the hospitality industry — and especially the exhibition industry — is not immune to economic cycles. In the 50-year time period preceding 2001, despite six serious recessions in the U.S. economy, the industry continued to grow without pause,” says Hacker. That changed in 2001. He adds, “It’s become much more important that destinations do their homework to make sure the demand is there before building or expanding.”
If You Expand It, Will They Come?
Since the Indiana Convention Center was expanded in 2001 from 301,500 to 403,700 square feet of exhibit space, the city has seen the number of room nights booked in the city increase from 450,363 in 2000 to a projected 526,755 in 2006. The center hosted about 30 conventions per year before the expansion and now it attracts around 40 per year, explains Bob Bedell, president and CEO of the Indianapolis Convention and Visitors Association. The current occupancy rate (70 percent) is equal to what it was before the first expansion. Now, city officials are planning to expand the center again (to 733,700 square feet) and Bedell hopes for a similar pattern. “We expect to increase the number of major conventions and trade shows we host every year by 18 to 23 with this expansion,” he says. The expansion will be complete in fall 2010.
But the “build it and they will come” strategy may not work if the city doesn’t have the destination appeal to support that additional growth, something Milwaukee officials are contemplating as they consider expanding the 189,000-square-foot Midwest Airlines Center. Unlike in Indianapolis, convention business has been sluggish in Milwaukee since the center opened in 1998. In 2005, the center generated 149,000 hotel room nights, down from 180,000 in 2000. While Milwaukee has lost business because the center doesn’t have the space to compete for larger events, the expansion alone won’t bring the business, says Doug Neilson, president and CEO at Visit Milwaukee, the city’s convention and visitors bureau. The city must have the overall package to compete, he adds, and with new hotels, restaurants, and activities, including the Harley-Davidson Museum, in the pipeline, the city is intent on boosting its destination appeal.
The Brookings Institute study from 2005;
The data on the supply of exhibition space are clearer than the data on exhibition space utilization because it is much more easily tracked. On this point Sanders is more guilty of mischaracterizing the data rather than using it selectively. He claims that the last few years “have seen a remarkable boom in the volume of exhibit space in convention centers,” calling it a “building frenzy.”
By expressing the ratio of demand to supply, one can calculate a utilization factor for convention centers. This is similar to occupancy rates that are used to measure performance in the hotel industry. The utilization factor reflects the percent of gross exhibit space that is used each year by the events that are tracked by Tradeshow Week.
Good Money after Bad?
A number of cities have chosen to improve their convention environment by investing in the development of headquarters hotels. Sander says, “Many cities wind up, as they say ‘throwing good money after bad’.” This assertion implies that the original investment in a convention center is a bad one (a claim that most cities that have made the investment would dispute) and that hotel investment is just adding more of the same type of public costs. But the rationale for, and expected financial outcomes of, convention center and hotel investments, are quite different.
The most commonly used rationale for investment in convention centers is to generate economic impacts from out of town visitation. Nearly all convention centers in the U.S. are built without any expectation that project income will repay capital costs and most are not even expected to cover operating expenses. This has long been a fact of life in convention center development, although Sanders implies that convention center financial losses are a new and growing problem. In contrast, the rationale for public investment in hotels is to maintain competitiveness (not necessarily to generate new economic impact) and they are usually expected to pay for their capital costs from project income. In fact, all publicly financed hotels are expected to provide a significant return on investment to the sponsoring municipality in the form of residual cash flows and potential sale of the asset.
Since 1996, sixteen communities have successfully financed hotels using tax-exempt municipal debt. All of them planned to repay that debt with project income. The choice to use public rather than private financing is driven by the lower costs of tax-exempt funds which makes projects more feasible with less financial commitment on the part of the sponsoring municipality. Three of the early projects in Chicago, Sacramento, and Miami Beach have already fulfilled their promise to generate a financial return. Others more recently financed such as in Austin, Overland Park, and Cambridge are on their way to providing a financial return despite opening under stressful market circumstances.
As an established industry, continued growth in demand will come not from latent sources, as occurred during the last few decades. Rather, industry growth will depend on new demand, which is affected by numerous factors such as the cost of travel, the importance of face-to-face interaction in certain industries, improvements in facility design, resources available to promote events, trend in how firms allocate their marketing budgets, and overall growth trends in the national economy.
In most industries that go through periods of overbuilding (e.g. hotels, residential, shopping malls, and office space), the ability to generate private return on investment eventually limits the expansion of supply. Since most convention facilities are publicly financed, this market discipline is not necessarily present. Instead limited resources of governments and the public decision making processes that consider the merits of capital investment place limits on supply growth. In our experience, most municipalities are not “willing to try almost any investment in their quest for more convention visitors.” Concern over the proper allocation of limited resources and historical experiences of success and failure play very important roles in the decision making process. Which brings us to a point of agreement with Sanders’ overall conclusions: careful and realistic consideration of the chances of success should inform the public decision making process about investment in convention centers.
The Convention Center Shell Game from City-Journal.com – HERE.
The Convention Center Shell Game
Although Boston’s gleaming new $800 million convention center is set to open in a few months, so far it has booked only a handful of conventions. So dire is the facility’s outlook that it will need a $12–15 million annual public subsidy in its first few years of operation and may not reach its full booking potential for a decade, say Boston officials. Even that may be too optimistic, judging by what’s going on in Baltimore. There, a vastly expanded convention center that reopened in 1997 is finding it so hard to lure business that city officials are now searching for ways to make the facility more attractive, including spending millions in public money to build a subsidized hotel next door.
What is happening in Boston and Baltimore is not an anomaly but merely the latest chapter in what is turning out to be one of America’s biggest civic boondoggles.For more than a decade now, cities and counties have been rushing, at enormous public cost, to build new convention centers or add space to old ones, including a $191 million expansion of San Francisco’s Moscone Center, a $291 million new facility in Omaha, and a $354 million center in Pittsburgh. The increase in space has vastly outpaced the growth of the convention industry and often failed to generate the kind of economic activity predicted by boosters. Rather than energizing local economies, in fact, some convention centers are emerging as a drag on civic finances, requiring taxpayer operating subsidies on top of their huge, publicly financed construction costs. What’s more, the situation is only likely to get worse. Another eight to ten million square feet of exhibition space is scheduled to come on line within five years, an increase of about 15 percent in an industry where demand is barely growing.
Although those numbers should be sobering to any city contemplating building yet more space, in New York officials are plunging ahead with plans for the most costly convention project to date—proposing to spend a staggering $1.5 billion nearly to double the size of the Jacob Javits Convention Center. The proposal comes despite the chronic fiscal problems of both the state and the city and the absolute lack of any credible evidence that the expanded center would pay back such a colossal public investment.
Indeed, to finance the expansion, the state and the city, both already heavily indebted, will likely have to float huge debt offerings and may even increase some taxes.
New York’s headlong plunge into this new project is evidence that local officials rarely let the facts get in the way of their love of big projects. Back in the early 1980s, when the state and city built the Javits Center, there were far fewer convention centers and little actual data on whether the business that these facilities generated helped a city’s economy enough to justify the investment. New York officials saw Chicago’s giant McCormick Place bringing visitors into the city to fuel the local hotel, restaurant, and entertainment industries, and figured Gotham could compete for that business.
But today, after a generation of frenetic building and with much better data available, the inescapable conclusion is that few of these new projects are worth doing. Boston, for instance, spent nearly $230 million to renovate its existing convention center in the 1980s, and the result was barely a blip upward in its hotel occupancy, says political scientist Heywood Sanders of the University of Texas at San Antonio, the foremost expert on publicly built convention centers. Yet Boston officials brushed that experience aside and went ahead and built its brand-new—and already troubled—center anyway. Similarly, a vast expansion of Chicago’s McCormick Place, costing $1 billion in the mid-1990s, didn’t prevent a drop in that city’s share of major conventions. Meanwhile, Atlanta’s huge expansion of its convention space has done little for the city’s struggling downtown: a major retail project there, Atlanta Underground, has struggled to survive even as the city’s convention business has grown. “The payoff is not there,” says Sanders.
But local politicians have typically argued that their projects will work better than those in other cities—on scant evidence for such conclusions. New York officials, for instance, justify expanding Javits on the grounds that the city is already a major trade-show destination and therefore won’t suffer like other cities from significant new competition. Yet Chicago was an even bigger force in the business when it expanded McCormick, but still saw its market share decline. And even if a bigger Javits were to attract some new business, it is highly unlikely to generate enough spin-off activity to justify its enormous public cost (including the eventual cost overruns likely with such a gigantic public project).
Gotham officials are relying on the optimistic predictions of government-sponsored economic studies that an expanded center would create thousands of temporary construction jobs and up to 16,000 permanent new jobs, mostly in the hospitality industry. But political scientist Sanders argues that such studies tend to be unrealistically optimistic. For instance, says Sanders, one study used to justify expanding Javits does not take into account that the center doesn’t generate nearly as much hotel business as other centers, because many convention attendees already come from the New York area, and because New York’s high hotel rates discourage some conventions from using the city. Another word of warning: city-commissioned studies almost always wind up recommending convention centers—meaning that the industry of consultants who churn out such studies has a pretty lousy track record, considering the long list of underperforming centers around the country.
But politicians ignore such inconvenient facts. For them, building big projects is often far more engrossing than building a strong economy, because giant construction projects directed by government agencies offer opportunities to reward friends and potential supporters with plum contracts.Thus the original construction of the Javits Center was perhaps the quintessential New York boondoggle, an effort rife with mob influence, bid rigging, and cost overruns that brought the ultimate bill to $486 million, 30 percent more than projected. And the center has never fulfilled all the promises. When it opened, a New York Times headline proclaimed the widely held belief that the new center “kindles dreams for West Side,” but in 18 years, the center has had almost no impact on its neighborhood.
New projects also enjoy the support of private-sector interests likely to benefit from them. In New York City, a perfect storm of private interests is raging to push forward the Javits expansion, including the construction industry that would build it, the Wall Street bankers who would underwrite the financing, and a hospitality industry hungry to benefit from even a marginal increase in its business no matter what the public cost. The hotel industry has even signed on to a possible hotel tax increase to pay for the Javits expansion, when a decade ago the same hoteliers vociferously protested a rise in the tax, producing studies showing that the increase hurt the local economy. Small wonder that politicians often doubt the claims of executives that taxes kill jobs when an industry reverses itself as cavalierly as the city’s hotels are now doing. In fact, of course, the innkeepers were right the first time: after New York cut its hotel tax by six percentage points, hotel occupancy rates jumped to 84 percent from under 76 percent in just three years.
The Javits expansion, as expensive as it is, only partially encompasses New York’s grand design for the Far West Side of Manhattan. Hoping to lure the 2012 Olympics to Gotham, the Bloomberg administration also wants to build a domed sports stadium adjacent to the convention center, which boosters argue could provide hundreds of thousands of square feet of extra convention space when needed.
With a $600 million taxpayer contribution, the stadium would be an even worse investment than the convention facility. Numerous studies have already documented that publicly financed sports facilities don’t return anywhere near their investment. One study by economists from Stanford University and Smith College, for instance, estimated that Baltimore was receiving only $3 million a year in additional tax revenues or new job benefits from its $200 million investment in the Camden Yards sports complex. Even projects generally touted as successful often don’t turn out to be, under careful economic scrutiny. A mid-1990s study by urban economist Mark Rosentraub of Cleveland’s arena and baseball stadium, often held up as a model of how to build downtown sports facilities, found the projects created only 2,000 jobs at an average public investment of $160,000 for each job—an improvident use of public money.
The real role of government in stimulating development should be more limited than what New York is attempting with its Javits expansion and its stadium. Government’s role on the Far West Side should be only to develop the infrastructure necessary to encourage private development: to extend public transportation into the area and to change zoning codes to allow privately financed office and residential construction there as the need develops. To do any more would place far too much taxpayer money at risk and would put government officials in the role of trying to predict what the market wants—a task government is ill-suited to carry out. But New York State is contemplating the exact opposite—balking at extending the Number 7 subway and, presuming to know better than the market, threatening to use eminent domain to take the land for the Javits expansion away from developer Larry Silverstein, who has other plans in mind for it. The state’s vast, monolithic scheme could well repel rather than attract high-value commercial development.
Meanwhile, the hospitality industry has learned that it can sit and wait for local government to finance its dreams these days. The Javits expansion, for instance, was originally tagged at a “mere” $1 billion but grew costlier when the center’s board stuck in a publicly subsidized hotel as part of the building frenzy. The hotel supposedly needs to be built with public money, because so far no private hotel company has been willing to pay to put up a property on the Far West Side.
The Javits hotel scheme is not unique by any means. Publicly financed hotels have now become the latest craze in the municipal convention-center wars. Cities like Dallas, Baltimore, and Knoxville are all contemplating building them, on the theory that these properties will help boost sagging convention-center business. Though hotel companies won’t finance these properties themselves, because they know they are unlikely to repay their investment, they are more than willing to move in and operate them after government has built them. The result is a version of the rat and cat farm: we use tax money to build a convention center that supposedly will stimulate the hotel industry, and then use tax dollars to build a hotel that supposedly will stimulate the convention industry.
The nationwide convention-center fiasco is striking testimony that much government-centered economic development these days is a “me-too” affair that involves spending public money on what others are doing, regardless of market dynamics—perhaps because politicians who benefit from these projects can avoid blame by claiming that they were only doing what other cities were doing. New York State seems especially infected with this disease right now. With its huge public complexes in Albany and its vast string of publicly constructed state universities, the state has always specialized in state capitalism, and it is not to be outdone in the area of convention centers. In his state of the state address, Governor Pataki advocated not only the Javits project but a new $185 million convention center in Albany to replace its existing facility and the modernizing of another facility in Lake Placid. Soon after, officials in Erie County renewed their lobbying for a publicly financed center in Buffalo, while in Syracuse, a group that has put forward a far-reaching plan to remake that city added a convention-center proposal to its agenda, too. These proposals would join an estimated 40 or so convention projects already under way in cities throughout convention-center-glutted America.
While politicians and private businesses push such efforts, resistance from taxpayer groups is growing. The Texas chapter of Citizens for a Sound Economy, the national taxpayer group headed by former House Majority leader Dick Armey, is opposing a publicly financed convention hotel in Dallas. Knoxville citizens will soon get to vote on whether to spend tax dollars on a new convention hotel, after opponents of the effort collected thousands of signatures to get the issue on a ballot. In Raleigh, North Carolina, government supporters of a new convention center are trying to avoid a vote on public financing for the project—which they are sure to lose—by proposing alternate but even more costly financing that doesn’t require a referendum.
The mounting opposition shows that the public understands what a fiasco the convention-center business has turned into all around America. If only urban leaders could figure that out, too.
The Tucson Citizen weighs in with ‘Construction Starting in 2008′ – HERE.
First of all, I wanted to give credit to any group of humans that try to bring business to the masochistic business-owners downtown. They need all the help they can get. From Rio Never to an inept downtown partnership (that is really just another department under Hein’s uninspired leadership) to unprofessionally run and marketed convention center, they could use a break. I don’t know how successful it’s going to be, but their heart is in the right place.
One quote from the selfless Mr. Glassman that caught my attention is bolded below:
Family Weekends should be boon to Downtown
Our view: With free parking, plenty of activities, weekends offer much to families
Arizona Daily Star
Tucson, Arizona | Published: 01.23.2009
Wondering what to do with the kids this weekend? How about visiting Downtown Tucson?
Worried about parking? Don’t be: Metered parking Downtown is free on weekends.
Afraid there’s no place to have a meal? Not so: More than 20 restaurants are open on weekends.Worried that there’s nothing going on Downtown? No problem: Go online to check out the Family Friendly Weekends Web site, a master calendar and guide to Downtown events.
“We want Tucson parents to wake up every Saturday and Sunday, 52 weeks a year, and know that fun activities Downtown are always an option,” Councilman Rodney Glassman. a Democrat representing Tucson’s East Side Ward 2, told us.
A constituent’s complaint that there was little going on Downtown that was fun for families prompted Glassman, Ward 1 Councilwoman Regina Romero, a Democrat, and Mayor Bob Walkup, a Republican, to gather representatives of about 60 Downtown business and nonprofit groups a few months ago to brainstorm.
As Glassman notes, organizations like the Tucson Children’s Museum, the Downtown public library, the Museum of Contemporary Art and the Tucson Museum of Art were already offering frequent weekend events.
Now these and other Downtown organizations are working together and with the Metropolitan Tucson Convention and Visitors Bureau to make sure activities that families will enjoy are scheduled for both days, every weekend, Glassman said.
The Family Friendly Weekends Web site is operated by the Convention and Visitors Bureau.
So far, the list of activities already scheduled Downtown on weekends in 2009 is 48 pages long, Glassman said. The Web site’s inventory of Downtown restaurants open on weekends is growing, too.
For the Convention and Visitors Bureau, spearheading the effort was a no-brainer, Kimberly Schmitz, director of communications, told us, since its mission is to promote Tucson as a destination.
Along with managing the Web site and working with event organizers, the Convention and Visitors Bureau has produced flyers and posters promoting Family Friendly Weekends.
So far $55,000 has been raised from private sources and another $120,000 in in-kind media promotion and advertising.
Douglas Martin, president of K-LOVE 88.1 radio, offered to do remote programming from Downtown every weekend and donated $5,000 to the effort.
Give Downtown Tucson a try, and we believe you will be surprised, as were many letter writers to the Star who enjoyed and praised the inaugural First Night New Year’s events Downtown.
“There is no taxpayer money involved in this,” Glassman said. His own Glassman Foundation is the title sponsor.Take your kids, check it out on Saturday: They’ll get a chance to try plein air painting at the Tucson Museum of Art and to see the traditional Chinese New Year Lion’s Dance at the Children’s Museum.
Family Friendly Weekends is a definite plus for local families and we congratulate all those whose contributions and work will make it happen. It will be a plus, too, for Downtown’s under-rated image, as families discover how much it has to offer.
We need a little clarification, future-governor Glassman. According to the above story, the glad-handing Visitors Bureau seems pretty knee-deep is this. Last year, they received about $9 million plus of taxpayers dollars from the City, County, and Oro Valley. If the Downtown partnership helped at all, they are also a taxpayer-supported organization. If any extra police or fire was needed to support the event, then probably there was some tax-dollars being used(unless the sponsors are paying the City, so show me the receipts). So the options are:
- You forgot the Visitors Bureau and the DTP (if involved) receive taxpayers dollars. If this is true, then I am so glad you are one of the principals working on the City budget.
- You didn’t want to ruin your vision of a totally privately sponsored event with messy facts.
- Your advanced brain processes informed you that the taxpayer dollars funneled to the non-profit MTCVB and the DTP are “cleaned” of their inconvenient tax dollar status, thus now become private. This keeps the dream of a totally privately funded Family Weekend alive!
Which one could it be?
P.S.(parting shot): The MTCVB’s involvement in this sounds like a little payoff to Mr. Glassman in exchange for convincing the rest of the council not to gut their budget this year. Or maybe I’m just getting a little too cynical.
Doug Martin from KVOI uses the airways, print with Good News Tucson and now in the blogosphere to get his message out. Doug’s recent post on TucsonTownHall.com pointed to the fact that we aren’t hearing a lot from our community leaders about the Accenture Match Play. The event is a huge win for our region and national exposure for our tourism industry comes at a critical time.
Read Doug’s full post HERE. Below is a great observation;
We should show our appreciation to Accenture as the sponsor and Cottonwood Properties the developer of Ritz-Carlton in Dove Mountain. It would also be wonderful if our city and county elected officials recognized and applauded these folks for benefiting our community, instead of waiting until Accenture looks for another place to play.
I posted a few weeks back about Tucson’s 1st Annual, First Night – New Year’s Eve Celebration HERE. You know what struck me the day after the event? Where were our city council members? I did see Nina and her staff down town with volunteers and t-shirts, but where were the rest of our elected officials. If anyone saw a council person other than Nina leave a comment.
You would think with all the heat around Rio Nuevo we’d see all the elected kissing babies and shaking hands. The fact that a high profile event held in the heart of our downtown redevelopment would merit the “full court press” of support. I guess they were too busy.
SACCA unveils 2009 legislative agenda
The Southern Arizona Chamber of Commerce Alliance (SACCA) unveiled its 2009 legislative agenda, introducing the issues it will look to address with the Arizona Legislature when the new session begins in January.
Some issues were addressed in the last legislative session, with bills getting through the state houses but vetoed by Gov. Janet Napolitano. The agenda is sweeping, from reform of the state’s ballot-initiative process to tort reform to immigration. Following are some highlights of the business-related issues of interest in southern Arizona:
Initiative Reform: Permit legislative changes to voter-approved initiatives with voter ratification. Support a review of initiatives prior to implementation to determine fiscal or other implications.
Tort Reform: Seek legislation to remove incentives to file frivolous lawsuits.
Taxation/Budget: Support permanent repeal of the state property tax. Seek elimination of business personal property tax or raising threshold to exempt more small businesses.
Education: Oppose efforts to lower or eliminate AIMS standards. Support strategic spending proposals for K-12 and higher education. Support efforts to make higher education more accessible.
Labor/Workforce Management: Support a thorough review of workers’ compensation laws, especially as they relate to impact on premiums. Oppose repeal of the state “Right to Work” law.
Immigration: Oppose unfunded mandates regarding local enforcement of federal laws. Support reimbursement of all local immigration-related expenses (law enforcement, education, health care).
Environment/Natural Resources: Support legislation that allows counties to pass ordinances against water waste.
Economic Development: Support the military in our region and oppose efforts to reduce operations. Support the timely completion of a statewide study of home affordability. Support statewide economic-development strategies to encourage business attraction and expansion.
Healthcare: Support reinstatement of coverage for groups of one. Support tort reform that would lower health insurance costs. Oppose legislation that would require employer-provided benefits.
Transportation: Support multi-modal transportation options through the state’s growth corridors, which may include high-speed rail from Phoenix to Tucson. Support Congressional delegation’s efforts to procure federal transportation money for the state.
The Southern Arizona Chamber of Commerce Alliance (SACCA) is a group of eight southern Arizona chambers of commerce, representing more than 4,500 member businesses and 200,000 employees, serving as an advocate for common business interests in the region. Member chambers are the Tucson Metropolitan, Tucson Hispanic, Tucson GLBT, Northern Pima County, Marana, Sierra Vista, Rio Rico and Nogales-Santa Cruz County.
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