The Anaheim City Council in a series of 4-1 votes Tuesday night approved a 200,000-square-foot expansion of the city’s convention center, with the council majority arguing that major events and their positive economic impacts would be lost unless the space is added soon.
Representatives of the city’s hospitality and tourism industry, construction trade unions and trade show workers attended in force to back the project. Nearly every seat in the council chambers was filled with a supporter, and the room thundered with applause when the votes to approve the $180-million project were cast.
Supporters say the expansion will add flex space that can be used as exhibition, ballroom or meeting areas and will allow multiple events to be held at one time. Such an addition will allow Anaheim to keep large gatherings that are outgrowing the center, such as the National Association of Music Merchants, and attract new conventions such as the American Heart Association.
“This can be boiled down to one word: jobs on many levels,” said Ross McCune, chairman of the Anaheim Chamber of Commerce.
Only William Dennis Fitzgerald — a local gadfly whose criticism is often dismissed after he makes offensive public comments — spoke explicitly against the project.
And from the dais, only Tom Tait, the city’s isolated mayor, cast dissenting votes. Tait considers the project too expensive and echoed experts from Harvard and the University of Texas, who said revenue assumptions from a city consultant are unsound.
Tait presented a slide show that included a side-by-side comparison of sections of Tampa-based Crossroads Consulting Services reports for Anaheim and Baltimore. The sections on convention center lost business – an important indicator because it shows a need for the flex space – were identical, evidence that leads experts to say such reports are boilerplate documents.
“At this point, I’m very concerned about our general fund,” Tait said.
The city will fund the project with general fund bonds, and the annual payments on them could reach $17 million annually and total $409 million over 30 years, according to a city staff report.
Tait moved to postpone the council action for 30 days so that the revenue forecasts could be scrutinized more closely. The council majority refused to support the motion.
“It’s the best public-private partnership that I can remember hearing about,” said Councilwoman Gail Eastman. “Let’s put a shovel in the ground. Let’s pour some concrete.”
A Chorus of Critics Nationwide
Economists, public policy experts and an industry think tank said that there is a glut in exhibition space and that convention and tradeshow demand has remained flat or even declined across the country, including in Anaheim. They argued that Anaheim and other cities racing to expand convention centers are essentially doubling down on a bad bet.
Chief among the critics nationwide is Heywood Sanders, a professor at the University of Texas at San Antonio, who is considered the foremost expert on the economics of convention centers. Sanders consistently cited examples where city projections have been wrong and specifically mentioned Anaheim’s last expansion in 2000.
City staff on Tuesday claimed that Sanders was wrong to say the expansion in 2000 didn’t pencil out.
The center’s rental and food-beverage revenue realized multimillion-dollar increases after the expansion, Tom Morton, executive director of convention center, sports and entertainment, told the council during a pre-meeting workshop on the issue.
For example, the food and beverage revenue in fiscal year 1997-98 was $1.3 million and by fiscal year 2000-01 jumped to $4.1 million, Morton said. Total operating revenue has increased more than $10 million since the 2000 expansion, according to Morton.
Sanders, however, has said measuring operating revenue is a “very small, largely irrelevant” indicator, because it tells only how the overall attendance of the center is doing, and that includes visitors who drive to the center and then drive home. It also doesn’t take into account increased maintenance expenses caused by the expansion, he said.
The measurement that matters most in the convention business is the number of out-of-town visitors who potentially stay at hotels and pay 15-percent room taxes, which represents the bulk of the revenue cities get from convention centers, Sanders said.
In the period before the 2000 expansion — 1996 through 2000 — the center averaged 667,771 annual convention and trade show attendees, according to data Sanders collected from Anaheim. The best year of that period, 1997, drew 748,000.
Sander said that not counting a possible fall in attendance because of the 9/11 attacks, the next relevant period starts in 2004. During the next five years, the best year’s convention attendance was 615,620 in 2007, less than the average annual attendance before the expansion.
The public debate on the financial wisdom of the project had until Tuesday focused on the models produced by Crossroads.
A Prior Deal
An entirely different revenue model was, however, at the center of the convention center expansion deal cut in 2010 between a former City Council, led by ex-Mayor Curt Pringle, and the city’s hoteliers.
The agreement called for a special 2-percent room tax on hotels, which allowed the city to eliminate a $6-million line item in the general fund dedicated to marketing and promotion of the local hospitality industry.
The millions from the marketing and promotion line item would then be dedicated to funding a convention center expansion and grand plaza, according to city officials.
Finance Director Debbie Moreno said the agreement with the hoteliers frees enough money to cover a funding gap highlighted by Tait.
That promotions budget for the convention and visitors bureau in 2010 was determined by calculating 12/15 of the city’s total room tax revenue, then taking 12 percent of that. According to Chamber of Commerce President Todd Ament, that revenue pool was conservatively estimated to grow by 3 percent annually for 30 years.
In total, that slice of revenue is forecast to be $450 million, Ament said, more than enough to pay the $409 million in facility debt service. This is important, because even if there are no increased revenues traceable to the convention center expansion, the project is still fully funded, Ament said.
Ament called it a “win-win,” because along with the $180 million for the expansion, the bonds include an additional $20 million for public safety facilities and neighborhood improvements.
“I don’t think anybody can argue that 3 percent is an absolute conservative approach to it. And we strongly expect to see that continue at the average of 6 percent — maybe if there’s a little slowdown at 5 percent,” Ament said.
City officials confirmed these figures at the meeting.
Tait said this logic is faulty, because it assumes that the city would be increasing its spending on marketing and promotions by 3 percent annually for the next 30 years and, in effect, locks it up that way — an assumption Tait called “wildly speculative.”
Under this formula, spending on promotions would rise to the $15-million range and beyond in the future years of the expansion financing plan. A future council, Tait said, might want to change that growing general fund allocation to other city priorities.
“If that was in a formula, why would you have a City Council?” Tait said. “It’s at the discretion of the City Council.”
Morton and Ament said it’s fair to assume the city could have been spending that much on promotions in 20 years and pointed to other cities that already spend much more than Anaheim.
In an interview, Sanders agreed with Tait, saying that such an assumption casts the question of what to do with growing revenue “in the narrowest possible terms.”
“Nobody asks, we’ve got an extra $6 million inflated each and every year. … What should we spend that money on?” Sanders said.
“If you only ask hoteliers where they’d like to spend their money, you’re going to get an answer that effectively will be, spend it on hotels, … but that’s not necessarily something that invariably makes sense for Anaheim.”