Zurik: Convention Center cash piles up as attendance numbers fall flat
NEW ORLEANS (WVUE) - Heywood Sanders has criticized the convention center industry for 20 years.
"I've been called lots of names," the University of Texas-San Antonio professor tells us. ""They used to call me 'Dr. No.'"
In his book, Convention Center Follies, Sanders warns cities across the country, including New Orleans, to say no to the hundreds of millions of dollars in public investments in convention centers.
"This is the reality of how the business is doing," Sanders says. "And right now, it's not a very pleasant reality at all."
A document from New Orleans' Ernest N. Morial Convention Center - its continuing disclosure statement for 2015 - tracks the number of out-of-state attendees at conferences every year. Consider the numbers from 1986 and 2015: 517,000 and 503,000 people, respectively. Almost 30 years and several expansions later, attendance at MCC is essentially flat.
"In terms of a private business, if you were to ask a local business person, 'How's business?' And they were to tell you, 'It's great, we're doing the same business we did 30 years ago,' I don't think they'd be really happy," Sanders says.
While business has remained flat, the taxes received by the convention center have steadily risen. A decade ago, it collected $25 million annually. It's now up to $59 million, mostly from dedicated hotel/motel taxes.
Records show the center has amassed a reserve of $222 million. The reserve accumulation comes from an annual budget surplus, $25 million in 2015 - the Morial Convention Center doesn't spend all the money it takes in, even as the city itself pinches pennies to pave streets and pay police.
"Right now the dollars that the city is able to dedicate to streets is much less than what's going to the Convention Center," says Amy Glovinsky, president of the private nonprofit Bureau of Governmental Research. "I think it's sort of… three percent vs 13 percent of tax revenue.
BGR published a report, The $1 Billion Question, questioning whether tax dedications like this across the city make sense. The group points out that, over the past 30 years, the state legislature voted to allow the Convention Center to collect taxes for specific expansion projects.
"What appears to have happened is that, over a number of years, as the different phases have been built - or in one case, abandoned - the taxes have remained in place," Glovinsky says.
Consider the center's Phase IV expansion - the taxes were put in place in 2002, but the project shelved after Hurricane Katrina. To this day, MCC continues to collect $15 million a year for that shelved project.
Mayor Mitch Landrieu called BGR's $1 Billion Question "a spectacular report." In a speech at a BGR event in January, the mayor said such lucrative tax disbursements must be reevaluated.
"All of this hotel/motel tax that comes through the city, your city only gets two pennies of it," Landrieu said. "There are lots of assets in this city that we don't get the benefit out of, because folks over the years have taken it away. And we need a massive review of all of those, to redirect the resources that we already have to things that might be the priorities of the citizens today."
This is the linchpin of the tourism industry, us and the French Quarter. - Bob Johnson, Morial Convention Center GM
"One of the few industries in this city and in this region that is thriving and growing and has the potential to create some economic development, economic growth - why would anyone think it was a good idea to start choking off those resources that have been dedicated to the tourism industry?" asks Bob Johnson, general manager of the Morial Convention Center.
Johnson argues the surplus cash should stay in economic development - specifically, in his building. "This convention center is the engine that drives it all," he says.
But the Morial Convention Center is not the only conference and trade show host in town. Last year, just 41 percent of convention attendees went to MCC; 59 percent used space at hotels.
"That's great," Johnson responds in a recent interview. "Like I said, we should have another hotel that does even more."
Johnson acknowledges that hotels are commercial entities, and do such business without the benefit of MCC's tax-funded reserves. "Granted," he says. "I mean, we don't have any hotel rooms to sell."
A 2015 University of New Orleans study of local tourism reveals just 11 percent of visitors in 2015 came for conventions or trade shows.
Given such numbers, does the city's convention center truly require a $25 million annual cash surplus, funded by taxes?
Johnson says it does. "This is one of the only thriving industries in the region, in the city particularly," he says. "It is thriving because that tax stream supports this building, both from an operations perspective and from an economic development and economic growth perspective. If that's choked off, then the hospitality industry begins to dry up."
Now the Convention Center wants to grow again. It plans to spend $175 million on a new project that includes creating a headquarters hotel.
"There will be entertainment, housing - we want the people who work there to live nearby - restaurants, attractions that are uniquely New Orleans-kind of attractions," Johnson says. He envisions "a real 'Mardi Gras World' that the guy from Peoria that's down here in July, he can really experience Mardi Gras in a real, professionally done, multimedia interactive experience."
The center told BGR that $70-80 million in public funds could go toward the private hotel costs: But Johnson says nothing has been finalized; we have no idea what the return on investment might be.
"Because we haven't cut a ribbon in this city in 35 years relative to tourism, except for the WWII Museum, we are falling woefully behind," Johnson tells us. "And the fact that we have this funding mechanism in place to be able to do some of those things is imperative."
When we point out that the city can also list such big-ticket developments as the Superdome renovation, Harrah's Casino, the Hyatt Hotel and a list of other infrastructure improvements to facilitate tourism in the city, Johnson retorts, "And how were they funded? Yeah, supported by the tourism taxes. The Superdome has been renovated and maintained. The Convention Center has been expanded… the last time, last expansion was 1999."
Was that because the Convention Center decided they didn't need to expand anymore? Johnson responds, "The Convention Center didn't decide that, the circumstances decided it."
Another document obtained by FOX 8 shows, in 1986, the center collected just $5 million in taxes, or $10 in tax money for every visitor it attracted to the city.
In 2015, MCC's tax revenue approached $60 million; the center is getting $118 in taxes for each visitor it attracts. Right now, about $11 million a year to MCC comes via a food and beverage tax - every time you go to a New Orleans restaurant or bar, a portion of that tax money goes to the Morial Convention Center.
According to UNO's survey, visitors most often criticized the city's cleanliness, infrastructure and safety. We ask Johnson whether redirecting $15 million of tourism tax revenue toward public safety – protecting tourists and residents alike – might not also help the convention industry.
He responds, "Well, it sounds great. But if that money is diverted, how do we know where it's going to go? How can you guarantee that?"
In April, city voters rejected a property tax increase to expand the police force.
"We've got these incremental needs that keep raising their heads," Glovinsky of BGR notes. "I think what we're seeing is often a reluctance by the public to accept more tax burden. And so, if you accept the premise that there's limited tolerance, limited taxing capacity based on the public's willingness/intolerance to pay, then I think we have to take into account whether the streams of revenue that currently exist should be reevaluated."
Last month, the Morial Convention Center committed more of its cash into a weekly, round-trip flight to and from London.
"The British Airways flight - we're providing a substantive amount for the backstop for that that flight, to subsidize that flight, $750,000 a year," Johnson tells us. He could not tell us who actually will receive that money, or what the return on MCC's investment might be.
These dollars don't belong to the hotel business, they don't belong to local restaurateurs. They belong to the public; they're public dollars. - Heywood Sanders, public policy researcher
This public policy 'Dr. No' says city leaders across the U.S. need to ask questions, and shouldn't simply accept as fact that all the tax revenue generated in New Orleans is distributed appropriately.
"The public ought to be the folks who make the decisions, with the full information of how this stuff actually works. Are there ways we might use that money that would be more functional, that would be more profitable, that would do better by the city? Could we use it in a way to make New Orleans a more desirable destination?
As BGR notes in its report, public entities in Orleans Parish - including the City of New Orleans itself - shared a bit over $1 billion in tax revenue last year, including the millions from tourism taxes. But MCC officials say they don't look at all that tax revenue as a single pot of cash. Rather, they consider the tourism money to be a separate stream, arguing that the way to climb out of the city's fiscal mess is through economic growth and development - which, they say, they bring.
MCC also contributes $2 million a year to help fund State Police units in the French Quarter, and center officials say they plan to spend tens of millions more on infrastructure in the area.
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