The pair also expressed concern that the revenue generated from the catering rights arrangement wouldn’t meet the city’s projection of $30 million a year. Even if lack of competition increases prices, Shalit said, the two areas may generate only $17 million in revenue. The Business Journal reported that if gross revenue generated from the catering rights agreement is insufficient to make the scheduled fee payment, the city will have to pay the shortfall from “any legally available” city funds.

This matches other reporting which claims that Kansas City would have to almost double their convention business in order to make the proposed convention hotel work financially.

Right now, caterers pay a fee of 18 percent of their revenue to Bartle Hall for the right to be able to work at the convention center. That amounts to $2.2 million a year and is used to pay off Bartle Hall’s bonds, plus maintenance, operations, and the like.

In the proposed deal being considered by city leaders, Kansas City has guaranteed payments to Hyatt of just over $62 million for 15 years, or about $4.1 million a year. Here’s how that would work: The Hyatt will still pay a catering fee of about 18 percent to Bartle Hall. Bartle Hall will keep 4 percent to service their bonds and provide maintenance, etc., and return 14 percent to the Hyatt to cover the city’s 15-year, $62 million catering commitment.

In order for the project to generate the $4.1 million, Hyatt would have to conduct $30 million in catering each year. (Fourteen percent of $30 million is $4.1 million.) In any year that Hyatt does not reach $30 million in catering, the city would have to make up the difference. Currently, the catering business for Bartle Hall is about $12-15 million each year. If it were to remain at that level, under the new agreement the city would be paying Hyatt $2 million a year to make up the difference, as 14 percent of $15 million is $2.1 million—$2 million under the $4.1 million commitment.

The city’s argument that a convention hotel and catering agreement won’t drain the general fund assumes that catering business will double. If it doesn’t double, the general fund will have to support not only the catering agreement with Hyatt, but probably Bartle Hall, as it’s unlikely that their portion of the catering fee is sufficient to service bonds and maintain the property. (The agreement with Hyatt also states, “City will maintain the existing Convention Center to its current standards.”)

No one is promising that building a new 800-room hotel will double business, either in room nights or catering. They would be laughed out of the room if they did. (The deal might actually cost Kansas City business.) But all the financing models make the assumption that business will double. Taxpayers and city leaders have to decide if that is a reasonable gamble.

The post How the Convention Hotel Could Drain the General Fund appeared first on Show-Me Institute.

Consultant suggests convention-center expansion. Expansion disappoints. Consultant suggests 1,000-room hotel. No one questions consultant about previous suggestion. Instead, city officials gleefully accept hotel recommendation and hire the consultant to conduct further study.

The above was taken from a Pitch piece in May 2010, and it is certainly as true today as it was then. Actually, it explains Kansas City’s long 46-year dance of expanding convention space and increasing hotel rooms. Consider the following timeline:

•  1969: A number of bonds were put before voters, among them a $23 million bond for a new exhibit hall. A front-page Kansas City Star editorial claimed (12/15/69), “The prime consideration at the polls tomorrow is whether Kansas City is to grow or retrench in the 1970s.” All the bonds failed to get the required supermajority.

•  1971: Undaunted, the City Council developed a plan to fund a convention center through bonds in a way that avoided the two-thirds approval necessary in 1969. The Star again endorsed the plan, editorializing (12/16/73), “Tuesday can be a great turning point for Kansas City.” The bonds were approved, and the Bartle Hall Convention Center was completed in 1976.

•  1986-89: Consultants told city leaders that in order to support the convention center Kansas City needed a new hotel. The Vista International Hotel opened in 1985, but it quickly ran into trouble. According to The Pitch:

Called the “Miracle on 12th Street,” the 22-story hotel was expected to revive the city’s dying center. But within 18 months, its owners were contemplating bankruptcy. The building was damned ugly, too. Donald Hoffman, the Star‘s architecture critic, called the hotel “a public embarrassment” when it opened.

•  The hotel changed management in 1987, and Marriott bought it in 1988.

•  1990: Again wanting to capture more convention business, a campaign launched to increase taxes to expand Bartle Hall. A column in the Star by H. Marshall Chatfield, the then-chairman of the Chamber of Commerce urged a Yes vote and fretted (1/31/90),

[W]ithout an expanded Bartle Hall, we will be able to accommodate fewer shows—and we will lose dollars we could have gained.

    Yael Abouhalkah went one step further in the Star (2/4/1990),

Nothing in this world is 100 percent guaranteed. But the Bartle expansion would create a strong possibility that more development will occur downtown.

    The voters approved new taxes for the expansion. The Star reported (2/7/1990) that not only was the city eager to expand Bartle Hall but,

[Developer Whitney] Kerr and H. Ross Perot Jr. pledged to build a trade center office tower if the city expanded Bartle. “We’ll keep pressing Ross on the trade center,” [Mayor Richard L.] Berkley said. “I’m confident it will be built.”

    The trade center was never built.

•  1994: The expanded Bartle Hall opened to much fanfare. At a gala event, Carl Hubbell, then-board chairman of the Convention and Visitors Bureau and president of a convention services contracting company, told the Star (undated Star souvenir insert),

This means an opportunity for Kansas City to get back into the national picture as a premier destination city. This is a major step to get us back to where we were in the mid-70s when Bartle first opened. We’re 80 percent there. More hotel rooms will take care of the other 20 percent.

•  1992-1998: Kansas City used Tax Increment Financing to tear down Muehlebach Towers and renovate the Muehlebach Hotel. Marriott reopened the Muehlebach in 1998, but according to The Pitch, “The transaction has cost taxpayers millions because demand for the hotel rooms has fallen short of expectations.”

•  2002: Fearing that the city needed more convention space to attract conventions, leaders decided to expand Bartle Hall with the Grand Ballroom. Voters were urged to support new spending and were again told that without a Yes vote the city would continue to lose convention business, just like 1990. Back to The Pitch:

“This is going to be the economic engine,” said Chuck Eddy, then a city councilman, dreaming of the possibilities in 2004. . . . Former Mayor Kay Barnes took a hammer to a wall, celebrating Bartle’s second expansion in 15 years.

•  2015: Kansas City leaders say the city is losing convention business because it doesn’t have enough hotel rooms. And we’re off to the races again . . .

The desire to subsidize more development never abates; developers’ hunger for public funds is never satiated. Each new project costs taxpayers millions that could go to basic services such as police and infrastructure, libraries and schools, but instead the money funds dreams that never seem to deliver on their promises.

The post A History of Kansas City’s Convention Pursuits appeared first on Show-Me Institute.

In 2002, residents of Kansas City were told that if they did not approve a measure to build a 130,000-square-foot addition to Bartle Hall the city would lose millions in convention business. The campaign featured statements from convention managers who said they may have to leave Kansas City. One mailer, available here, included two such statements:

“Ace Hardware will no longer be able to host conventions in Kansas City until the Convention Center is expanded . . .” —Ace Hardware Conventions Manager

Taxpayers did vote to expand Bartle Hall, but Ace Hardware’s convention never returned to Kansas City. A second quote in the mailer makes the same point:

“We understand that a 40,000 sq. foot ballroom is being considered—the city needs to solidify its plans and begin construction as soon as possible to continue meeting our needs. Our continued commitment to Kansas City depends on the City’s plans for expansion . . .” —Associate Executive Director, Vocational Industrial Clubs of America (VICA)

A representative for VICA, also known as SkillsUSA, recently told Amy Hawley at KSHB that it left Kansas City last year because of insufficient “hotel space and convention space.” Building a convention hotel now will not meet its needs; the company won’t be back regardless of what the city does with a hotel.

In fact, the 2002 mailer starts off with a statement that is almost identical to the argument being made today:

Current bookings for future conventions is the best indicator of convention and tourism business in Kansas City five to ten years from now. Our future bookings are down dramatically and the reason is clear—without a new ballroom/general assembly meeting room, companies and organizations will continue to pass over Kansas City.

Replace “ballroom/general assembly meeting room” with “convention hotel” and nothing has changed in 13 years. The Bartle Hall expansion failed to be the boon that was hoped for. There is no real reason to expect that a new hotel will increase convention business in Kansas City, especially when it likely will make us one of the most expensive convention cities in the country.

The post It’s Groundhog Day for the KC Convention Center appeared first on Show-Me Institute.

As we examine the deal, we wanted to share the Memorandum of Understanding with our readers. You can find a copy of it here.

KC Convention Hotel Memorandum of Understanding (Text)

The post Kansas City’s Convention Hotel Memorandum appeared first on Show-Me Institute.

Earlier this month, the Kansas City Council unanimously approved legislation that would establish a special trolley zone following a proposed streetcar route along Main. New sales and property taxes in the new district would fund the majority of the trolley project. People living in the district will likely vote on those proposed taxes, but residents will not necessarily be the ones bearing the brunt of that tax burden, at least not directly.

Rather, businesses and property owners, many of whom who do not live in the area where their businesses are located, would pay the price. Crown Center Redevelopment President Bill Lucas, whose property sits at the southern-most edge of the proposed line, cautioned that if built as planned, the streetcar’s tax proposal would raise hotel taxes in the district to the second-highest rate in the country. The Kansas City Star’s Yael Abouhalkah noted just last week that Kansas City’s tax burden and debt servicing obligations are among the worst in the region. Is a Main Street train worth digging those holes deeper?

Moreover, if hotel taxes spike, as Lucas suggests, it would be an ironic, albeit not altogether unexpected, twist for a political class captivated by serial centralized development plans. Early last year, city officials pushed the idea of building a new convention center hotel to help link the languishing Bartle Hall to the languishing Power & Light District, thereby driving up consumer traffic for the trio. At the time, I called the proposal Kansas City’s “Hotel California” – an unnecessary fiscal boondoggle that, if built, taxpayers would not soon escape. Why would the city pursue a trolley project funded with a tax that could make the city’s hotel project even less competitive, not to mention hurt the hotels that already serve the downtown area?

But even if the trolley project is taken only on its own merits, the prospects and track record for a streetcar in Kansas City are decidedly poor. Last month, we found out that another city-subsidized entertainment-oriented transit line – the KC Strip – which serves many of the same areas that the trolley would serve, fell behind on its loan payments due to lack of ridership.

Appropriately, the Strip’s buses are painted like trolleys.

A $100 million plan that local businesses do not want to pay for? A $100 million plan that would spike hotel taxes and could undermine a proposed city-backed hotel building project meant to link an underused city-owned convention center to an underused city-subsidized entertainment complex? A $100 million plan that in large part replicates a cheaper transit option, that the city subsidizes, which is already failing?

What could possibly go wrong?

When the people who presumably stand to benefit from the trolley do not want to pay for it, no one should be paying for it. Not only is the city out of sync with the people who would be paying the proposed taxes; it is out of sync with even its own projects and development objectives.

The trolley is just the latest big idea in a long line of irresponsible municipal projects that city officials have proposed, and it may end up being the last straw for a go-go city-directed development culture that has hemorrhaged taxpayer money for years. Stop the train. We want to get off.

Patrick Ishmael is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post The Main Street Trolley: A Slow Motion Train Wreck appeared first on Show-Me Institute.

The Eagles couldn’t have written a more succinct fiscal description of the $300 million hotel that Kansas City officials want to build downtown, a project likely to be backed in some way by the city’s taxpayers. But Kansas Citians shouldn’t let themselves be captive to another “big idea” pet project promoted by its political class, and should press city officials to drop the plan.

Consider where the hotel would be built: between the recently expanded Bartle Hall Convention Center and the recently constructed Power & Light District (P&LD). City leaders, including Kansas City Convention and Visitors Association President Rick Hughes, hoped Bartle’s 2004 expansion would double the number of conventions the city hosted each year.

Yet conventions haven’t doubled.

The P&LD now has the city on the hook for $10 million in public subsidies each year until 2033, because the district’s present revenues aren’t sufficient to fund its existence.

Even Bill Lucas, president of the city’s hotel steering committee, can’t guarantee that the project wouldn’t be a financial sinkhole. “We’d about have to double our convention bookings” to make the hotel feasible, Lucas recently said.

Let’s recap: 1) The Bartle expansion was supposed to double the number of conventions the city booked, but didn’t. 2) The P&LD was supposed to revitalize downtown, but is now draining millions each year from the budget. 3) As Mayor Sly James put it in February, a hotel is now being proposed to “offset some of the problems” in the P&LD. 4) But, in order to save the P&LD, the hotel needs Bartle … to double its convention bookings.

And around we go.

The project doesn’t make sense on an economic level, either. The fact that private actors haven’t built this hotel suggests that there isn’t a market for one. Moreover, if subsidies from city officials distort Kansas City’s hotel market by giving preferential treatment to the project, existing hotels will see business siphoned away. That isn’t economic growth; that’s economic suffocation.

The project is simply a bad idea. If taxpayers want to avoid getting trapped in their own freshly built Hotel California, they should instead force their political class to book them at the Hotel Free Market. I hear it’s a lovely place. Much less expensive, too.

Patrick Ishmael is a policy analyst at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

The post A ‘Hotel California’ for Bartle Hall appeared first on Show-Me Institute.

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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.

The post Blueprint for a Blunder: Why Kansas City Should Quash Its Convention Hotel Plans appeared first on Show-Me Institute.