David Stokes, Elias Tsapelas, and Avery Frank join Zach Lawhorn to discuss local ballot measures in Missouri, including new hotel taxes in Springfield and Jefferson City, municipal use and gas taxes, how the ongoing federal shutdown could jeopardize food stamp benefits for hundreds of thousands of Missourians and what the federal Rural Health Transformation Fund means for reform, and emerging ideas in energy policy such as consumer regulated electricity and the debate over data center development in Missouri.

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Timestamps

00:00 Election Season Insights
04:57 Convention Center Controversies
09:09 Understanding Use Taxes
13:32 State Budget and SNAP Challenges
16:12 Rural Health Transformation Fund
21:59 Energy Prices and Consumer Regulation
27:21 Data Centers: Economic Growth vs. Local Concerns

Produced by Show-Me Opportunity

The post Election Day Preview, SNAP Shortfalls, and Missouri’s Data Center Debate | Roundtable appeared first on Show-Me Institute.

On November 4, Jefferson City voters will decide on a proposal to renew the city’s seven percent hotel tax. The proceeds from the tax will help fund a new conference center for the city. Supporters of the new conference center have claimed it will create 370 new jobs and generate over $100 million in economic growth. Exaggerated estimates such as this one have been made on behalf of convention and conference center projects all around the country for decades, and the historic evidence is clear that Jefferson City voters should be dubious of such claims.

Between now and November, Jefferson City residents who visit St. Louis should drive by the largely empty dome attached to St. Louis’s downtown conference center to see how these conference center promises often play out. That dome was a part of a large convention center expansion in the 1990s. The same promises of growth, revenue, and utopia were all made when St. Louis voters approved a hotel tax increase back then. Now the dome is mostly empty, and the regional body that manages it is struggling to pay for its upkeep. You can also visit the site of the taxpayer-subsidized convention center hotel that went along with the project. You can only visit the site of the hotel, not the hotel itself, because the hotel failed and was foreclosed on long ago.

Like a Cold War general in a Kubrick movie or a carpenter with a box full of nails, local tourism agencies have the same solution for every problem. Economic recession? Expand the convention center. Economic growth? Enlarge the convention center. Global nuclear war? Definitely gonna need a bigger convention center to commiserate in.

The renewed hotel tax isn’t the only public money being used as part of this plan. State tax dollars are being pursued in the legislature, and the conference center may receive local tax subsidies.

Supporters of the conference center plan in Jefferson City would likely say their plan is not as grandiose as a major convention center and dome project in St. Louis, and they are correct in that regard. However, there are plenty of examples of more comparable projects that have failed to reach the level of activity anywhere near was promised. Haywood Sanders is a researcher and writer with the University of Texas–San Antonio who has studied convention center expansions for decades. He has documented how cities and tourism agencies systematically inflate projections to get these projects approved. Sanders has cited the actual and underwhelming numbers of very comparable projects in Overland Park, Kansas, and St. Charles, Missouri. Overland Park opened its convention center and hotel in 2002. Project supporters had projected $36 million in annual hotel revenue by 2012, but the reality was much lower, coming in at under $20 million.

Sanders explains that the convention and conference-center industry peaked in the early 2000s and shows no signs of returning to the success it had back then. With a major convention area nearby in Lake of the Ozarks, a new center in Jefferson City will face intense competition for these limited conference opportunities.

Taxpayers should not be on the hook for conference centers whose overstated benefits, small as they will be, will largely go to private entities. Jefferson City is the capital of the Show-Me State, and the claims being made by convention-center supporters should be met with a healthy dose of skepticism by voters.

The post Jefferson City Residents Should Be Skeptical of Conference Center Project appeared first on Show-Me Institute.

On November 4, Springfield voters will decide on a proposal to increase the city’s hotel tax by three percent. The proceeds from the new tax will help fund a new convention center for the city. A recent report paid for by the Visit Springfield tourism bureau said exactly what Visit Springfield wanted it to say: that a new convention center will generate enormous revenue for the Springfield area. The report claims a new convention center will drive $1.3 billion in new spending over the next 30 years. Exaggerated estimates like this one have been made on behalf of convention centers all around the country for decades, and the historic evidence is clear that Springfield voters should be dubious of such claims.

Between now and November, Springfield residents who visit St. Louis should drive by the largely empty dome attached to St. Louis’s downtown convention center to see how these convention center promises often play out. That dome was a part of a large convention center expansion in the 1990s. The same promises of growth, revenue, and utopia were all made when St. Louis voters approved a similar hotel tax increase back then. Now the dome is mostly empty, and the regional body that manages it is struggling to pay for its upkeep. St. Louis’s local tourism agency thinks the solution is the same thing it always is: further expansion of the convention center. Like a Cold War general in a Kubrick movie or a carpenter with a box full of nails, tourism agencies have the same solution for every problem. Economic recession? Expand the convention center. Economic growth? Enlarge the convention center. Global nuclear war? Definitely gonna need a bigger convention center to commiserate in.

The increased hotel tax isn’t the only public money being used as part of this plan. Other local sales taxes are slated to be used for funding, and state tax dollars are being considered. Tourists, Springfield residents, and possibly all of Missouri will get to pay for this new event space, whether it is actually needed or not.

Haywood Sanders is a researcher and writer with the University of Texas–San Antonio who has studied convention center expansions for decades. He has documented how cities and tourism agencies systematically inflate projections to get these projects approved. Sanders has reviewed the Springfield convention report and noted in an interview with a Springfield News-Leader reporter earlier this year that the report didn’t state how it calculated its room occupancy estimates and ignored underwhelming numbers of comparable convention centers in Overland Park, Kansas, and St. Charles, Missouri. Sanders states that the convention-center industry peaked in the early 2000s and shows no signs of returning to the success it enjoyed back then. With two major convention areas so close by in Branson and Lake of the Ozarks, a new center in Springfield will face intense competition. But I have no doubt that local Springfield convention-center boosters will ignore reality in their quest for tax revenue and city spending.

Visit Springfield wanted a report that claims a convention center will be an economic boon for the city. They got it. As Springfield residents prepare to decide on the hotel tax increase proposal, they should study the work of Heywood Sanders and others to learn about how these claims have been made about many other convention centers in many other cities, and how they usually fail. Springfield voters can also go to St. Louis to see the failures of these promises with their own eyes. Taxpayers should not be on the hook for convention centers whose overstated benefits, such as they are, will largely go to private entities. This is the Show-Me State, and the claims being made by supporters of the convention center for Springfield should be met with a healthy dose of skepticism by voters.

The post Springfield Voters Should Be Skeptical About Convention Center Claims appeared first on Show-Me Institute.

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According to the Springfield Convention and Visitors Bureau, a study conducted by Hunden Strategic Partners “included a comprehensive market analysis that determined a convention center could support its operations and attract successful meetings and conventions if executed properly.” A press release about the study added the following good news:

The Springfield travel and tourism industry has experienced steady growth with more than five years of record overnight visitors, topping out at more than 1.38 million in 2018. However, the city’s convention market has been flat in recent years due to growing competition from cities offering newer convention facilities that are more appealing than what Springfield has available.

“We are not seeing growth in the convention business because we simply do not have competitive facilities,” said Tracy Kimberlin, president of the Springfield Convention and Visitors Bureau.

The Hunden study claims that over 20 years the convention center would generate $1.11 billion in revenue (page 129) and create 800 new full-time jobs over 10 years (page 131). What a great opportunity for private investors!

Except that somehow, it isn’t. The project apparently cannot happen without significant taxpayer investment—which is to say, free money from the government. Pages 122, 123 and 134 detail the need to increase and redirect existing taxes and levy new taxes through a CID (Community Improvement District) and maybe even through tax-increment financing or Chapter 100 bonds (page 122). As an aside, the Hunden report offers, “It will be very difficult to declare an area ‘Blighted’ that recently received a $300 million investment.” Alas, if only that were true.

This potential return on investment for a convention center in Springfield is either a good investment opportunity or not. We find out which when private developers put together a prospectus and share it with private investors who will decide for themselves whether to invest their own money. If developers cannot raise enough private capital, then the project is probably a bad idea.

Asking taxpayers to subsidize the project—exactly because developers cannot raise enough private capital—is admitting that they want public funds to support a bad idea. The proposal ought to be rejected on its face.

If you are interested in learning more about the dubious marketing claims of the convention hotel industry, you can watch this 2015 presentation by University of Texas at San Antonio professor Heywood Sanders, who wrote the book on convention centers in the United States.

The post Springfield’s Convention Dream appeared first on Show-Me Institute.

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Success? How does Mr. Burt define success? According to his LinkedIn account, Burt was the vice president of Sales and Services at the Baltimore Area Convention and Visitors Association from March 2005 through December 2008. During that period, Baltimore taxpayers subsidized a new Hilton Hotel to the tune of $300 million. It opened in August 2008. Attendance at conventions in Baltimore has remained flat, and according to The Baltimore Sun, the convention center lost over $5 million in 2014 and again in 2015. The President of the City Council suggested selling the hotel, saying, “The hotel has been a drain on the city since it opened. We floated $300 million in bonds for it, and since it opened, we’ve been constantly losing money.”

Would Kansas Citians consider that a success?

From January 2009 through August 2010, Burt joined the Indianapolis Convention and Visitors Association as the senior vice president of sales and services! Indianapolis also expanded their convention center during that time. According to the Indianapolis Business Journal, the project has failed to meet expectations.

Attendance for state and national conventions in 2009, before the construction was in full swing, was 459,944. Attendance in those two categories in 2012 was 483,164, a slight increase from three years earlier—before the expansion.

Is that success?

From August 2010 through June 2014, Burt was vice president of sales and services for Destination DC, the “the official destination marketing organization for the nation’s capital.” DC was also in the process of building a hotel: the 1,200 room Marriott Marquis adjacent to the Washington Convention Center. It opened in April, 2014 and convention-related hotel room nights in 2014, 2015 and 2016 are all lower than the peak of 512,000 in 2011—before the hotel opened.

More success?

People who crisscross the country spending taxpayer dollars may think that every new construction is a success. But that is not the case for the taxpayers and city councils left holding the bill for underperforming hotels and convention centers. Kansas City’s own past is littered with unfulfilled convention promises, yet each one was supposedly a success. Taxpayers have every right to wonder how much more of this kind of success they can afford.

The post A New Convention Hotel Is Not Necessarily a Success appeared first on Show-Me Institute.

Let’s start with some uncontroversial data.

• The hospitality industry constitutes a small fraction of the Saint Louis economy. Less than 4% of the city’s payroll comes from the hotel and restaurant industry.
• Nearly all convention business in Saint Louis could be accommodated by existing hotel and event space. In 2015, only 9 conventions had more than 10,000 attendees. In 2016 that figure rose, modestly, to 11. For 2017, Saint Louis is currently slated to host only 10 events with 10,000 or more guests.
• The Saint Louis Visitors Commission, which runs the convention center, loses some $16 million a year.

Now let’s review convention center history.

• The Saint Louis convention center opened in 1977, underwent a $150 million expansion in the late 1980s, and was flanked by the $280 million Edward Jones Dome in 1995. The expansion and dome were promised to boost hotel “room nights”—a measure used to assess convention center success—to more than 800,000 annually. But in 1999, convention business generated barely over 200,000 room nights. In 2014, annual room nights were just over 425,000.
• Nationally, nearly every convention center expansion or renovation has dramatically underperformed. Washington D.C.’s convention center saw roughly 36% of the room nights that were projected when renovation was undertaken. Austin’s saw 47%; and Portland’s saw 44%.
• While the America’s Center and dome were supposed to be profitable ventures for the city over the long term, the public still owes some $100 million on them, and won’t pay off that debt for at least 5 or so more years.  

In short, empirical evidence suggests that the financial prospects for a major overhaul of the convention center are bleak. Perhaps that’s why no private developers are interested in funding the project. But if the private market indicates that the investment isn’t worthwhile, should taxpayers be saddled with the risk?

Convention-center boosters will object, insisting that a renovation will help the local economy, especially because a high percentage of convention spending comes from out-of-towners. This objection misses the mark in several ways. For one, demand for convention center space has remained flat over the last few decades. Is investing hundreds of millions of public dollars in a buyer’s market the best way to get windfall returns? Secondly, the tax revenue that would pay for a renovation could be used in myriad other ways that would have a much greater impact on the economy, regardless of whether that revenue came from outsiders. If we’re really interested in economic growth, why not spend the money on meaningful infrastructure or use it to provide tax relief to city residents and businesses?

The driving force behind massively expensive convention center renovations—much like sports stadiums, light rail expansions, and other “transformative projects”—appears to be a desire to rebuild the downtown core. But like most transformative projects dangled in front of taxpayers, the prospects for success are low and the costs dispersed; a small and well-connected few are given a sweetheart deal while taxpayers are left on the hook.

For what it’s worth, the economist Heywood Sanders, in his 2014 book, Convention Center Follies, devotes an entire 78-page chapter to the failures of Saint Louis’s convention center. Perhaps that, if anything, is an indication that we should be skeptical of proposals to reinvent the convention center with taxpayer dollars.

The post Convention Center Renovations: Picking Winners and Losers with Taxpayers’ Money appeared first on Show-Me Institute.

An important and rarely addressed point is that a city does not need to have a giant, publicly funded convention center with a dome in order to hold conventions. In fact, many (if not most) conventions are held at private hotels. For instance, the Chase Park Plaza Hotel (located in Saint Louis’s Central West End neighborhood) has rooms that can host conventions and conferences. Some of its spaces can handle up to 2,500 people. Other hotels in the area offer to host conferences and small conventions as well.

For very large groups (with tens of thousands of visitors), a space like the America’s Center is necessary. The only problem is that Saint Louis does not attract many of those events, despite abundant available space. For instance, in 2014 the Saint Louis Convention and Visitors Commission (CVC) hosted 393 events for a total of 425,411 room nights. However, only 14 of those events had more than 2,000 attendees, meaning that about 96% of all events held by the CVC in 2014 could have fit comfortably in hotel spaces. Those small events also account for most of the room nights and attendees that supposedly prop up the downtown economy. Of course, if the Saint Louis government wasn't able and willing to rent extensive convention space at unprofitable rates, groups of various sizes might well be discouraged from holding their events in the city. But on the other hand, without its convention center spending, St. Louis City could afford to cut its hotel taxes in half, remove part of its restaurant tax, and retire much of its civic debt.

The bottom line is that while it is easy to claim that conventions contribute to the local economy (although not as much as supporters might have us believe), that’s not the same thing as saying that publicly funding a massive convention center designed to handle tens of thousands of visitors (and a dome that can seat many more) is of significant benefit to the local economy. And that is even further from proving that the next big upgrade will finally draw the big conventions that are currently bypassing Saint Louis.

The post The Saint Louis Convention Center: How Critical is it? appeared first on Show-Me Institute.

• Jobs and the minimum wage
• Public employee union reform
• Interdistrict school transfers in Saint Louis
• Kansas City's convention center
• Legal obstacles to pension reform for Missouri's public employees
• Mark Twain, taxes, and growth

Newsletter June 2015.pdf

The post July 2015 Newsletter appeared first on Show-Me Institute.

But now that future might not include the Dome. It seems that some members of the CVC think  the Dome is more of a liability than an asset, and demolishing it may be the best option moving forward.

Readers of this blog will not be surprised at the sudden reversal in attitude toward the now-empty Dome. Just last week, we noted:

In 2015, only nine conventions had more than 10,000 participants (accounting for 80,000 room nights). The CVC often blames the NFL schedule for holding down the number of conventions the city can compete for, but in the six months when no games were held at the Dome, nine large conventions was a far cry from busy.

Some members of the CVC are apparently coming around to our position on the ability of Dome to attract many new conventions. They point out that the Dome is outdated compared to new competition from other regional convention centers in Denver and Nashville. The most poignant criticism was from the president of the CVC, who the Post-Dispatch reports as saying, “The Dome itself is too high—it feels like a stadium, not convention space.”

The idea of demolishing part or the entire Dome may prove politically or financially unfeasible. However, it’s becoming clear that the Dome is not much better at attracting large conventions that it has been at attracting Stan Kroenke. Twenty years after that stadium opened as a stadium/convention center, it is functionally obsolete for both purposes.

When Dome advocates pushed for state funding more than 20 years ago, they told the state legislature that we couldn’t afford not to build the stadium. Now, it seems like we really could have. 

The post Jones Dome Headed for Demolition? appeared first on Show-Me Institute.

A new soccer stadium could cost anywhere from $40 million to more than $300 million, depending on the design. One might hope the lower price tag, especially compared with the NFL and other major sports leagues, would prompt MLS owners to pay for these stadiums without public support. Unfortunately, that has not been the case. Only two MLS stadiums, the Stubhub Center in Los Angeles and the Columbus Crew Stadium in Columbus, Ohio, were built without any public support in the last fifteen years. And for anyone who hoped that a new Saint Louis team could play in the now-vacant Edward Jones Dome, no dice. Soccer-only stadiums are in vogue, and an MLS team has not located to a stadium not built specifically for soccer since 2002.

As with other pro sports ventures, many hope that increased tax revenue will justify public subsidies for an MLS team. But there is no good evidence for that. In fact, there is the counter-example of Toyota Park (IL), the home of the Chicago Fire, which is quickly bankrupting the small suburb of Bridgeview.

While professional soccer would be a welcome addition to Saint Louis, there is no reason residents should have to pay for a stadium with tax revenue, especially in light of the big asks the city is already getting for the Scottrade Center and the Convention Center.  Let’s leave the construction of soccer stadiums to league owners and soccer fans. 

The post MLS Stadiums Dig Deep Into Public Coffers appeared first on Show-Me Institute.

Civic leaders claim conventions support tens of thousands of jobs and bring more than a billion dollars into the local economy. Therefore, if the city can spend another $200 million to upgrade the convention center and renovate the Dome, the region might see an even greater benefit. Unfortunately, the Dome and the Convention Center are underperforming, and the businesses conventions they support are not even close to being the main breadwinners in Saint Louis’s economy.

The city upgraded the convention center in the 1990s, adding the Edward Jones Dome and funding the completion of the Renaissance Center. The convention center itself does not directly make any money, but the argument is (and was) that it brings in tourists who spend money (mainly at hotels), which translates into a tax benefit for the city. When the Dome was built, city leaders expected “hotel nights” from conventions would rise to 800,000 annually. But it didn’t happen. Saint Louis convention business growth has been low ever since. 

Even in 2014, total convention-related hotel nights remained at 425,411. Worse yet, about 60% of those hotel nights are accounted for by convention groups with fewer than 2,000 participants, who certainly don’t require a venue as large as the 60,000+ seat Dome. In 2015, only nine conventions had more than 10,000 participants (accounting for 80,000 room nights). The CVC often blames the NFL schedule for holding down the number of conventions the city can compete for, but in the six months when no games were held at the Dome, nine large conventions was a far cry from busy.

What of the convention center’s huge impact on the Saint Louis economy? City leaders can throw numbers around all day, but according to the Census, less than 1 percent of Saint Louis City’s business payroll came from the hotel industry in recent years. That’s less than a third of the city’s total law-firm payroll. Even if we combine all the restaurants, all the entertainment venues, and all the hotels in the city (many of which are mainly supported through non-convention business), we’re talking about 7 percent of the city’s payroll. That’s less than city’s manufacturing payroll and about half the city’s healthcare industry payroll. 

Despite these realities, the city is not $400 million in debt for infrastructure improvements to lure manufacturing companies. It is not planning to spend more than $200 million on hospitals or legal offices. How has it come to be that the city’s focus (both financially and politically) has become so tied up in entertainment and tourism when that is clearly not the city’s competitive advantage?

The post Conventions, Saint Louis, and the Future of the Edward Jones Dome appeared first on Show-Me Institute.

According to the Saint Louis Convention and Visitors Commission (CVC), the Scottrade Center, the America Center, and the Edward Jones Dome are in need of expensive renovations. The suggestion is that the Scottrade Center requires $100 million in upgrades, the America Center needs $120 million to remain competitive, and as for Dome, the head of CVC didn’t even have estimate. If the Post-Dispatch is to be believed, the Dome will need $64 million just to maintain its current condition. The price tag for any major changes is likely to be much higher. Altogether, the cost of renovations to just these three facilities would come to more than $280 million.

So who will pay for these renovations? With the convention center and dome, it will almost certainly come from the public, and probably from Saint Louis City. The Scottrade Center was mainly a privately funded enterprise, but there is no guarantee that renovations would be handled in the same manner.

If the city is forced to shoulder the burden of these upgrades, it could be backbreaking. The city’s outstanding debt on the convention center, dome, and Scottrade Center is about $420 million already, requiring more than $20 million in annual debt service. The city also spends an additional $5.7 million on conventions and tourism, most of which goes to convention center operations. These costs far outstrip the total revenue of the city’s hotel and restaurant taxes ($13.5 million in 2014), which were set up to support the convention center.  If the city were to take on the debt necessary to fund the renovations above, its yearly convention/stadium spending would increase to about $46 million per year. For comparison, in 2014 the city spent $49 million on health and welfare and $70 million on streets. 

Spending hundreds of millions of public dollars and tying up the city in debt for decades to compete in the increasingly cutthroat convention center arms race is questionable policy. But what should be galling to city residents is the fact that, whatever had happened with the Rams, these upgrades would still be thought necessary. They would still cost hundreds of millions of dollars and still be public liabilities. If the Rams had been forced to remain in Saint Louis, city residents would have been committed to spending $150 million on a new stadium, only to be told that the city’s old stadiums needed $300 million themselves.

Sound policy would be to make sure we can afford what we have before we try to build something new. Regional leadership is taking the opposite approach. 

The post With Riverfront Stadium Dead, City Leaders Back Other Expensive Projects appeared first on Show-Me Institute.

First, from the Evangelical Free Church of America:

Greetings,

I have recently become aware that there are discussions about changing the Kansas City open catering policy at the convention center.  As an event planner, I want to express my concern over this potential change.

In 2014, I brought a week-long event to Kansas City for 5,500 students. This event utilized over 8,000 hotel rooms, over $740,000 in catering to the convention center and various other economic impacts. Having an option to select from a list of caterers was the tipping point for choosing KC. In fact, we had such a good experience, we have already signed to return to KC for the same event in 2018.

We would love to make KC our home for this event every 4 years. However, if the open catering policy changes, we will definitely have to revisit our plans. This is a unique feature that makes KC different in a sea of convention centers across the country.

I am asking that you please work to keep your open catering policy.

Should you have any questions or wish to speak with  me further, please contact me using the information listed below.

Blessings,

Laurie Seay

Event Director

EFCA

Second, from Educational Testing Service:

Dear Council Members,

ETS and The College Board have found Kansas City to be a wonderful location for our Advanced Placement Readings since 2008.  One of the things we like best is the open catering policy at the Convention Center.  The opportunity to competitively bid catering services has been not only financially favorable, it has allowed us to ensure that the quality of food and beverage and related services meets our standards.  In 2015, our catering spend was just short of $2.3M to a combination of three KC local caterers, so you can see that the impact of not being able to competitively bid out this work could be considerable.

ETS is very concerned about the potential for allowing the proposed new hotel to have exclusivity for catering in the Grand Ballroom and Convention Meeting Space.  We hope that you will consider the fact that such exclusivity is described in a non-binding portion of the signed Memorandum of Understanding, and we urge you to consider not moving forward with a binding agreement.

Thanks for your consideration.

Patric Close Mills

Educational Testing Service

And finally, from The Menonite Church USA:

City Council of Kansas City

I’m writing to you representing an organization that recently held it’s national convention at the Kansas City Convention Center. We had a great experience. The convention center staff (including Matt Cunningham and Walter Moore and Steve Lesher) were great to amazing with. The CVB staff (including Juanita Crowder and Esther Walker-Young and Kim Dooley) were phenomenal to work with. Our participants spoke very highly of everyone they came in contact with during our event (vendors, hotel staff, restaurant staff, security guards, etc.). All this is to say that Kansas City has a good thing going!

The main reason I am writing today is to voice concern about the potential change to the open catering policy at the convention center. As someone that has planned large conventions for over 18 years, I can tell you that very few convention centers have open catering policies. I can also tell you that having an open catering policy was one of the selling points of bringing our convention to Kansas City. Having the opportunity to look at multiple caterers and have them bid on our business helped us control our costs. We were able to provide our convention participants with good meals at decent prices. As a non-profit organization, it is hard to go into a convention center with one catering option and have any bargaining power. Your open catering policy allowed us to ensure that we got competitive pricing. I would encourage you to keep the open catering policy as is.

Please do not hesitate to contact me if you have any questions. I would be more than happy to share more of my views on this issue.

Have a great day.

Scott Hartman

Convention Planning Coordinator

Mennonite Church USA

These are legitimate concerns. Kansas City taxpayers have every reason to suspect the wisdom of the deal, and members of the City Council should proceed cautiously before investing public funds in a deal that risks so much.

The post The Convention Hotel Deal May Cost Kansas City Conventions appeared first on Show-Me Institute.

City Manager Troy Schulte says the city learned lessons from that deal; the new project makes none of those same errors. Perhaps. But the City might be making a whole new round of mistakes. 

The St. Louis convention hotel project of the early 2000s was so bad that is changed the way Wall Street investors look at convention hotel investments. In a piece to The Kansas City Star, convention hotel expert Heywood Sanders put it thusly:

With an expanded convention center and domed stadium, consultants told St. Louis city officials they needed a big, new hotel. The 1,081-room Renaissance Grand Hotel and Suites was supposed to be filled by a wave of new convention attendees as the number of major conventions grew from 33 to 56, almost doubling the city’s convention business. But by 2008, the city garnered only 24 major conventions and fewer hotel room nights than in 1999 and 2000—before the Renaissance hotel opened. Without new convention attendees, the hotel couldn’t pay its annual debt service and the bondholders foreclosed in 2009. They finally were able to sell the hotel, at a serious loss, in May 2014.

Regarding that sale, The St. Louis Post-Dispatch reports that the new owners will invest millions in renovation and re-open them. The piece offered this observation:

“We had a shuttered building next to our convention center, and it will be alive with activity,” said David Richardson, a lawyer with law firm Husch Blackwell who advises the city on development issues.

This underscores the risk to Kansas City; will we build a huge hotel just to have it shuttered? It isn't just an idle thought experiment; we've been here before. After all, the last time Kansas City built a convention hotel—The Vista in 1985—the owners were considering bankruptcy within 18 months. A decade later, the city subsidized the Muehlebach hotel and took a loss because business was so soft. Why are these things unthinkable now? Hotel occupancy rates in downtown Kansas City have been averaging at an abysmal 50% to 55%, yet hotel proponents predict the new hotel will have a much better 68% occupancy. Are those reasonable expectations? We don't know—the reports don't explain how they reach those conclusions. But betting on them to be correct is certainly risky.

These same consultants have predicted that Kansas City convention business would almost double if we just built a hotel. Just build it and people will come, apparently. But the consultants again fail to explain how they reach these conclusions. As a result, we don't know if the predictions are reasonable.

The city may have learned its lesson from the awful plan to build the Power and Light District, but we cannot know what lessons we may have yet to learn. What is clear, however, is that projections of wild business growth seem unreasonable, and that should be enough of an alarm to those elected to protect city resources.

The post The Risks to the City of the Convention Hotel Gamble appeared first on Show-Me Institute.

The two most important arguments in the debate over whether Kansas City taxpayers should subsidize a private convention hotel are made by the proponents:

• First, they argue that it does not make business sense to build a hotel of this size in downtown Kansas City right now. Consequently, they need taxpayers to invest first, and they need taxpayers to invest to the point that it does make sense. (This is the argument with every TIF project, by the way.) The difference here is scale: the project requires the public to subsidize half the cost.
• Second, they claim that demand will increase simply by increasing hotel room supply. The proponents are not doing anything else, such as increasing the visitor and tourism budget so that they can dedicate more resources to attracting conventions. They're just building a hotel. That's all.

But Kansas City doesn't need more hotel rooms; we're already oversupplied. According to the same consultants hired by the developers for this project, the occupancy rates (the number of rooms sold divided by the number of rooms available) at existing downtown hotels is a paltry 50% to 55%. That means we're only selling half the rooms we have. According to the chart above, taken from an HVS report from 2015, hotel room supply has outpaced hotel room demand in all of Kansas City for years. 

Exactly how increasing room supply (represented by the red bars on the chart) by building a new hotel will increase demand (the yellow bars) or the occupancy rate (the red line), is unclear. But taxpayers are being asked to invest $165,000,000 on that very proposition.

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Prior to releasing the 2013 report, the City sent me a 2010 HVS slideshow presentation on yet another proposed convention hotel deal, A copy of that document is available below. HVS considered the convention business that Kansas City bid on but lost from 2006 through 2009 (page 2). Based on the lost conventions it considered "winnable," HVS claimed that Kansas City would have gotten an additional 15 citywide conventions and just over 98,000 room nights if we had built a convention center hotel back then (page 3). 

According to VisitKC, Kansas City's convention and visitor's bureau, the city hosted 19 citywide conventions in 2014, 15 in 2013, 21 in 2012, 17 in 2011, and 20 in 2010. Is it reasonable that a city that hosts between 15 and 20 citywide conventions annually will jump to hosting 35 per year solely by building a new hotel? That's roughly a 100% increase. Furthermore, is it reasonable to conclude that the convention hotel will have a 68% occupancy rate without negatively impacting the existing hotels?

Convention hotel consultants have been notoriously wrong about the Kansas City market. No wonder the developer doesn't want to share the data. Let's hope that the current City Council demands a complete accounting before moving forward with taxpayer funds.

HVS Presentation – Economic Impacts – Kansas City 5-18-10.ppt

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