The New OKC Convention Center and Hotel: Implications for MAPS 3 and Economic Development

<strong>Background Summary</strong>

On December 8th, 2009 voters passed MAPS 3, a seven year one-cent sales tax to raise $777 million to pay for a convention center, a world class park, a downtown transit system, four senior wellness center, river and fairground improvements and trails and sidewalks. The convention center was, by far, the least popular of the projects showing large majority opposition regardless of age, gender, political party, race or income. The Convention Center was presented as costing $280 million with its location to be at SW 4th and Robinson (the Core to Shore South site). That such placement would require moving an OG&E substation costing approximately $30 million was not publicly discussed during the MAPS 3 campaign. The City never performed a needs assessment study and instead relied solely upon one study, commissioned by the OKC Chamber from a consultant, Convention Sports and Leisure (CS&L , Mar ‘09) , to estimate the economic development impact of such a center. The CS&L study, which the OKC Chamber has refused to release to the public, made clear that such a project would need a roughly 650-room convention center hotel which would require public subsidies with a midrange of $50 million. The notion that the public would need to subsidize a hotel was not publicly discussed during the MAPS 3 campaign. Once MAPS 3 passed, a consultant (ADG) was hired to oversee implementation of all the projects by working in conjunction with a subcommittee for each project. ADG presented an initial timeline for implementation of the projects in March 2011 and then presented revised timelines of which moved up the convention center after protests were issued from the convention center subcommittee. A consultant (Populous) was hired by the City to recommend a convention center site location and after a four month process recommended the old Ford Dealership site (Core to Shore North).
As we approach the point of no return, many questions remain unanswered, including:

<strong>Why does the OKC Chamber Keep Saying No to Releasing It’s Convention Center Study?
</strong>
OKC has put all of its eggs in one basket in terms of the research guiding our convention center development. The City never performed its own study and instead has depended solely on the CS&L Study to predict future economic development and success of the center. The potential economic development recently cited by consultant ADG as a reason to move the convention center forward in the timeline comes exclusively from this study. Many U.S. cities’ CS&L convention center studies have been published and are available to the public online. Why then, does the OKC Chamber repeatedly refuse to release to the public it’s own CS&L study, restricting our access only to an “Executive Summary”.

<strong>Would MAPS-3 have passed if the public was fully informed about the costs of a convention center?</strong>

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Fifty-four(54) percent of voters passed MAPS-3 after an intense campaign. Advocates, including principally the OKC Chamber, spent estimates of $3+ million for the campaign, while opponents spent roughly $150,000. The Achilles heel for MAPS-3 passage was the convention center, with polls, such as the 9/23/09 Gazette/News9 poll, showing 27% approval with large majority opposition regardless of age, gender, political party, race or income. What was withheld from the public during the campaign was that the study proclaimed that in order to capture maximum economic development benefits, the public would need to fund a second expansion of the convention center after MAPS-3 and would have to subsidize, if not own, a convention center hotel. Midrange estimates for the taxpayer are in the $50 million range (subsidy of $50 million towards a roughly $250 million hotel). Quoting from the CS&L study:

“As clearly defined in the Market Demand Analysis, a new headquarter hotel…will be needed…The costs to develop a headquarter hotel are significant. There are no examples nationwide of a fully privately-developed convention center headquarter hotel in at least the last five years”

<strong>Should we accept the CS&L estimates of increased convention attendance when empirical convention center economic data is worrisome?
</strong>
The amount of square footage for convention exhibitions nationwide has increased 75% since 1990, increasing from 40.4 million sq. ft. to more than 70 million sq. ft. today. Convention center expansions in cities across the country are all being financed at taxpayer expense and all made with the same argument being made in OKC; increased capacity will attract larger events and lure more out of state visitors who will spend money in OKC and generate growth. The CS&L study estimates that a 285,000 sq. ft center will cause a tripling of total economic impact from $26.6 million currently to $78 million with jobs increasing from 412 to 1,121. Attendance at conventions and consumer shows, unfortunately, has plummeted from 126 million in 2000 to just 86 million in 2010 (Trade Show Week, 2010). Continued tech advances have decreased the need to travel and the economic downturn has provided strong disincentives for corporate travel expenditures. In order to earn business, convention halls are increasingly required to give massive discounts for exhibit hall rental resulting in substantial decreases in revenue for the convention center. The reader is encouraged to review the Boston Globe’s 4/22/11 article indicting the accuracy of CS&L studies. Convention attendance in Atlanta has decreased from 800,000 in 2007 to 473,000 in 2010. Convention center hotels in St. Louis, Phoenix, and Austin have recently had their debt rating reduced to speculative status. Minneapolis expanded its convention center based on the advice of a CS&L study in 2002, has occupancy rates of 50%, and has lost as much as $15.6 million/yr. Richmond spent $170 million to expand its convention center which is now seeing 39% fewer visitors than its old facility. According to Competitive Enterprise Institute analyst Marc Scribner “These consultants always say there is this untapped potential out there…But they are consistently wrong.”

<strong>What additional funding will be sought for the new convention center and hotel and where will it come from?
</strong>
Efforts have been underway for more than two years to secure a downtown convention center hotel (according to a statement from Convention Center Subcommittee member Mike Carrier to the Gazette). Midrange estimates of the required taxpayer subsidy is $50 million but leading convention center expert Heywood Sanders (U. of Texas San Antonio) believes OKC taxpayers will have to pay much more. From where will these funds be secured? Is the OKC Convention and Visitor’s Bureau adequately funded to attract and organize “high impact conventions”? How much will maintenance of the convention center cost? How do advocates plan to fund the long-term development plan, which envisions a Phase 2 Expansion to increase available square footage to 425,000?

<strong>Why did ADG utilize markedly flawed methodology in determining the economic development impact of the different MAPS 3 projects, particularly transit?</strong>

Induced economic development is the cornerstone of the argument for proceeding with development of the streetcar as it encourages housing and retail in the area of transit stops. In a recent workshop, ADG agreed with estimates from cities such as Portland and Seattle suggesting $8-14 induced economic activity for every $1 invested. With federal matching funds, the streetcar investment will approach $200 million. Stating that because such economic activity could not be accurately predicted, ADG eliminated such induced economic activity from consideration entirely. The ongoing induced economic impact of the potential $200 million streetcar transit project was estimated by ADG to be $163,000 and 7 jobs created.

<strong>If our projections are wrong and convention attendance does not significantly increase, will a 650-room, publicly-subsidized hotel decimate our existing downtown hotels?
</strong>
Contrary to the claims made by the OKC Chamber’s CS&L study, empirical data does not at all support the contention that a convention center hotel would increase demand in the local area market around the convention center. Instead, the new publicly subsidized hotel is likely to dilute the business of our downtown hotels. With the new convention center hotel absorbing existing demand, our downtown hotels may suffer unsupportable losses, possible closures, and potential bankruptcies, with the resultant decrease in real estate prices stemming from having large empty buildings.
A 2003 study by Source Strategies Inc. found this scenario to be the case after the opening of every single one of the 16 large convention hotels built and opened in Texas between 1980 and 2003. Again, we are gambling our existing hotel economy on the contention of a single controversial CS&L study contending that we are going to triple our non-local out of state convention attendees. If that increase doesn’t come to fruition, and we build a publicly subsidized hotel, we decimate our existing downtown hotel stock.

<strong>Why were many of the disadvantages of the Ford Dealership site minimized or ignored in the site selection process?
</strong>
ADG has budgeted $40 million for land acquisition. As reported in the Gazette, only nine months ago, in a highly controversial real estate transaction, less than an acre(0.96), “the Vitagraph property”, immediately across the street, is listed on the county assessor’s site as being sold for $6.9 million. The 10.46 acres of the Ford Dealership site would cost the taxpayers $75.2 million using that “comp.”
In October of 2010, Fred Hall, co-owner of the Ford Dealership with Bob Howard, indicated that he was going to develop the land in a “mixed-use” fashion with retail and housing. We have now lost a golden opportunity for such sorely needed development. We have placed an awkward convention center between two parks. Since we promised voters pedestrian-friendly walkways between the parks, we are now trying to find a way to dig a 45 -foot hole at the Ford Dealership site to bury the exhibit halls without knowing exactly how much that would cost. By placing the convention center in the most prime location, you must have four aesthetically pleasing sides to the building (loading docks and staging areas now must be placed underground). We have committed to building a showpiece, which we cannot afford. Instead of having a new Boulevard, which could serve as a street of interest for pedestrians, we will now have a Boulevard, which doesn’t touch a single area of meaningful development. We have now created another superblock in an area that has 5 superblocks. We have created a “dead zone” in what could have been a thriving area of the city since the convention center is only utilized roughly 150 days of the year and generally not at night or on the weekends.

<strong>Why did Populous, hired by the City to produce an objective study on convention center site locations, change the scores of the different sites on certain variables at the request of the Convention Center Subcommittee?
</strong>
The scoring system utilized to rank the convention center sites was highly subjective. Using Populous’ own criteria, other sites could easily have been chosen.
The composition of the Convention Center subcommittee consists of some of the most powerful business leaders and downtown real estate holders in the city and their presence introduces potential bias into the decision-making process.
If the CS&L predictions pan out, new out-of-state attendees alone (the overwhelming majority would be local or in-state producing far greater revenue) would be expected to spend $11.3 million on lodging, $6.5 million on food, and $2.9 million on retail per year. However, by placing the convention center at the Ford site, the only facilities which would be completely within the ¼ mile radius that pedestrians would be expected to walk (especially with OKC weather) would be the shops and restaurants of the Devon Tower complex and Devon’s Colcord Hotel. Earlier this year, in a previous ranking, the East Bricktown site was favored ahead of the Ford Dealership site in terms of proximity to dining and entertainment establishments. In the final ranking, the score was altered to reflect equal ranking “as requested by the subcommittee (p.51).”
The OG&E substation will likely need to be moved, at an estimated cost of $30 million, regardless of where the convention center is located. The land for the Core to Shore South site is much cheaper than the Ford Dealership site and the City already owns most of the land for the East Bricktown site. Nonetheless, the scores
were even between the East Bricktown and Ford Dealership sites while the score for the Core to Shore South site was decreased from the highest score of 5 to the lowest score of 1 “as requested by the subcommittee.”

<strong>Where do we go from here?
</strong>
Voters approved $250 million for a convention center ($280 million minus the $30 million which would have been required to move the OG&E substation at the convention center site which was presented to voters) largely because it was bundled with other projects which were much more popular. Forced to face a vote on its own, the voters almost certainly would not have approved financing a new convention center at this time. Given the will of the people, and OKC’s horrifying and unsustainable health epidemics, the “quality of life projects” such as trails, sidewalks, and senior wellness centers, neglected over the 1 ½ years since MAPS 3 passage due to our preoccupation with the convention center, should be implemented with urgency. The people did not approve funding for a very expensive convention center hotel, studies do not support its development, and ongoing financial losses of these hotels are commonplace and can be severe. Taxpayer subsidies for a new convention center hotel should either be denied or subjected to an additional vote of the people. We should restrict spending on a convention center to the $250 million approved by the voters and not fall into the trap of throwing ever-increasing amounts of money to attract out of state convention attendees when the overwhelming amount of empirical data does not support such decisions. $250 million is more than enough to capture the “quality of life” benefits of a convention center, such as high school graduations and funerals, recently espoused by Roy Williams of the OKC Chamber. As a City Council, it is healthy and prudent to encourage and ensure extensive civil debate about the far-reaching implications of our decisions, which will impact the people of OKC for decades to come.

Dr. Ed Shadid