Convention Hysteria

The Phoenix Civic Plaza has lost more than $90 million on operations since 1993-94
Paolo Vescia

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.

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.

Allow me a digression to validate my skepticism. Remember the consultant the city hired to determine the necessity of the so-called Garage Mahal, the $45 million abomination built for the ostensible purpose of servicing the Science Center -- but not Bank One Ballpark? In 1989, voters concerned about such profligate spending enacted a law requiring voter approval before the city may spend more than $3 million on a sports- or convention-related project. So, legally, the "Civic Plaza East Garage" could not be built for baseball fans or the Civic Plaza. When the garage consultant repeatedly determined that no such colossal parking structure was needed to support the Science Center, city managers repeatedly altered the study parameters and sent it back. Finally, the consultant relented and came up with the findings the city wanted. And finally, he got paid.

Like the Civic Plaza it was built not to serve -- the 2,700-space Garage Mahal is losing money in bales, averaging only a few hundred parkers a day. In May, a huge month for the auto-box, it generated $152,000 in revenue. The debt service alone on the garage exceeds $300,000 a month, not to mention operational expenses. The deficit is covered by the Civic Plaza Fund fed by Phoenicians' excise taxes.

The garage is a monument to the corruptive influence of the city's downtown redevelopment zeal.

And, I might add, it consumed the only plot of land suitable for a more rational expansion of the Civic Plaza. The price that Phoenicians will pay for this subterfuge can scarcely be overstated.

"That garage was not built for the future of the city, it was built because the city was catering to special-interest groups," says Sal DiCiccio, a former city councilman who resigned to run for Congress in District 1. "Because the city catered to those special-interest groups, this (Civic Plaza expansion) is going to wind up costing the taxpayers more money."

Sordid episodes such as the garage fiasco cause me to blanch when the Civic Plaza consultant talks about jobs, claiming that the new convention center and the addition of 1,050 hotel rooms would boost the number of convention-related jobs in Phoenix from 8,000 to 15,100. Such a workforce would make for exceedingly well-staffed exhibit halls and hotels, because the Civic Plaza currently employs only 194 people, and "convention quality" hotels (as opposed to resorts) employ about one employee for every two rooms. That would translate into only 525 new hotel jobs. Moreover, 80 percent of these jobs are menial -- housekeeping, bellhops, busboys, kitchen staff, taxi drivers and the like. I hate to sound elitist, but these are not the kinds of jobs I want to fork over $30 a year to create.

Civic Plaza officials crow that the average convention delegate spends $959 per event. But in one draft of a market study, the city's consultant says delegates spend $557 per event.

Whom to believe?

Before Bank One Ballpark was approved, a consultant predicted the new stadium and team would spur an annual economic impact of $230 million. Yet midway through the team's second year in BOB, downtown had experienced a net gain of only four new business licenses.

In Tempe, where the price tag for Town Lake could reach $200 million, consultants enthused about economic impact. The banks were more taciturn. Despite copious City of Tempe incentives, the hotelier lined up to build a five-star inn hasn't been able to get financing.

Consultant hyperbole notwithstanding, I am not so naive as to believe that visitors to downtown Phoenix contribute nothing. There is a sizeable economic impact from conventions.

But how much should Phoenicians be expected to pay? Who's profiting, and to what degree? The two big "convention quality" hotels, the Hyatt Regency and the Crowne Plaza, are not locally owned. Neither are the prospective new hoteliers, Marriott and Embassy Suites. Most of the wealth we are taxed to incubate flows out of the community.

When did the fortunes of the hospitality industry become the city's responsibility? Or its obsession?  

According to city records, the new convention center would be more than twice as big as the existing Plaza, which occupies the equivalent of eight city blocks. Most of the convention space would be constructed below ground. Aesthetically, this would be a welcome relief, removing the huge, bland barrier that the Civic Plaza now creates.

The city is rightly demanding that the state, which reaps far greater sales tax benefits than the city from conventions, help fund the new center. Most other states do help underwrite big municipal convention facilities.

With the new center, space dedicated to exhibit halls, ballrooms and meeting rooms would jump from 302,000 square feet to 700,000 square feet.

The city's official figure for the cost of the new facility is $450 million to $510 million. But the most recent consultant's study on the project puts the cost at a range of $526 million to $581 million.

The cost of the Off-Site Exhibition Hall was for many months projected at $20 million to $30 million for a 125,000-square-foot convention space. (This building would be dedicated to "community" events once the new convention center opened.) But as government projects are wont to do, this stopgap facility is mushrooming in size and cost. The flow of convention dollars into downtown tills must not be interrupted during construction. City staff's latest cost range for the PUHS facility is $51 million to $75 million.

The city paid $17.5 million to acquire the land for the Off-Site Exhibition Hall at PUHS, plus $2 million to demolish old school buildings on the site. (City officials could not -- or would not -- tell me the cost of acquiring nine parcels adjacent to the old campus.)

Then there's the cost of an asset lost. In 1999, the city valued the Civic Plaza at a very conservative $156 million. (Incidentally, in 1994, the Plaza and adjacent Symphony Hall Terrace underwent $32 million in renovations. The Plaza was expanded in the mid-'80s, at a cost of $67 million.)

Even when low estimates are applied -- $526 million for the new convention center, $51 million for the off-site building, $156 million lost in the existing Civic Plaza, $20 million for land acquisition and demolition at PUHS -- the tab comes to $752 million.

If we adopt the loftier estimates, the price tag billows to $831 million -- and that's without factoring in the inevitable cost overruns.

Now that's what I call economic impact.

In preparing this piece, I reviewed about 1,000 pages of city documents. The stack of sterile papers tells the story of the furtive campaign being waged at City Hall. But the narrative bears an unambiguous subtext. The documents don't merely suggest that taxpayers must spring for costly new hotels and a mega convention center. They shriek it.

Assistant City Manager Sheryl Sculley and Mayor Skip Rimsza are leading the chorus.

Rimsza, who did not respond to repeated interview requests, has said he prefers an expanded Civic Plaza for Phoenix over a new stadium for the Arizona Cardinals.

Sculley did return a call, informing me that the city is still negotiating to attract new hotels downtown.

You may recall Sculley's role last year in the city's misbegotten attempt to ram a 700-room Marriott hotel and a 350-room Embassy Suites into downtown. (Not coincidentally, that adds up to 1,050 rooms, the exact sum of new hotel rooms cited in the consultants' projections.)

City Hall proffered ludicrous incentives -- $18 million in outright investment and $118 million in guaranteed loans. Marriott would have received a $100 million hotel for a $5 million investment.

That dubious exercise in corporate socialism dissolved when owners of the Crowne Plaza threatened to refer the measure to the ballot, then sued the city. The courts ruled the scheme an unconstitutional partnership between private enterprise and government.

As the Marriott deal began to go south, Sculley apparently got desperate. She huddled with the developer of the Collier Center, where the Marriott was to go up.

That developer, Tom Roberts, subsequently offered Steve Cohn, an owner of the Crowne Plaza, a $10 million city subsidy if he would agree to sell his hotel and drop his opposition to the Marriott scheme.

Cohn recorded the conversation. On the tape, Cohn says he doubts that the city would provide such a subsidy, and asks if Sheryl Sculley had approved it.

Roberts replies: "Well, not only Sheryl. I think we have the council's unanimous support. If we can resolve this thing . . . that'd be the easiest goddamned decision they ever made in their life. I guarantee it. . . . I'd bet you any amount, no limit, I can deliver 10 million bucks."  

Sculley and other city officials quickly (and predictably) distanced themselves from Roberts' offer, which Cohn characterized as a "bribe."

Sculley bristles at the suggestion that the Civic Plaza expansion is being choreographed by apparatchiks.

"This isn't a staff-driven project. This is a community-driven priority," Sculley says. "This is a priority of the Civic Plaza Task Force."

The Task Force has been quietly convening for nearly two years to lay the groundwork for the expansion. The body is composed of city staffers, downtown business types and activists.

Minutes of the September 22, 1999, Task Force meeting report that a consultant told the group, "The future is bleak if we settle for status quo.

"Ms. Sculley concurred, noting that old practices are no longer acceptable."

She sounds fairly driven to me.

And Councilman Gordon uses that very term, unbidden.

Asked if he's received much data on the expansion scheme, Gordon replies: "Not a lot. It's been so tightly controlled. Sheryl and the mayor have the keys. They're driving this thing to build."

Joe Davis, Civic Plaza director, tells me that the Task Force was "set up by Frank Fairbanks," city manager. Davis came to Phoenix in November 1998 to oversee the nascent expansion effort. Until then, he directed the convention center in San Diego, which is currently undergoing an expansion.

"What this is all about is economic impact," says Davis. "This is a serious growth industry. If you want to be in this game, you need to have the product."

He says the expansion project will allow Phoenix to attract conventions that are too big for the existing Civic Plaza, propelling us into the "major leagues" among convention destinations.

I resist the urge to note that Phoenix recently joined the major leagues of baseball, and the team is losing money.

Philip Porter, the professor of economics at the University of South Florida, is not so bullish on the convention industry. He believes the outlook does indeed "look pretty bleak." He is convinced that the digital age combined with transportation costs will retard the growth of the industry.

"A half a billion dollars or more of taxpayer money bet on the come -- that just doesn't sound like a good idea to me," Porter says. "Our convention center is hemorrhaging. If yours goes bankrupt, or if it doesn't cover its debt, local taxpayers have to pick up the bill."

I didn't tell him that they already are.

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