One of the reasons Wichita city leaders say we need to provide subsidy to the Ambassador Hotel in downtown Wichita is that the hotel rooms are needed to support the city’s effort in pursuing convention business.
On its face, this pursuit of convention business seems like a noble effort by city leaders. Vast streams of economic development will follow if they are successful, they say. Providing subsidy to hotels in support of this effort, they conclude, should be a simple decision. Especially when supporters tell us that much of the subsidy to the hotel will be paid by visitors to Wichita. But this claim is true for only a narrow part of the Ambassador Hotel’s $15 million subsidy package. Most of the cost is paid for by taxpayers in Wichita, to a lesser extent in the entire state of Kansas, and to a smaller extent, the U.S. federal taxpayer.
But I’ve not seen discussion in Wichita on whether this pursuit of convention business is wise. Heywood T. Sanders, who is professor in the Department of Public Administration at the University of Texas at San Antonio, is a noted critic of public efforts to chase convention business for economic development. His report 2005 Space Available: The Realities of Convention Centers as Economic Development Strategy was published by the left-leaning think tank The Brookings Institution. It provides a look at the realities of the convention trade.
Heywood writes that convention center business has been on the decline, and it started well before the terrorist attacks in 2001. In a section titled “Trends: Portrait of a Faltering Industry” we can read that attendance is down, exhibit space demand is down, and hotel room demand in cities has fallen too.
The author notes that the decline in convention business is a structural decline: “[Reasons for decline] are the product of industry consolidation, particularly in the hardware and home improvement industry, reductions in business travel in the face of increasing cost and difficulty, and alternative means of conveying and gathering information.” These are not cyclical trends that are likely to reverse in the future.
Despite shrinking demand, cities are building more convention space: “Despite diminishing demand, the last few years have seen a remarkable boom in the volume of exhibit space in U. S. convention centers.” The building of larger convention centers in many cities means that more cities are able to host the larger events, or, cities can now host several smaller events simultaneously. The result, says the author, is fierce competition for both large and small events.
Then, what about the costs? The author introduces a section on costs with: “The studies that justify both the new center space and the publicly-owned hotels paint a picture of tens of thousands of new out-of-town visitors and millions of dollars in economic impact. Despite that rhetoric, these projects carry real risks and larger potential costs, particularly in an uncertain and highly competitive environment.”
The convention center is just the start of costs: “A new [convention] center is thus often followed by a subsidized or fully publicly-owned hotel.” Wichita, of course, has a fully publicly-owned hotel, the large 303-room Hyatt. Now Wichita has been providing, and seeks to expand, subsidy programs to other downtown hotels. None of the hotels alone provide as many rooms as Wichita convention planners say the city needs, so we are likely to see proposals for a subsidies to hotels continue.
In fact, until Wichita has as many hotel rooms as our nation’s largest convention cities have, there is always a larger goal — a next step on the ladder. Can you imagine our city leaders ever proclaiming that we have enough hotel rooms in downtown Wichita?
Other things Heywood says that are likely to be proposed are a sports arena. Wichita, of course, just opened a taxpayer-financed and government-owned facility, the Intrust Bank Arena. After a brief honeymoon fling with good financial performance, the arena has settled down to a less-acceptable level of revenue production. Residents of Sedgwick County, which owns the arena, should be cautioned that the financial results hailed by the county don’t include depreciation costs, so the true financial picture is not anywhere near complete.
Entertainment, retail, and cultural attractions are often proposed, he writes, and Wichita downtown planners have indicated their desire for these. Downtown boosters are likely to propose a sales tax to support these efforts.
The conclusion to this paper describes Wichita’s current situation and foreshadows what is likely for the future of Wichita:
But if taxing, spending, and building have been successful, the performance and results of that investment have been decidedly less so. Existing convention centers have seen their business evaporate, while new centers and expansions are delivering remarkably little in terms of attendance and activity.
What is even more striking, in city after city, is that the new private investment and development that these centers were supposed to spur — and the associated thousands of new visitors — has simply not occurred. Rather, city and convention bureau officials now argue that cities need more space, and more convenience, to lure those promised conventions. And so underperforming convention centers now must be redeemed by public investment and ownership of big new hotels. When those hotels fail to deliver the promises, then the excuse is that more attractions, or more retail shops, or even more convention center space will be needed to achieve the goal of thousands of new visitors.
We already see some of this excuse-making taking place: Private investment in downtown Wichita has been weak, it is said, because there’s not yet a critical mass of development. It is promised by downtown boosters that given enough public money, critical mass will be achieved, and private investment will rush in. But since there is no definition of what constitutes critical mass, this excuse is always available to justify failure.
Listen to an interview with Sanders from 2009. A transcript of an interview with Sanders from 2004 is at “A Lot of Hooey”: Heywood Sanders on Convention Center Economics.
Great concept… because this is really helpful to increase business in terms of profitability & productivity.