Blueprint for a Blunder: Why Kansas City Should Quash Its Convention Hotel Plans

Kansas City wants another hotel for its convention center. Nobody wants to pay to get the project started, except … the city itself.

The last major project that was financed out of Kansas City’s general fund put the city on the hook for the financial shortfalls of the Power & Light District (P&LD). The damage there? Officials project the district will suck $10 million each year from the city’s budget from now until … 2033. Although the cost of the new project has yet to be finalized — the latest estimate puts the overall price tag at around $300 million — you can bet that the bottom-line cost to KC’s taxpayers, should the project actually happen, will be significant.

City officials say that they won’t let the P&LD fiscal disaster repeat itself — that this time, the city won’t borrow against its general fund to get the hotel started — but Kansas City has already dropped more than half a million dollars in consulting and property option fees pursuing the project. Clearly, the ball is rolling. The question is, when did it start rolling, and why?

The Pitch has the rundown of how the city embarked on yet another building odyssey downtown:

Let’s start at January 9, 2007. That was the day when a 62-page report encouraging the city to build a 1,000-room hotel was completed.

The study was produced by a Minnesota-based consulting outfit called Conventions, Sports & Leisure International. The consultants knew the city. They had contributed to a previous proposal that led to a renovation and an expansion of Bartle Hall — the hall’s second expansion in 15 years.
[…] Two nights later, 800 civic leaders enjoyed a banquet dinner and jazz at Bartle Hall to celebrate its recent $150 million makeover. The pooh-bahs had high hopes for that Bartle Hall update. In 2004, as the construction work was about to began, Rick Hughes, president and CEO of the Kansas City Convention & Visitors Association, had suggested to me that a new ballroom might double the city’s convention business.

The problem is that the expansion of Bartle Hall didn’t actually double KC’s number of conventions. According to the Pitch, Kansas City hosted 32 conventions in 2009 — which is basically the same number of conventions it hosted in 2004 and 2005. The project, judging it on this important metric, simply didn’t work.

Perhaps city officials were simply overly optimistic about the effect a Bartle Hall expansion would have on tourism. But that’s one of the recurring problems that Kansas City’s civic leaders have had these days: They invariably overstate and over-promise to get big-idea projects off the ground, but, in the end, can’t help but under-deliver because the economic bases of the projects aren’t really grounded in reality. If you listen closely, you can sometimes hear them admitting just that (emphasis added):

[President of the Kansas City Convention & Visitors Association Rick] Hughes told the City Council that insufficient hotel space was sending convention planners into the arms of other cities.

Then he dropped this doozy: “It’s really all about what we’re losing now, and just in recent studies, $4 billion in tentative bookings as well as some pretty enormous losses of existing customers.”

Really — 4 billion?

If Kansas City is “losing” $4 billion and action X is being advocated, you’d think that taking action X would net the city about $4 billion. Except … that’s not what it means at all.

Again from the Pitch (emphasis added):

I asked Carr about Hughes’ PowerPoint presentation indicating that Kansas City is “losing” 6.25 million room nights from 2004 to 2014. Carr says this number is based on sales leads that the visitors bureau receives. It reflects “potential” demand.

“We’re not saying, ‘Oh, gosh, we would have landed all these conventions,'” Carr says.

No, because that would be impossible.

Indeed. And yet, for some unknown reason, Kansas City’s political class is slow to learn from its hyperbolic mistakes, and is repeating them as it advocates for this new hotel.

From the Pitch (emphasis added):

One of [Hughes’] PowerPoint slides said Kansas City is “hemorrhaging” convention business.

Interesting word choice. It took me back to an interview I conducted with Hughes five years ago.

“We’ve been hemorrhaging conventions,” Hughes told me as we sat in his office in the fall of 2004.

Of course, back then, Kansas City was losing convention business for reasons other than the lack of a “convention headquarters” hotel.

Same advertising, different project.

The fact is, even if the hotel project weren’t being over-hyped, and even if it didn’t negatively affect the city’s general fund like the P&LD has, that doesn’t change one important economic fact: Taxpayer underwritten developments like the one proposed still ultimately hurt loyal, local businesses without growing the city’s aggregate wealth. It’s bad economics.

Fortunately, at least the president of the city’s steering committee for the project knows it, reports the Star (emphasis added):

[Bill] Lucas said this may [be] a good opportunity for the city to step back and take a fresh look at the hotel proposal. Right now, he’s concerned a new project would only divert business from existing hotels.

“I’m not convinced we can generate that kind of increase in demand,” he said. “We’d about have to double our convention bookings, and I think that’s difficult to do.”

So, to recap what we’ve learned, the convention center expansion was supposed to double the number of conventions the city booked every year, but failed to do it. The P&LD was supposed to revitalize downtown, but is instead draining $10 million a year from the city’s budget. A convention hotel is being proposed because, as Mayor Sly James put it, “To the extent every one of those people stay in the Loop and spend dollars there, it helps offset some of the problems in the Power & Light District and creates more jobs.” But to save the P&LD, the hotel needs the convention center to … double its convention bookings.

And around we go.

If a convention hotel were economically viable in Kansas City, agents in the free market would build it. The absence of a pending private-sector project pretty well indicates the real prospects for such a hotel, with or without taxpayer support. Kansas City isn’t in a fiscal position to take on a risk like this anyway.

Even if Kansas City were in a better fiscal position, though, it shouldn’t take this up. Pushing business around the metropolitan area — whether it’s a hotel or restaurant patrons — with publicly backed incentives is like shoveling sand in a sandbox: It doesn’t make the sandbox bigger or the sand more plentiful. It just raises the probability that, in the end, you’ll have less sand sitting in the box than when you started.

The city should save the taxpayers’ money, by firmly — and finally — declining to back the project financially. Just let the free market work, and if a convention hotel makes sense, somebody will build one to cater to the needs of Kansas City’s visitors.