Waste of space? (photo: Ethene Lin/Flickr)

The Convention Center That Ate Dallas

What if we put more money directly into the arts instead?

A couple of weeks ago, after reading that the taxpayer-funded Dallas Convention & Visitors Bureau apparently wanted to lend us the letter “D” from their “DALLAS” logo to replace the City of Dallas’ existing letter “D” logo, I got to thinking once again about the outsized influence the DCVB wields over municipal affairs.

Late last year, after Philip Jones, the DCVB’s president, tossed out a plan to have taxpayers pay for a $300 million addition to the convention center, I took a look into the finances and found that it lost $37 million per year before debt service and $54 million after interest expense — amounts that were virtually identical to its losses prior to the opening of the half-billion-dollar city-owned Omni Convention Center Hotel in 2010 (one of the primary justifications for building the hotel was that it would drive more business to the convention center and stop its losses). Some of the most interesting observations, however, came from reader comments to my post. Former city council member and the executive director of the Dallas Arts District, Veletta Lill, made the following observations:

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Mike Rawlings’ former assistant Sam Merten, an award-winning investigative reporter and most recently a candidate for Dallas city council, directed us to two articles he penned for the Dallas Observer. In the first, he pointed out that Mr. Jones was making $590,000 large as far back as 2008, while in another story, he pointed to some questionable behavior by Jones in making the case for the building of the convention center hotel.

In any event, I was pleased to hear Jones tell the Dallas City Council’s Economic Development Committee on August 17 that the “economic impact of the Convention Center is growing” from $662 million in FY 2014 to $762 million in FY 2016. That’s an increase of nearly 15-percent, which is amazing in two ways: first, it’s a big jump; and second, it reflects Jones’ uncanny ability to predict the future. I got further reassurance from John Crawford, the president and CEO of Downtown Dallas Inc., who told the Dallas Morning News‘ Rudy Bush during a recent interview: “our convention business is growing…”

In an attempt to get a better understanding of the true power of this “economic engine” (Dallas people really seem to like that term), I decided to check the City of Dallas’ most recent financial report, for fiscal year 2014 (which ended Sept. 30, 2014).

The first mention I saw of the convention center’s power was near the front: “events including the U.S. Conference of Mayors, the New Cities Summit 2014 and the Mary Kay Annual Seminar reinforce Downtown Dallas’ position as a convention center by generating over $700 million in economic impact.” Wow, I still didn’t understand how economic impact was measured, but that sounds impressive. Except… wait a sec, didn’t Jones tell the Economic Development Committee on August 17 that the number was $662 million? And isn’t $662 million less than $700 million? Which number is correct, the number in the city’s financial report or the number in the city council briefing?

Skimming forward a few pages, I dove into the “Management’s Discussion and Analysis” section for further enlightenment. And sure enough, they had something to say about the convention center: “Convention Center customer charges decreased $3.7 million from the previous fiscal year primarily from a change in the type of events held at the Dallas Convention Center Hotel and related event revenue.” Wait, what? Revenues are going down, and they are blaming it on the hotel we just spent half a billion dollars building? Continuing further, “Major events held during the fiscal year included Great American Trucking Show, the American Heart Association Annual Scientific Sessions, the Mary Kay annual convention, the National Congress of Christian Education and the Lone Star Classic volleyball tournament.” Then, further down the page, “Convention Center contractual services increased $1.4 million due mainly to increases in advertising expenses.”

Ugh… this didn’t sound good. Still, I needed to know total gross revenues to get some perspective on the $3.7 million. On page 14 of the financials, I found the number: $24.2 million in convention center revenues. Just eyeballing it, $3.7 million seemed like a BIG drop in revenues, but I decided to pull the 2013 financials just to confirm the number from a year earlier. Sure enough, on page 14, $27.9 million in revenues for the prior year. Compare those two numbers, and we get a 13.3-percent decline in revenue, year over year. And this in a robust economic climate. Sure, the convention center business may be “growing,” but at what cost?

It sounded like time to take a deeper dive and update the financial analysis I performed last November. This time, however, I decided to make a couple of modifications. First, I decided to ditch the Calibri font — too pedestrian. Instead, I used Avenir, which makes me feel like more of a winner. Secondly, I decided to use accounting depreciation, rather than actual capital improvement expenditures, to get a better handle on the facility’s true economic income, making the assumption that maintenance capital expenditures should equal accounting depreciation. Why? Because the City appears to have been significantly underinvesting in capital maintenance (sound familiar? I’m looking at you, Mockingbird Pothole for City Council!).

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The 2014 vs. 2013 comparison is detailed below.

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So, a few things to note:

  • Gross revenues dropped 13-percent year over year. That’s a big loss, especially during an economically strong year.
  • “All-in,” the facility appears to be costing us $71 million to maintain, each year (before factoring in government subsidies).
  • The alcohol beverage tax jumped by an extreme amount (34%), apparently as the result of the imposition of a new mixed beverage sales tax on Jan. 1, 2014 (in addition to the existing mixed beverage gross receipts tax). It appears that only the mixed beverage gross receipts taxes are pledged to the convention center. When did the city council authorize the allocation of proceeds from this new tax to the convention center?

Also, one other baffling disclosure that I could make neither heads nor tails of: the city appears to have used $6.8 million of cash in the convention center’s accounts to pay two years’ worth of rent on the American Airlines Center, which is actually leased to a third party (see 2014 CAFR, page 9). Surely that can’t be right, the city wouldn’t pay rent to itself, so I would appreciate it if someone could explain what happened in the comments section.

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I don’t understand. Please explain.

Now, obviously, the economic activity generated by the facility isn’t directly correlated with its gross revenues. But, still. How is economic output measured? According to Jones’ briefing, only one additional “citywide” meeting appears to have been booked in 2014. Similarly, CVB room nights booked barely moved year over year. I also wonder about the nature of the room nights booked. Do they include bookings at hotels in other North Texas cities that are promoted on the DCVB website?

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If other North Texas cities are reaping some of the benefits, why aren’t they bearing any of the cost?

Is it worth spending over $70 million per year in taxpayer funds to support this endeavor?  (By way of comparison, the city’s entire streets budget was just slightly higher, at $79 million.)

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I’m not totally surprised by the fall off in convention center revenues last year. After all, “the actual number of conventions hosted in the U.S. has fallen over the last decade. Attendance at the 200 largest conventions peaked at about 5 million in the mid-1990s and has fallen steadily since then.” According to the Wall Street Journal, the convention industry attracted “just 86 million attendees in 2010, compared to 126 million in 2000. Meanwhile, the amount of convention space angling for business has increased to 70 million square feet, up from 53 million in 2000 and 40 million two decades ago.

Further research confirms the convention center industry is facing some absolutely brutal headwinds, so I’ll repeat the question Patrick Ishmael asks in Forbes, “do we really believe city leaders have a special expertise that will enable them to beat market trends?” Heck, even Las Vegas’ convention business has been hammered.
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Given the fact that the convention industry is in long-term decline, isn’t it time to think about doing something different, as UT-San Antonio professor Heywood Sanders suggests?

Of the $50.4 million in hotel occupancy taxes being used for the convention center, only $31.8 million is actually pledged to support debt service. Imagine what we could do with an additional $18.6 million each year: innovative, community-building projects that would not only attract tourists, but benefit Dallas residents as well.

Under state law, we could use the money for “the encouragement, promotion, improvement and application of the arts, including instrumental and vocal music, dance, drama, folk art, creative writing, architecture, design and allied fields, painting, sculpture, photography, graphic and craft arts, motion pictures, radio, television, tape and sound recording, and other arts related to the presentation, performance, execution, and exhibition of these major art forms.” I wonder what kind of economic output would be generated by promoting well-funded, innovative, arts-centered tourism?

In addition, we could use the money for “historical restoration and preservation projects or activities or advertising and conducting solicitations and promotional programs to encourage tourists and convention delegates to visit preserved historic sites or museums: at or in the immediate vicinity of convention center facilities or visitor information centers; or located elsewhere in the municipality or its vicinity that would be frequented by tourists and convention delegates.” Are there other historic structures within the city that could be revitalized to attract tourists while also eliminating blight?

Similarly, what if we were able to use proceeds from the new mixed-beverage sales tax for innovative improvements to urban infrastructure that might generate a higher return on investment, giving priority to projects that would not only attract tourists, but make the city a better place to live.

Again, it’s hard to see how continuing to invest in the convention center in the face of massive industry-wide attendance and massive competition. Yes, people are continuing to visit Dallas, and they are doing so in ever-increasing numbers. But they are visiting for different reasons, and we need to address these changing needs and wants. Why not capitalize on the momentum established by the Arts District and Klyde Warren Park by redirecting tax revenues away from propping up a white-elephant convention center towards underwriting exciting arts and entertainment programs that could attract tourists from around the nation? Veletta Lill puts it more eloquently: “We could invest capital in our people and our institutions, but we continue to invest in a building nobody wants to use. Let’s rethink our tomorrow.”

Comments

  • shrubstex

    Last year when I was on a trip to Washington D. C. I met 2 women who had just been to Dallas. The purpose of their trip was to look at art. They recounted the number of people here in Dallas whom they encountered (hotel employees, waiters, taxi-drivers,etc.) who were so incredulous that they were here to go to the Nasher, DMA, and the Meadows museum as the reason for their trip. Some local galleries were also on their list. By the way they had a wonderful time and commented that Dallas art stacked up favorably in their quest for art trip. They had heard of collection at the Joule, but checked in at the Fairmont.

  • Mavdog

    Great review Wylie H.

    One set of numbers that are important to include that I don’t see (did I miss it?) is what the Hotel Tax has done over the past few years.

    Prior to the opening of the OMNI (1Q 2011) the taxable receipts for Dallas was about $161M. The 1Q 2015 taxable receipts were about $210M. a 30% increase…there appears to be strong evidence the KBHCC/OMNI has helped to increase hotel occupancy in the City.

    While I do not agree there is a need to invest the couple hundred $million the CVB is seeking to expand the KBHCC, I also do not overlook the contribution the facility makes to the local economy.

    • Wylie H Dallas

      I understand your argument, but the fact is that the hotel industry has been on an absolute tear since the hotel opened. If you strip out the increases in hotel rates and occupancy attributable to nationwide trends, the impact is much, much smaller. I’m going to track down that data.

    • Wylie H Dallas

      Okay… I got the data. Look at the 1st chart in the story I linked to. Nationwide, it appears that hotel industry revenues are up by the exact same amount from 2011 to 2014 (30%). So, the evidence suggests that the KBHCC/Omni has had ZERO impact on citywide occupancy trends. We have merely grown in lockstep with the rest of the country. In fact, one might wonder why we aren’t outperforming the rest of the U.S., since our economy has been growing at a faster rate than that of the nation as a whole.

      http://www.htrends.com/trends-detail-sid-83281.html

      • Mavdog

        To make it apples to apples the base need to be looked at Wylie, what is the change in the number of rooms during that period?

        From what I recall reading, revenue per room has increased and average occupancy has increased for hotels in the City of Dallas from 2011-2015.

        • Wylie H Dallas

          You’re right, but again, REVPAR and occupancy rates have ramped up strongly at the national level, as well.

      • Amy S

        You could also look at the financial performance of other area Convention Bureaus, say Addison’s, to find out if the hotel in Dallas had a greater or lesser impact? They do not have a convention center hotel, so it would stand to reason that if we outpaced them, perhaps it was due to our hotel ? Of course if it points the other way…….

  • SpiderInTheAttic

    If Philip Jones were presiding over a private sector company with those kind of numbers, he would probably have already been fired. Alas, likely with a golden parachute, but fired nonetheless. What truly boggles the mind here is that in the face of extraordinary shrinkage of convention center business across the nation over the last 10+ years, these people want to expand and spend more money. Those magnificent flowing robes they see are at best a pair of Speedos.

  • trek1red

    Back in the early 1990’s, the alcohol beverage tax was diverted from the general fund to help support the expansion of the convention center. It was supposed to be for a period of 5 years. The assumption was that the expansion of convention center business would allow the city to stop subsidizing the convention center. That never happened and 20 years later the city of Dallas is still subsidizing the convention center.

  • Amy S

    I like the idea of investing in more Dallas history….

  • Wile E Coyote

    Seriously? So, do you truly not understand the data, or are you purposely trying to mislead? Your cherry picking of unrelated and unsupported numbers aside, What exactly is your alternative suggestion; your specific budget, plan of action and ROI?

    • Brad Johnson

      WHD gave a thorough analysis with citations to all the data. If you believe he has misunderstood or misrepresented the data, I think the onus is on you to present a counter-analysis.

      I suppose one plan of action would be to sell the convention center, pay off the hotel, sell the hotel, too, and start fixing the streets.

      • Wylie H Dallas

        The tricky issue with respect to the hotel, unfortunately, is that it appears to be worth roughly $300 million, yet we have $500 million borrowed against it. Dealing with the convention center, itself, is similarly tricky, as we have a little over $300 million borrowed against it. The best plan of action might be to look strategically at parts of it that could be separated from the whole, torn down, sold and redeveloped by a private developer. Reducing the scale of the facility could, potentially reduce its annual operating losses.

        • dallasmay

          That’s not a tricky issue. You sell it off, pay down the debt, and pay off the remaining balance over time. At least then if it fails it won’t add any more trouble to the city.

        • OldLakeHighlandeer

          After looking at that hulking mass of a convention center on Google Maps, I cannot imagine how it could ever turn a profit since we pay groups to use it and maintenance is astronomical. That convention center does one thing very well, though–block any convenient access to The Cedars. Imagine replacing the antiquated part of the CC east of Griffin with apartments and markets, bridging over I-30 a-la Klyde Warren and having a marvelous place to live and work by bike downtown while having bike access to restaurants and bars in The Cedars.

    • Wylie H Dallas

      Mr. Coyote,

      Thanks for your thoughtful comments.

      1) Please explain how the data is misleading and/or what I don’t understand. In all seriousness, I want to make sure I get things right.

      2) Can you direct me to the numbers that are unrelated and unsupported?

      3) My alternative suggestion is that the city do perform a thorough analysis as to the best use of hotel occupancy tax and alcoholic beverage tax dollars. With respect to the hotel tax, which use or mix of uses drives the most economic growth and benefit to the city: convention center, arts, and/or historic preservation? With respect to the new mixed beverage sales tax, what use would give us the best ROI, all options considered. For example, would repairing a particularly bad major road drive more growth than spending at the convention center? What about improving a downtown park that could catalyze economic development? Etc. The point is, some real thought needs to be put in to this issue, rather than just automatically pumping ever increasing amounts of money into the convention center without consideration of the alternatives.

    • Brenda Marks

      Mr. Jones, please go back to work.

  • Brenda Marks

    “Is it worth spending over $70 million per year in taxpayer funds to support this endeavor? ” Short answer: no. As always, thanks for your work on this issue. The DCVB still adheres to the Arthur Andersen method.

  • OldLakeHighlandeer

    Excellent as always WH. Valletta Lill’s comment of “Soviet-Style” rings too true. City Hall goes boldly into projects where private companies will never tread since the only risk to the City is taxpayer money–and under the table monies for green lighting such folly. The history of Capitalism in American cities is really that of Oligarchy With A Good Agent.

    • Amy S

      All I know is I went to downtown McKinney to eat dinner last Thursday night. Line out the door for a similar price point to what nice Dallas restaurants sell for. Half the rent and 1/3 less taxes makes it an appealing place to do business.

      When we focus solely on the downtown and ignore the other 90% of our city as just a funnel of money, it becomes an easy choice for businesses and their investors to look outside.

      • Wylie H Dallas

        No. Your restaurant is not allowed to move to McKinney. I forbid it.

        • Amy S

          Absolutely not. But investors like to mediate as much risk as possible when they decide to put their money into a new, unproven restaurant. Less overhead, good crowds, more chance of making back your investment.

  • EricCeleste

    ANSWER THE COYOTE, YOU SHEEPLE-FEEDER!

    • Wylie H Dallas

      Hah!

  • gshelton

    Great article — At the end of the day the CVB is kind of like a sales force for the City of Dallas and by extension the Convention Center– lets pay them like they were sales people and give them a commision based on actual business they bring in based on what that business is legitimately worth to the city.

    Any days when the Center is not in use for a convention lets roll out some astro turf and let kids play soccer and basketball particularly in the summer.

    I wholeheartedly agree that our money would be better spent supporting activities in downtown that citizens and visitors could enjoy. As it is we are supporting a facility that the citizens of Dallas that pay for it don’t really get to enjoy. Thats just a bad deal.

    • Wylie H Dallas

      Thanks for highlighting that, Mr. Shelton. I wanted to touch on that theme in the post, but was challenged to keep it short. When we spend money on the convention center, say on fancy audio-visual equipment, that’s something the residents of Dallas don’t really get any direct benefit out of. On the other hand, when those same dollars are directed in a strategic, thoughtful manner towards arts-based tourism, we end up creating something that is of benefit to both tourists and residents, alike.

  • Tom_Blackwell

    Enough is enough.

  • RAB

    Small quibble, Mr. Dallas: it’s “590 large” — unless Mr. Jones is actually making $590,000,000.

  • Raymond M. Crawford

    Since the Convention Center is an Enterprise Fund, I wonder how much concern there is for this since it is not part of the general fund/pool of money. Also, any profits cannot be shared with other parts of the City Budget. At least, that’s supposed to be how it works…or doesn’t work.

    • Veletta Forsythe Lill

      In most cases you can’t use enterprise funds for general fund purposes. In the case of Convention Center funding it comes from 2 sources – rentals/fees and HOT tax. The enabling legislation for HOT tax permits it to be used for a number uses that are now being paid for by the general fund (i.e. arts, historic preservation, etc).

    • Wylie H Dallas

      This is different from the Aviation enterprise fund, which is regulated under Federal law. As Ms. Lill points out, the HOT tax can be used for arts & entertainment tourism and historic preservation; only a portion is pledged as collateral under the bond indenture. Also, the mixed beverage sales tax doesn’t appear to be collateral, at all… so I’m not sure how that got mixed in to the enterprise fund.

  • Wylie H Dallas

    Good catch. Need more caffeine.

  • V F

    It never ceases to amaze me how dishonest and misleading these people can be. Gross Revenues are up they say, while conveniently leaving out the fact that Gross Losses are also up. No profits to be found anywhere in sight.

    • Wylie H Dallas

      Gross revenues are actually down. But, in fairness, they didn’t say gross revenues were actually up. They said something slightly different, that the center’s economic impact is growing, that the business is growing.

      That could theoretically be possible. They might have more attendees, just charging them less money. Or they might have higher spending attendees. But it’s hard to say, because they don’t explain what metric they are using as a foundation for their claims.

  • velocipedes

    When politicians spend other people’s money, there’s little incentive to spend it frugally. Which is why we’ll be discussing this another decade from now, just as we discussed it a decade ago.

  • Chris

    Another issue here, is the taxing that is done on rental cars at DFW and Love Field. From my very high view, they are the highest taxes in the country. The average business person is sick of paying these high taxes to fund Dallas County projects.