Charles Chieppo: Convention center follies

  BOSTON

Politically, it's almost irresistible. Revenue from hotel and other taxes, paid largely by people from other places, will be used to subsidize convention centers that lure those visitors to town to spend in hotels, stores and restaurants. But a new book demonstrates a far less appealing reality. In Convention Center Follies, Heywood Sanders, a professor at the University of Texas at San Antonio, tells the tale of projects that continue to be built and expanded at a record pace even though they almost always fail to deliver the promised benefits.

There was a little over 36 million square feet of exhibition space in the United States in 1989. By 2011, that number had nearly doubled to 70.5 million. The problem is that in the midst of a decades-long convention-space explosion, demand has remained flat at best.

Sanders describes the usual scenario in which local convention or visitor-industry officials complain that a convention center is jammed to capacity or, worse, that lucrative events want to come but are too big for an existing facility. Consultants are retained, and they invariably endorse either building a new convention facility or expanding an existing one.

The idea behind convention centers is to bolster the local economy by attracting visitors who would otherwise spend their money elsewhere. The best measure of success is the number of hotel room-nights they generate.

Sanders' s numbers tell the real story. Washington, D.C.'s new convention center was supposed to deliver nearly 730,000 room-nights by 2010; the actual number for that year was less than 275,000. Austin, Texas' expanded center was supposed to bring 314,000 room-nights by 2005 but produced just 149,000. The 2003 expansion of Portland, Ore.'s convention center was expected to yield between 280,000 and 290,000 room-nights, but the actual number was 127,000 -- far less than before the center's expansion. Atlanta, Chicago, Dallas, Milwaukee, Minneapolis, Pittsburgh and Seattle are among other cities that have had similar experiences. The challenge is to find an exception to the rule.

That's not all. When projects fail and debt service mounts, consultants routinely conclude that the center needs a "headquarters hotel," which at the very least requires a large public subsidy. Sometimes the lack of developer interest results in the hotel being publicly owned. It's a classic example of finding yourself in a hole and continuing to dig.

Many factors result in convention center feasibility studies dramatically overestimating economic impact, but one that stands out is the fact that about half of convention attendees are generally local-area residents who would still spend their money in the region if there weren't a convention to go to. Consultants generally assume that each convention attendee will stay in a hotel for three nights or more. But because of the preponderance of locals, the reality is generally about one room-night for each attendee.

The consultants don't compare their past projections against actual performance or use that performance to inform future estimates. Sanders quotes one such consultant, Charles H. Johnson, from a 2005 legal deposition: "Once the deal is done, if we're not engaged, we … give them our report, our final invoice, and wish them good luck."

And the consultants routinely use expansions that are underway in other cities (often undertaken at those same consultants' urging) as evidence of why subsequent clients need to expand to remain competitive. Another consultant, Jeff Sachs, was blunt in his comments to Forbes, saying, "You lose clients if you shoot down projects."

Sanders makes a strong case for what he believes to be the real goals behind convention-center development. Sometimes it's to increase area property values. Boston is an example of a new convention center being used to help jump-start a developing neighborhood. In other cases, the facility is seen as an anchor to insure against downtown erosion or, in such cities as  St. Louis, part of an effort to reverse neighborhood erosion.

All are worthy goals. But taxpayers deserve an honest debate about whether building or expanding a convention center is an effective way to achieve them. And the debate should be informed by realistic economic-impact projections. What we don't need is a continuation of the charade in which elected officials, local business leaders and convention consultants tout benefits that at least some of them know will never materialize.

Charles Chieppo (Charlie_Chieppo@hks.harvard.edu)  is a research fellow at the Ash Center of Harvard's Kennedy School.

Comment by Robert Whitcomb:  As for building stadiums for professional sports teams:  They're  almost always welfare for the rich and do not bring the promised economic-development benefits.