Convention Hysteria

In 1998, the Phoenix Civic Plaza lost $20 million. City officials don't mind. They made up the loss with your tax money, just as they do every year.

The Phoenix Civic Plaza is a tax rat hole. In 1998-99 alone, it cost nearly $30 million to operate, yet took in about a third of that.

The $20 million operations deficit was made up by unsuspecting local taxpayers. They ponied up the equivalent of 30 bucks apiece for every man, woman and child in the city that year just to keep the doors open.

Now the city wants to tear down the Civic Plaza and build a new and bigger convention center that's expected to cost at least $526 million and probably much more -- enough to build a couple more BOBs downtown.

The Phoenix Civic Plaza has lost more than $90 million on operations since 1993-94
Paolo Vescia
The Phoenix Civic Plaza has lost more than $90 million on operations since 1993-94
The old Phoenix Union High School campus would house an "Off-Site Exhibition Hall" that could be as big as the existing Civic Plaza
The old Phoenix Union High School campus would house an "Off-Site Exhibition Hall" that could be as big as the existing Civic Plaza

While they are waiting on construction of the new mecca, city officials also want to avoid losing convention business. So they plan to build an "Off-Site Exhibition Hall" on the old Phoenix Union High School campus. They want this off-site facility to be just as big as the existing Civic Plaza.

The total tab, including loss of the existing Civic Plaza, new construction and land acquisition?

Some three-quarters of a billion dollars.

And for what?

To allow a horde of Dilberts on expense accounts to slumber in downtown hotels, eat in downtown restaurants, throw back whiskey in downtown saloons and, while they're at it, buy bushels of bola ties.

The whole plan has been designed and carried out in exquisite bureaucratic silence. As I waded through a mound of public documents, I was apalled at the total cost of the city's convention mania. More astonishing, some members of the City Council don't know that the Civic Plaza is losing money.

"I wasn't aware that the Civic Plaza was not self-sufficient," says City Councilman Phil Gordon, the council's most cerebral member. "I always thought it was a cash cow."

The hideous reality: City records indicate that from 1993 through 1999, Civic Plaza operations and administration alone cost $132 million -- that's not factoring in debt service. The Civic Plaza generated only $40 million in revenue over that period.

The drive for a new convention center coincides with the city's clumsy campaign to lure new hotels downtown -- at considerable risk to taxpayers -- and comes at a time when cities all over the country are pouring billions of dollars into these kinds of projects and losing money.

Experts like Philip Porter, a professor of economics at the University of South Florida in Tampa and an analyst of the costs and benefits of big government projects, says the reason cities are losing money is no mystery: There's too much competition.

"Although a convention center might make some sense, it only makes good sense if you're the unique side of the market -- if you're not in competition with too many people," Porter says. "In business, if every other company produces the same product line, then it's not the best place to be."

Despite the laws of the market, conventional wisdom holds that state-of-the-art convention facilities are a growth industry and absolutely necessary for prosperity. Municipal officials assert that competition is fierce because conventions are good business, that free-spending conventioneers have unfathomable "economic impact," serving as the hothouse for the downtown economy -- particularly for the hospitality industry.

But it's Phoenix businesses and residents who seed the soil first, in the form of excise taxes levied on advertisers, construction companies, publishers, job printers, restaurateurs and owners of bars, hotels and motels.

Since 1987, these excise taxes have pumped $284 million into the Civic Plaza Fund, which is used to pay the debt on the convention center, finance its renovations ($100 million worth since 1985) and subsidize its operations.

In fiscal 1998-99, the Civic Plaza Fund took in nearly $36 million -- roughly $30 for every man, woman and child living in the Best Managed City on Earth. In return, a city-hired consultant reports, Phoenix gets back an estimated $6 million in convention-related sales taxes.

You don't have to be Warren Buffett to recognize a pitiful return.

It's as though the amorphous and maligned military/industrial complex of generations past has been supplanted in Phoenix by a convention/hotel complex. It's a culture, and it's pervasive.

City voters will be asked to approve the convention center plan in March. As City Hall gears up to create a convention wonderland downtown, the City Council should take a hard look at restructuring the excise taxes that fuel the machine. Take the burden off city residents and put it on businesses or services that cater to visitors.

Make Dilbert pay.

The true economic impact of convention business can't be quantified with any certainty.

A consultant hired by the city estimates that convention business generates $282 million in direct spending each year. Apply the nebulous "multiplier" factor, and the economic impact is $470 million, the consultant postulates. If the Civic Plaza were expanded, and downtown were to get 1,050 new hotel rooms, direct spending would soar to more than $500 million annually. Apply the multiplier, and the economic impact elevates to $877 million, the consultant says.

Of course, those excise taxes Phoenicians pay have a negative multiplier effect on the economy, but that doesn't show up in the consulting studies.

I am suspicious of development consultants. They are given to statistical hyperbole. Too many "studies" are made-to-order. The Civic Plaza expansion project has spawned three such consulting studies, costing $270,000 to date. These hirelings are selected, coached and paid by the very bureaucrats who owe their livelihoods to the convention/hotel complex.

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