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Heywood Sanders

Convention Wisdom
by Rick Marshall

While other cities lament their failures with similar projects, Albany pushes forward with ambitious plans for a new convention center

 

 

Stop me if you’ve heard this one before: People of this fair but beleaguered city! Do you want all your problems solved? All you need is a convention center! Would you like crowds of tourists with open wallets on your city’s streets? Build a convention center! Want new jobs, restaurants, art galleries and cafes? Plant a convention center in downtown Albany and watch the culture grow! That’s right, a convention center is all it takes to change your city into an urban mecca instead of a fading glory! And the best part of it all? It won’t cost you a dime.

Starting to sound like a familiar pitch? It should, no matter what city you’re from. Residents of Albany and more than a hundred other municipalities around the country are being told the same thing by their local lawmakers and business leaders.

And if it all sounds too good to be true, that’s because it usually is.

As many communities have learned over the last decade, the siren song of convention centers can be exactly that: a plan that charms elected officials and businessmen with promises of economic upswing and opportunities to hand out massive construction contracts, only to end up having disastrous effects on the surrounding region. More often than not, these negative effects extend far beyond a simple failure to spur new business. Faced with facilities that never live up to expectations, many cities have been forced to pass the cost of their failed convention wagers on to local taxpayers.

So, with that in mind, welcome to the world of convention centers, Albany.

‘Few cities learn from their own mistakes or the mistakes of any others,” says Heywood Sanders, a professor of public administration at the University of Texas at San Antonio.

In January 2005, Sanders became a focal point of frustration for many elected officials with their eyes on projects like the one in Albany, when he authored a highly critical report on the convention industry for the Brookings Institution, a public-policy think tank in Washington, D.C.

Sanders found that various factors such as industry consolidation, telecommunication advances and rising energy costs have contributed to a nearly 50-percent drop in convention attendance since the late 1990s. But meanwhile, more than 100 U.S. cities completed or began construction of convention centers, increasing the supply of available exhibit space by more than 50 percent. This growing gap between supply and demand, concluded Sanders, “should give local leaders pause as they consider calls for ever more public investment into the convention business.”

And of all the cities he studied, Sanders says Albany’s inability to see the big picture is especially apparent when one massive project politicians are touting as a turnaround point for the city is being contemplated in the shadow of another massive and similarly heralded project: the Empire State Plaza.

“Sadly, Albany has become the model that I share with my students of what happens when the public sector thinks one huge construction project is going to solve all of the city’s ills,” he says.

Nevertheless, Albany’s lawmakers are barreling ahead with plans to build a new, $200 million convention center and hotel, assuring local taxpayers that the problems plaguing so many other cities’ convention centers aren’t going to happen here.

“This project will create hundreds of new jobs and will result in opportunities for new economic development in our region that will make our city one of the premier destination centers in the nation for convention-related tourism,” said Albany Mayor Jerry Jennings during his 2006 State of the City speech.

And Jennings, who has relentlessly pushed for the project both in the public eye and behind closed doors for years, isn’t alone in presenting a sunny outlook on the plan to place 85,000 square feet of exhibition space and an attached 400-room hotel within a mile of the Empire Plaza. Gov. George Pataki recently gave his seal of approval to the proposal, pledging $75 million in state funding toward the facility’s costs as part of his 2006 executive budget. For many elected officials, such a project provides a unique opportunity to reward political supporters and provide the sudden, large-scale job creation that voters will remember in upcoming elections.

“The taxpayers of New York state . . . will be helping to finance a premier venue and economic engine for Albany city and county,” wrote Albany County Legislator John Frederick in a Feb. 2 letter to the Times Union. “Albany will be able to handle larger conventions, sporting events and trade shows, with people pouring in from all over to meet, eat and stay in downtown.”

Assemblyman Jack McEneny (D-Albany), a member of the nine-person board charged with deciding where the convention center will go and what shape it will take, dismissed Sanders’ findings. Too many recent events and conditions weren’t taken into account in the report’s evaluation of convention trends, he argued.

“We probably have a shortage of facilities now because of the loss of New Orleans,” says McEneny. “With the Bush fiasco in Iraq and what’s happening to energy costs, groups who would normally leave the state could decide to stay home.”

Sanders is quick to point out that local residents might not want to put all their money on Albany becoming the next stop for displaced New Orleans convention attendees. That hurricane-ravaged city’s convention center is scheduled to open again this April, and even so, the popular tourist destination had seen its share of the convention pool dwindle every year since 1999. In 2004, the number of out-of-state visitors spending their money in New Orleans was nearly half that of the city’s 1999 tally.

Also, Sanders says, “Airfare remains fairly competitive these days, especially when compared to the cost of gasoline for long drives. And if folks drive to Albany to attend a convention, that means they don’t have to stay in downtown Albany, either. They can find a cheaper hotel outside of the city.”

But across the nation, this style of betting on future trends has become a common theme among public officials trying to convince taxpayers of the necessity for new or expanded convention-center facilities. From the city’s status as a state capital to the presence of the AquaDucks tours, a litany of reasons have been offered up by political and business leaders why the Capital Region can succeed as a convention destination where so many other cities have failed.

To that end, lawmakers in Albany and many other municipalities have commissioned private consulting firms to study their city's feasibility as a convention destination. And in nearly every one of those studies, the firm concludes that the city stands to gain significant amounts of revenue if a new convention center is built, existing facilities are expanded or a new convention center hotel is added to the mix. These firms' near-universal approval of convention-center projects has led many critics to question whether the consultants are providing a legitimate, objective assessment of a city's convention prospects or simply a rubber stamp for local politicians' plans.

“The reason the city brought in a consultant to do the feasibility study was to provide an accurate assessment of what could be expected,” says Deputy Albany County Executive Joe Pennisi, another member of the convention-center board, about Jennings’ decision to hire one of three major consulting firms in the industry, Strategic Advisory Group, to assess Albany’s feasibility as a convention destination.

In both their initial report and their May 2004 follow-up, SAG predicted that a convention center of the recommended size could be expected to draw at least 300 events annually. These events would attract 270,000 attendees, who would then generate more than 100,000 room-nights for local hotels. The city could expect to see more than $33 million in additional annual spending result from such a project, the firm claimed.

This study quickly became the most prominent weapon in public officials’ battle to win over the hearts and minds of constituents who were hesitant to approve such a massive project.

But those suspicions may have been-and could still be-well-founded. In a February 2005 Forbes interview, SAG managing partner Jeff Sachs offered the following perspective on his firm's approach to the studies: "You lose clients if you shoot down projects," he explained when asked why the answer is so predictably "yes" when cities ask if a convention-center project can
turn their fortunes around.

“They’ve already made up their minds by the time they come to us,” he added.

According to Forbes, out of 74 other municipalities around the country SAG was commissioned to study for convention-center feasibility in recent years, only four received negative assessments.

If recent history involving SAG’s advice to other cities is any indication of what can be expected in Albany, public officials might want to think twice before putting any faith in the firm’s predictions.

“It’s time for us to get a new consultant,” said Mayor Mark McBride of Myrtle Beach, S.C., in a March 2005 interview with Knight Ridder/Tribune Business News.

The city of Myrtle Beach found itself saddled with nearly $50 million in debt last year due to an underperforming convention-center hotel. In their initial feasibility study for Myrtle Beach, SAG reported that the city could expect the new 402-room hotel to generate around $6 million in revenue its first year and recommended that the city issue bonds to cover the construction of the privately run hotel. Once the hotel was built and the city began repayment of the bonds, the operators of the hotel would reimburse the city for the bond payments from hotel profits. This is similar to the arrangement recommended for Albany.

Despite SAG’s predictions, it became clear in less than a year that attendance at the city’s 100,000 square-foot convention center and occupancy rates at the new hotel were falling far short of expectations. (The hotel posted a $1.7 million loss its first year.) With the hotel unable to make any payments to the city, Myrtle Beach defaulted on the construction bonds, forcing city officials to increase the tax on hotel rooms and restaurant meals in order to make up the difference.

This created a domino effect as many of the local hotels and restaurants were forced to reduce their profit margins and take dramatic cost-cutting measures (including layoffs and, in some cases, closings) to offset the increased taxes.

“When the talk [about the problems plaguing convention centers] starts, I always hear, ‘It won’t happen here,’ ” says Sanders, “But they say that everywhere.”

Indeed, in the year before Myrtle Beach taxpayers were saddled with the burden of supporting an underachieving convention center and hotel, many city officials dismissed the negative trends that, just a few years later, became the focus of Sanders’ study. The city’s unique assets would insulate it from suffering a similar fate, they argued.

But the seaside tourist destination was far from alone in experiencing some disappointing—and costly—headaches upon venturing into the world of convention centers.

Since city officials in Raleigh, N.C., decided a year ago that a new, $190 million convention center with 150,000 square feet of exhibit space would cure the capital city’s woes (also on the recommendation of SAG), rising construction-material costs have increased the project’s budget by more than $23 million. With the first shovel not even in the ground, public officials have already agreed to spend the additional money and are now contemplating hikes in hotel-room and restaurant-meal taxes similar to those used in Myrtle Beach.

And the list goes on.

Recently built or expanded convention centers in major cities (and tourist destinations) including Baltimore, San Francisco, St. Louis and Portland, Ore., all have failed to approach the number of booked conventions proposed in their initial feasibility studies, while new facilities scheduled to open in Boston, Omaha, Neb., and various other cities across the nation have struggled to prebook enough events to fulfill expectations. Like gamblers who refuse to leave the table, many of these cities have found themselves locked in one expensive, risky convention-related investment after another as they try to make up for their earlier losses.

This has created a scenario in which the bar for judging convention-center success is set so low that even the facilities that operate at a loss, such as the Indianapolis Convention Center, are labeled a success as long as they don’t bring down the surrounding neighborhoods along with them.

Across the nation, the cycle has followed a similar course: New facilities are built when consultants report that the existing facilities are outdated, existing facilities are expanded when consultants determine that the current facilities are no longer adequate (the standard life cycle of a convention center is only 15 to 20 years) and massive hotels are constructed when neither of the two former plans generate the predicted financial windfalls.

“The greater the desperation, the greater the appeal of a quick-fix solutions,” says Sanders.

But while all convention centers tend to operate at a loss (SAG predicts that the Albany convention center will incur a $600,000 annual debt), supporters argue that it’s the economic benefits of having so many more diners, shoppers and hotel occupants in the city that make such a facility worthwhile.

“Consider the reduced dependency on unemployment and welfare, the taxes paid by employees that wouldn’t be working without this project, and the number of restaurant meals and taxes they generate,” says McEneny. “You can’t judge this project with tunnel vision.”

Still, muses Sanders, “if people don’t show up, none of that happens.”

Despite all of the evidence against such facilities’ chances for success, the reality may be that Albany’s taxpayers are going to get a convention center whether they want it or not—just like their neighbors around the nation.

“In the end, Hartford is stuck with the Connecticut Convention Center,” wrote Hartford Advocate columnist Meir Rinde in February 2005 as construction progressed on the Connecticut capital’s new $300 million convention center and hotel. “It is, perhaps, better than nothing.”

So what can Albany realistically expect from its own quest for convention success?

According to the SAG reports, the city’s primary competition will come from similarly sized convention facilities in cities like Hartford, which has a comparable population to Albany, and Providence, R.I.

Hartford’s Connecticut Convention Center, which opened in June 2005 and is slightly larger than the proposed Albany facility, enjoyed a moderately successful first year, booking around 200 events that brought in an estimated 250,000 visitors. While this might make the future seem a bit brighter for Albany, two facts merit attention: First, numerous studies have shown that convention-center attendance tends to drop off significantly once the novelty of a new facility wears off (the financial forecast for Baltimore’s newly expanded convention center, for example, dropped by more than $1.4 million within two years of its grand reopening). Second, any share of that 200-event pool that Albany is expected to dip into still falls far short of the 300 predicted by SAG as necessary for the project’s success.

Within the state, Albany’s convention center will compete for regional conventions against Buffalo, Rochester and Syracuse. (New York City’s Jacob Javits Convention Center is in a class all its own, offering nearly 800,000 square feet of exhibit space at the moment and possibly more in the near future.)

According to Michelle Vennard, director of the Albany County Visitors and Convention Bureau and another member of the convention-center board, the city is banking on a regional market to generate the bulk of Albany’s convention business. Vennard says the city has been unable to host many of the statewide unions, religious groups and professional organizations (such as teachers’ associations) that want to hold their conventions locally. The new facilities, she claims, will change all that.

“We have a location advantage that [competing cities] don’t enjoy,” says Vennard. “We have the Capitol, we’re centrally located and there’s easy access.”

And those factors, she hopes, will also trump the high cost of renting rooms in Albany County. Currently, Albany’s average daily room rate is slightly higher than all of the city’s intrastate competitors—a fact that could pose an economic problem for Albany when large groups are deciding where to hold their meetings. Even if a group chooses to bring its convention to Albany, if the members opt to stay at less expensive hotels outside of the city or decide to drive home instead of staying overnight, much of the anticipated revenue will disappear with them. In order to make up for convention centers’ annual operating expenses, cities must not only attract visitors, but also keep them local.

For Albany taxpayers, this condition is especially important when considering the nature of the city's relationship to the convention-center hotel. According to the plan proposed by SAG and supported by Jennings and other public officials, Albany's fortunes will, like Myrtle Beach's, be tied to the hotel's ability to keep rooms filled throughout the year. If the hotel fails to generate enough revenue to pay off its construction costs, Pataki's funding plan redirects state money that otherwise would be headed to the city into the hotel's bond payments instead. This state money, which serves as a form of reimbursement for city property occupied by tax-exempt state buildings, has become a significant part of Albany's annual budget process.

“Basically, we’re going to have to do a budget without knowing how much, if any, state money we’re going to receive each year,” says Albany Councilman Dominick Calsolaro (Ward 1).

The hotel funding plan, which allows the state to cut payments to the city “by any amount necessary” to make up for hotel revenue shortfalls, was necessary to reassure investors, according to McEneny. With hotels’ notoriously high failure rate, luring investors tends to be a hard sell, he explained, especially when repayment depends on their ability to turn a profit.

In 2003, when St. Louis’ new 1,081-room convention-center hotel only generated half the occupancy rates predicted by consultants in its first year, the facility’s operators were forced to lower room rates and take drastic measures to offset the shortfall—including the elimination of many of the hospitality jobs initially promised by the project’s supporters. Now, the going room rate at the four-star hotel hovers around $45—a condition that has forced many of the facility’s competitors to also reduce their rates, staff and profit margins in order to compete.

“Sure, these bonds were considered slightly shaky, but that’s because hotels are considered slightly shaky,” acknowledges McEneny. “But [this arrangement] just tells the bondholders, ‘Look, if the hotel can’t make it or they’re behind in their payments, this money can make it whole.’”

Jennings, however, has admitted no such uncertainty about the hotel’s prospects, having said in January that he expects the hotel to defy the odds and generate enough revenue to cover operating expenses. (Skeptics are quick to point out that Jennings might not be in office when payment on the bonds comes due.) Nevertheless, local lawmakers recently approached Pataki about limiting the amount of the state funding that can be cut if the hotel fails to meet expectations.

Still, Calsolaro says he’s worried about the potential for the convention center to become a weight on the shoulders of Albany’s taxpayers. After speaking with public officials in other cities around the nation, he says he is convinced that the likelihood of Albany reaping any significant benefit from the new convention center is slim. According to Calsolaro, the project is not only a taxpayer-funded gamble, but a supremely risky one at that.

“The governor is going to protect the investors in the convention center before he’s going to protect the local taxpayers,” says Calsolaro. “There’s a lot being promised here, but when it comes to seeing what’s behind those promises, the public isn’t getting enough information.”

While the facts may paint an ugly picture of Albany’s convention-center prospects, that doesn’t mean there aren’t any success stories in the convention industry. Although the major markets in Chicago, New Orleans and New York City have all struggled in recent years as the pool of conventions thinned, perennial convention destinations like Orlando and Las Vegas have continued to benefit from the convention business. Unfortunately, that’s just about where the list ends when it comes to convention centers that are both economic boons for the surrounding communities and financially self-sufficient.

So, barring the construction of a new theme park or casino, what can local residents hope to gain from a convention center? The answer might lie in what occurs before the center is built, not after.

In recent years, many communities that stood to be altered significantly by city-sponsored construction projects within their borders have opted to craft legally binding agreements regarding the benefits residents would receive as part of the project. A landmark December 2004 agreement between the city of Los Angeles and a coalition of community groups, for example, guaranteed that the expansion of the Los Angeles International Airport would also include jobs-related benefits for local residents, environmental mitigation and various other benefits for the municipalities surrounding the project. Similar community- benefit agreements have been included in major construction projects in cities like Seattle, Denver and New York City, where community groups pressed Columbia University to develop low-income housing in an area where the college planned to expand.

For such an agreement to take shape in Albany, however, it would need the support of the local convention-center board. Councilwoman Carolyn McLaughlin (Ward 2) and County Legislator Wanda Willingham (District 3) recently began holding public meetings to generate ideas—and support—for such a contract. In addition to drawing many members of the public, several board members have made their presence known at the meetings, leading some to believe that even if the convention center and hotel don’t live up to expectations, local residents might be able to ensure some positive effects from the project.

McEneny, who has already pledged to “push hard for this type of agreement,” says he would like to see more than just regulations regarding how much of the workforce is local. Requirements for reduced-cost use of the facilities by local groups, apprenticeships and other benefits are all part of the package he’d like to see. While other members of the board have been hesitant to express support for such an agreement this early in the proceedings, both McLaughlin and Willingham said they were encouraged by the presence of board members at the public meetings.

However, adds McEneny, this type of agreement needs to have enforcement built into its wording in order to hold developers and operators accountable.

Calsolaro agrees. “There’s a Walgreens outside of Rochester that was fined three times for not following their version of the community-benefits agreement,” he says. “Eventually, the town executive had to step in and stop the whole project until the developer met the rules in the agreement.”

“We need to make sure it can’t come to that here,” he adds.

While the creation of a new convention center and hotel in Albany is all but assured, the exact scope of the project has yet to be determined. While several appointees to the board have put their faith in the findings of SAG, others (including McEneny) have expressed a desire to reevaluate the possibilities and treat the consulting firm’s findings as part of the data instead of the final word.

This, according to Sanders, is at least a step in the right direction.

“I have very little expectation that it will go any way other than the way it’s headed,” he says. “I only hope that at some level, lawmakers in Albany are willing to understand the kind and scale of bet this is.”

rmarshall@metroland.net

 

 

 

 

 


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