On Process and Economics: How to think about the proposed Convention Center
The city council is in the final stages of approving a plan that will result in the development of a city-owned convention center conjoined with a privately-owned full-service hotel on the UNT land previously occupied by a large Radisson Hotel. This plan represents a partnership between the city (who will own the convention center), O’Reilly Hospitality Management (who will construct and own an Embassy Suites hotel), and UNT (who is leasing the land). As the plan reaches these final stages, there is increased interest in the project from many sectors of the city. The Denton Neighborhood Alliance is organizing a meeting to discuss this project (with city staff on hand to present and answer questions) on Wednesday, July 9 at 7pm in the historic Courthouse on the Square in the Commissioner’s Courtroom.
Today, the city released a video and FAQ addressing many of these issues today – see it here.
QUESTIONING THE WISDOM OF A CITY-OWNED CONVENTION CENTER
There are several recent articles questioning the wisdom of the city convention center craze across the country - here’s one that is helpful in laying out the basic criticism that is common to many of them. I’ve read just about all of them and passed many around to city staff members and council colleagues early in the process. Here are the main points that are important to our discussion:
- Convention Center space has increased over the last 20 years while the amount of actual conventions has declined – a glut of space combined with fewer conventions.
- As a result, some Convention Centers have not been successful. There are examples of many that have an actual negative economic development effect on the city precisely because the city has to support a failed convention center that it now owns.
- Cities sold these city-owned Convention Centers as a driver of tourism and outside money flowing in to support the local economy. Because of the previous two points, these promises have too-often gone unrealized.
Beyond this argument, several others have been offered by concerned citizens, including:
- Issues with the location – not near major retail, restaurants, downtown, or tourist attractions. How can we see economic development with this site?
- This will likely fail and the city will be left holding the purse and have to pay off the $25 million investment through other means.
- Distrust with partnering with UNT for one reason or another.
- No one wants to come to Denton for a convention.
- An abundance of regional competition for convention center space in better locations.
HOW TO THINK ABOUT THIS CONVENTION CENTER PROJECT
At the end of the day, this project is about economic development, so it is helpful to break down the discussion into two main questions – many, if not all, of the above issues can fit into one of these questions:
1) Is the project financially feasible and responsible?
2) Will the project spur significant economic development to justify the $25 million investment?
I’ll get to these two questions shortly, but I’d like to first offer a brief interlude on the question of process…
A DEFENSE OF THE PROCESS
In recent days, some of the opponents of this project have alleged that the city council has left the Denton citizens out of this process, some even going so far as to claim that the city has been hiding this project and its details up until now. While I certainly appreciate that some are just now paying attention to this issue for the first time, it is simply not true that this issue has been discussed outside the public eye and without the public’s ability to engage this issue.
There have been at least 22 public meetings where this project has been presented openly and accessible to the public since the proposal first came to the city in September 2011. The Master Developer Agreement has been publicly available since November 2013. I write weekly City Council Preview posts on this website FOR THIS VERY REASON: to open up City Hall to the citizens, translate the often legal-sounding language of council agendas, and give another avenue of citizen engagement for whoever is interested. To date, I’ve posted about this topic at least 12 times since Spring of 2012, often with links to PowerPoints and other media your average person wouldn’t have easy access to outside of attending meetings. I haven’t yet scanned through the 250 results coming up when you search for “Convention Center” online at our local newspaper, but I assure you this has graced their front page and editorial page on several occasions over the last two years. This has also been a major issue addressed in several candidate forums during the last three election cycles (2012, 2013, and 2014).
While it is true that there has been only one official “public hearing” on the issue, it is important to understand that “public hearing” has a specific legal designation and is required for certain things and not for others. Many important and/or controversial topics have only one official “public hearing” before the council prior to council action: the gas well ordinance, the smoking ordinance, zoning decisions, etc. But that doesn’t mean there aren’t other opportunities to engage the council during regular meetings (speaking to items of Individual Consideration, Citizen Comments section, etc.) and outside of meetings altogether. On this issue, many have up until this point. I’ve received several emails (even before this latest round), many phone calls, have visited with several citizens and concerned hoteliers, and am stopped often around town to discuss this and other issues. While the official “public hearing” process is hugely important, most people I know prefer to give me their opinions on a subject in other ways: email, phone, letter, social media, or even stopping me at the grocery store. In fact, on most issues, I tend to get more feedback outside the council meetings than I do at the actual council meeting. And there’s a benefit to that – we can actually have an extended conversation as opposed to the rules which prevent back and forth discussion during formal public hearings. It’s one of the beauties of local government: accessibility to the decision-makers.
While I understand that the narrative, “City Council is not listening to you and they are about to spend your money without getting your feedback!” is helpful in getting people’s attention, it is neither true nor helpful in focusing on the important issues at hand.
QUESTION #1: IS THE PROPOSED PROJECT FINANCIALLY FEASIBLE AND RESPONSIBLE?
Let’s return to the two questions I posed at the outset of this article. Regarding the first one, I will point out that the council has made it clear from the beginning of these discussions that the city would not approve an agreement that didn’t include safeguards to protect us against low performance. The city will fund the construction of the $25 million project and the debt will be repaid through: 100% of the Hotel Occupancy Tax from this project, up to $100,000 of existing HOT funds, 100% of the city property and sales taxes from the new hotel, possible involvement from the county and school board property taxes from this location, and annual lease payments from O’Reilly to cover whatever shortfall is left between the revenue just describes and the debt payment owed by the city. It is expected that the project will pay for itself. If it doesn’t the private developer involved will make up the difference. This is crucial – most, if not all, of the city convention centers described in the articles referenced above did not have this sort of protection. We’ve learned from that and sought to build in that safeguard to protect the city and the citizens.
It remains to be seen, however, what will this project bring to the city beyond simply paying for itself.
QUESTION #2: WILL THE PROJECT SPUR SIGNIFICANT ECONOMIC DEVELOPMENT? ENOUGH TO JUSTIFY THE $25 MILLION INVESTMENT?
This entire project has been couched in economic development terms. The purpose of the project and how it is done is stated in this city document released today: “The purpose of a convention center is to attract out-of-town business and generate economic activity throughout a city. The economic benefit is received from money spent by convention delegates before, after, and in between meetings.” The document then estimates a $13 million annual economic impact to the city as a result of the convention center.
Let’s break this down.
The $13 million assumes a $140 per day average spending rate among an estimated 46,500 collective nights of overnight-spending convention-goers. It also assumes a dollar for dollar multiplier effect in our local economy. For discussion sake, let’s assume all this. We also know that the $140 figure includes hotel costs – estimated to be about half of the total dollars spent per day. Assuming the bulk of these conventioneers are staying at the on-site hotel, it is important to point out that there are no additional economic benefit to their hotel costs. Anything the city would have received from their stay at this hotel will go directly toward paying the debt of the convention center. In order to account for this, therefore, let’s cut the original $13 million figure in half and assume a $6.5 million annual economic impact on the city (which is really a direct $3.25 million impact times two for the multiplier effect). This figure would account for non-hotel spending in the city – the “money spent by convention delegates before, after, and in between meetings.”
While that figure sounds decent, realize that any city-specific project with economic development goals needs to also look at this in terms of annual sales tax revenue for the city. At a local sales tax rate of 1.5%, the city will only see $97,500 a year in new sales tax revenue off this $6.5 million. Breaking this down even further, this means that each conference attendee will contribute only about $1.05 a day to the city’s tax base. To put that figure into context, annual revenue from sales tax city-wide is approximately $26 million – this project only amounts to about 0.375% of the annual revenue stream from sales taxes. You can also compare that with other things. Golden Triangle Mall itself seems to be contributing at least $1 million a year in sales taxes. There’s a movement afoot to allow retail liquor sales in Denton (it will be on the November ballot) – that is estimated to generate $700,000 in sales taxes a year.
$97,500 a year for a project that takes $25 million of city money to build. $700,000 a year for something that costs the city nothing.
If convention dollars spent in Denton is the main economic development argument for this Convention Center, based on this analysis, things aren’t looking good. With $25 million for a project coming from Certificate of Obligation bonds, there’s a debt capacity issue here which requires us to do an Opportunity Cost analysis. What else could the city do with $25 million to spur on economic activity beyond an additional $95,000 in sales taxes each year?
THE ARGUMENT AHEAD
It is time for those who have advocated for such a project for years to come out and make a case. If it is all about boosting tourism dollars, it’s unclear that $95,000 in annual new sales tax revenue is worth the $25 million investment. There are, however, additional arguments that might be made here:
- What’s the economic value of having a convention center for existing businesses in Denton? How can it help large companies in their mission and aid small businesses in their desire to scale? For that matter, what is the economic value of having a full-service hotel in town?
- What does the presence of a convention center add to our city’s economic development portfolio or toolkit? How does this help encourage greater economic vitality from within and renewed interest from without?
- How might the presence of this project spur significant redevelopment of the area directly across the highway? The entire area North to Eagle Drive, East to Carroll and West to Bonnie Brae is arguably ripe for major reinvestment and redevelopment. Are there related plans for this and how can this be added to the equation?
- What’s the economic impact of a major research institution to the city? Beyond its role as a major employer, how can it be leveraged to make Denton a hotbed of entrepreneurial activity and research-based business incubators? What, if any, impact does a Convention Center have on this?
- How can the presence of a Convention Center help Denton become a leader in certain sectors and industries by allowing the city to be host to targeted events and conferences?
- Is there a cumulative economic development case (using these and possibly other factors) that can be added to the tourism/convention dollars argument?
I continue to think that there are good reasons – beyond the convention-spending argument – to think this project can be good for the economic well-being of the city. But those need to be made and communicated to the citizenry. The old boosterism aims of these projects, as the growing literature is showing, can not be the entirety of the case for a Denton convention center.
I look forward to the continued discussion. Stay tuned to this website for more on this. Also follow me on Facebook and Twitter for updates.
Here’s the video just released by the city today…