For Immediate Release
Date/Time: October 17, 2016, 10:30 a.m.
Contact: Dennis Neufeld, Director of Research
Eye on Sacramento
Phone: (916) 539-1054
Eye on Sacramento Issues Report Refuting Economic Premise
For Expanding the Sacramento Convention Center
At a press conference held this morning at the Sacramento Convention Center, Eye on Sacramento officials released a comprehensive report revealing the long track record of growing financial losses at the Convention Center, as well as challenging the proposition that a nearly $200 million taxpayer-funded 70,000 sq. ft. expansion of the Center will provide any net economic benefits to Sacramento. Among the report’s findings:
The Convention Center will lose $19 million this year. Center losses have been growing at a pace of $1 million annually for several years. The Center has lost an astonishing $268 million in taxpayer funds over the past 17 years.
From its construction in 1974 to its major expansion in 1997, the Center has failed to generate revenues anywhere close to official projections, leading the city council to double the city hotel tax to cover its mounting losses in the early years and to extend $10.4 million in emergency bailout loans to the Center following its 1997 expansion, loans which remain largely unpaid today.
Because of the heavy drain of Center losses, Sacramento devotes 87% of its annual hotel taxes to covering Center red ink. The nine cities that Sacramento competes with for convention business uses an average of only 45% of their hotel tax revenues to fund its convention centers, with 55% of such taxes going into their general funds.
If Sacramento reduces its allocation of hotel taxes to the Center to match the 45% average allocation of its nine competing cities – which it can do over time by simply avoiding the proposed Center expansion – EOS projects that the city would see an additional $8 million of hotel taxes flow into the city’s general fund each year to fund police, parks, road maintenance and other vital services.
The municipal habit of expanding convention centers in pursuit of greater center attendance has been a grotesque failure in city after city in the U.S., leading to a veritable “arm’s race” of center expansions and resulting in a massive glut of space, while actual demand for convention space has been declining.
The theory of “Build It and They Will Come” may work in Hollywood movies, but the evidence clearly shows that it does not work with convention center expansions. The following cities have each expanded their convention centers in recent years only to experience an actual decline in attendance following expansion: Chicago, Las Vegas, Seattle, Philadelphia, St. Louis, San Francisco, Orlando, Washington, D.C., and Boston, as well as many smaller cities.
The common culprit in the growing number of failed convention center expansions throughout the country (including Sacramento’s 1997 expansion) has been the grossly inaccurate projections of future center revenues generated by professional convention center consultants hired by cities.
Following Boston’s failed convention center expansion in 2004, the then executive director of the Massachusetts Convention Center Authority, James Rooney, was quoted as saying:
“When I talk to people from other cities about making a public investment in a convention center, I’m equally blunt about the feasibility studies these consultants use to justify [such] investments…some of these guys ought to be taken out and shot.”
EOS has also determined that, in the lead up to the Sacramento city council’s key May 3rd policy decision to proceed with an expansion of the convention center, city staff presented the council with a staff report that relied heavily on the city’s primary convention center consultant, the firm of Conventions, Sports & Leisure International (CS&L). City staff cherry-picked data and findings from the CS&L study, but staff failed miserably to provide council members with crucial findings in the CS&L study that clearly state that an expansion of the Convention Center is not needed nor justified given market conditions.
In short, the city council was misled by its staff into believing that its principal convention center consultant was solidly in favor of the proposed expansion when, in fact, it was opposed to it.
The city staff’s proposal to expand the Sacramento Convention Center is on the city council’s meeting agenda for tomorrow evening.
The EOS Report is viewable and downloadable via this link.