Although Bostons gleaming new $800 million convention center is set to open in a few months, so far it has booked only a handful of conventions. So dire is the facilitys outlook that it will need a $1215 million annual public subsidy in its first few years of operation and may not reach its full booking potential for a decade, say Boston officials. Even that may be too optimistic, judging by whats going on in Baltimore. There, a vastly expanded convention center that reopened in 1997 is finding it so hard to lure business that city officials are now searching for ways to make the facility more attractive, including spending millions in public money to build a subsidized hotel next door.
What is happening in Boston and Baltimore is not an anomaly but merely the latest chapter in what is turning out to be one of Americas biggest civic boondoggles. For more than a decade now, cities and counties have been rushing, at enormous public cost, to build new convention centers or add space to old ones, including a $191 million expansion of San Franciscos Moscone Center, a $291 million new facility in Omaha, and a $354 million center in Pittsburgh. The increase in space has vastly outpaced the growth of the convention industry and often failed to generate the kind of economic activity predicted by boosters. Rather than energizing local economies, in fact, some convention centers are emerging as a drag on civic finances, requiring taxpayer operating subsidies on top of their huge, publicly financed construction costs. Whats more, the situation is only likely to get worse. Another eight to ten million square feet of exhibition space is scheduled to come on line within five years, an increase of about 15 percent in an industry where demand is barely growing.
Although those numbers should be sobering to any city contemplating building yet more space, in New York officials are plunging ahead with plans for the most costly convention project to dateproposing to spend a staggering $1.5 billion nearly to double the size of the Jacob Javits Convention Center. The proposal comes despite the chronic fiscal problems of both the state and the city and the absolute lack of any credible evidence that the expanded center would pay back such a colossal public investment.
Indeed, to finance the expansion, the state and the city, both already heavily indebted, will likely have to float huge debt offerings and may even increase some taxes.
New Yorks headlong plunge into this new project is evidence that local officials rarely let the facts get in the way of their love of big projects. Back in the early 1980s, when the state and city built the Javits Center, there were far fewer convention centers and little actual data on whether the business that these facilities generated helped a citys economy enough to justify the investment. New York officials saw Chicagos giant McCormick Place bringing visitors into the city to fuel the local hotel, restaurant, and entertainment industries, and figured Gotham could compete for that business.
But today, after a generation of frenetic building and with much better data available, the inescapable conclusion is that few of these new projects are worth doing. Boston, for instance, spent nearly $230 million to renovate its existing convention center in the 1980s, and the result was barely a blip upward in its hotel occupancy, says political scientist Heywood Sanders of the University of Texas at San Antonio, the foremost expert on publicly built convention centers. Yet Boston officials brushed that experience aside and went ahead and built its brand-newand already troubledcenter anyway. Similarly, a vast expansion of Chicagos McCormick Place, costing $1 billion in the mid-1990s, didnt prevent a drop in that citys share of major conventions. Meanwhile, Atlantas huge expansion of its convention space has done little for the citys struggling downtown: a major retail project there, Atlanta Underground, has struggled to survive even as the citys convention business has grown. The payoff is not there, says Sanders.
But local politicians have typically argued that their projects will work better than those in other citieson scant evidence for such conclusions. New York officials, for instance, justify expanding Javits on the grounds that the city is already a major trade-show destination and therefore wont suffer like other cities from significant new competition. Yet Chicago was an even bigger force in the business when it expanded McCormick, but still saw its market share decline. And even if a bigger Javits were to attract some new business, it is highly unlikely to generate enough spin-off activity to justify its enormous public cost (including the eventual cost overruns likely with such a gigantic public project).
Gotham officials are relying on the optimistic predictions of government-sponsored economic studies that an expanded center would create thousands of temporary construction jobs and up to 16,000 permanent new jobs, mostly in the hospitality industry. But political scientist Sanders argues that such studies tend to be unrealistically optimistic. For instance, says Sanders, one study used to justify expanding Javits does not take into account that the center doesnt generate nearly as much hotel business as other centers, because many convention attendees already come from the New York area, and because New Yorks high hotel rates discourage some conventions from using the city. Another word of warning: city-commissioned studies almost always wind up recommending convention centersmeaning that the industry of consultants who churn out such studies has a pretty lousy track record, considering the long list of underperforming centers around the country.
But politicians ignore such inconvenient facts. For them, building big projects is often far more engrossing than building a strong economy, because giant construction projects directed by government agencies offer opportunities to reward friends and potential supporters with plum contracts. Thus the original construction of the Javits Center was perhaps the quintessential New York boondoggle, an effort rife with mob influence, bid rigging, and cost overruns that brought the ultimate bill to $486 million, 30 percent more than projected. And the center has never fulfilled all the promises. When it opened, a New York Times headline proclaimed the widely held belief that the new center kindles dreams for West Side, but in 18 years, the center has had almost no impact on its neighborhood.
New projects also enjoy the support of private-sector interests likely to benefit from them. In New York City, a perfect storm of private interests is raging to push forward the Javits expansion, including the construction industry that would build it, the Wall Street bankers who would underwrite the financing, and a hospitality industry hungry to benefit from even a marginal increase in its business no matter what the public cost. The hotel industry has even signed on to a possible hotel tax increase to pay for the Javits expansion, when a decade ago the same hoteliers vociferously protested a rise in the tax, producing studies showing that the increase hurt the local economy. Small wonder that politicians often doubt the claims of executives that taxes kill jobs when an industry reverses itself as cavalierly as the citys hotels are now doing. In fact, of course, the innkeepers were right the first time: after New York cut its hotel tax by six percentage points, hotel occupancy rates jumped to 84 percent from under 76 percent in just three years.
The Javits expansion, as expensive as it is, only partially encompasses New Yorks grand design for the Far West Side of Manhattan. Hoping to lure the 2012 Olympics to Gotham, the Bloomberg administration also wants to build a domed sports stadium adjacent to the convention center, which boosters argue could provide hundreds of thousands of square feet of extra convention space when needed.
With a $600 million taxpayer contribution, the stadium would be an even worse investment than the convention facility. Numerous studies have already documented that publicly financed sports facilities dont return anywhere near their investment. One study by economists from Stanford University and Smith College, for instance, estimated that Baltimore was receiving only $3 million a year in additional tax revenues or new job benefits from its $200 million investment in the Camden Yards sports complex. Even projects generally touted as successful often dont turn out to be, under careful economic scrutiny. A mid-1990s study by urban economist Mark Rosentraub of Clevelands arena and baseball stadium, often held up as a model of how to build downtown sports facilities, found the projects created only 2,000 jobs at an average public investment of $160,000 for each joban improvident use of public money.
The real role of government in stimulating development should be more limited than what New York is attempting with its Javits expansion and its stadium. Governments role on the Far West Side should be only to develop the infrastructure necessary to encourage private development: to extend public transportation into the area and to change zoning codes to allow privately financed office and residential construction there as the need develops. To do any more would place far too much taxpayer money at risk and would put government officials in the role of trying to predict what the market wantsa task government is ill-suited to carry out. But New York State is contemplating the exact oppositebalking at extending the Number 7 subway and, presuming to know better than the market, threatening to use eminent domain to take the land for the Javits expansion away from developer Larry Silverstein, who has other plans in mind for it. The states vast, monolithic scheme could well repel rather than attract high-value commercial development.
Meanwhile, the hospitality industry has learned that it can sit and wait for local government to finance its dreams these days. The Javits expansion, for instance, was originally tagged at a mere $1 billion but grew costlier when the centers board stuck in a publicly subsidized hotel as part of the building frenzy. The hotel supposedly needs to be built with public money, because so far no private hotel company has been willing to pay to put up a property on the Far West Side.
The Javits hotel scheme is not unique by any means. Publicly financed hotels have now become the latest craze in the municipal convention-center wars. Cities like Dallas, Baltimore, and Knoxville are all contemplating building them, on the theory that these properties will help boost sagging convention-center business. Though hotel companies wont finance these properties themselves, because they know they are unlikely to repay their investment, they are more than willing to move in and operate them after government has built them. The result is a version of the rat and cat farm: we use tax money to build a convention center that supposedly will stimulate the hotel industry, and then use tax dollars to build a hotel that supposedly will stimulate the convention industry.
The nationwide convention-center fiasco is striking testimony that much government-centered economic development these days is a me-too affair that involves spending public money on what others are doing, regardless of market dynamicsperhaps because politicians who benefit from these projects can avoid blame by claiming that they were only doing what other cities were doing. New York State seems especially infected with this disease right now. With its huge public complexes in Albany and its vast string of publicly constructed state universities, the state has always specialized in state capitalism, and it is not to be outdone in the area of convention centers. In his state of the state address, Governor Pataki advocated not only the Javits project but a new $185 million convention center in Albany to replace its existing facility and the modernizing of another facility in Lake Placid. Soon after, officials in Erie County renewed their lobbying for a publicly financed center in Buffalo, while in Syracuse, a group that has put forward a far-reaching plan to remake that city added a convention-center proposal to its agenda, too. These proposals would join an estimated 40 or so convention projects already under way in cities throughout convention-center-glutted America.
While politicians and private businesses push such efforts, resistance from taxpayer groups is growing. The Texas chapter of Citizens for a Sound Economy, the national taxpayer group headed by former House Majority leader Dick Armey, is opposing a publicly financed convention hotel in Dallas. Knoxville citizens will soon get to vote on whether to spend tax dollars on a new convention hotel, after opponents of the effort collected thousands of signatures to get the issue on a ballot. In Raleigh, North Carolina, government supporters of a new convention center are trying to avoid a vote on public financing for the projectwhich they are sure to loseby proposing alternate but even more costly financing that doesnt require a referendum.
The mounting opposition shows that the public understands what a fiasco the convention-center business has turned into all around America. If only urban leaders could figure that out, too.