The convention center debt problem
Like their federal cousins, local government officials have a habit of spending taxpayers money – or worse, issuing mountains of debt – on projects they assure residents are guaranteed money makers. So it has been in towns and cities across the nation with convention centers, which promoters said would fill city hotels, restaurants, and attractions with convention goers, and make everyone in town richer.
As Steven Malanga writes, those promises are turning into costly, debt-fueled lies:
Local officials used low-cost municipal bonds to raise funds to build or renovate centers (partly because private industry was wary of investing in these megaprojects). The cities then promised bond-buyers that taxes on hotel rooms and other spending by visitors would pay off the debt. Projects arose at a dizzying pace. From the mid-1990s through 2010, cities added 30 million square feet of convention space, an increase of 75 percent.
The only problem: the growth of the convention business didn’t keep pace. In fact, it declined. From 2000 through 2010, the number of attendees at conventions fell by nearly a third, from 126 million to 86 million.
Subsidies and other government handouts were used to prop-up these white elephants when revenues failed to meet expectations. And then the coronavirus hit:
The pandemic lockdowns of 2020–21 brought the convention business nearly to a standstill. Revenues have dried up, leaving behind billions in debt. To make do, municipalities are dipping into their own tax revenues or pushing debt on these centers further into the future. The board that runs the Lexington, Kentucky, Rupp Arena and convention center had to refinance $275 million in debt last September to avoid defaulting on $8 million in bond payments. The threat of default also forced the Wisconsin Center, a downtown Milwaukee convention facility, to restructure its debt last June; it cut interest payments to $8 million from $25 million this year at the cost of incurring new debt.
Convention center backers, however, refuse to admit defeat, promising that mixed or “hybrid” gatherings are the wave of the future, so smiles, everyone!
The reality is much different:
…many centers were only busy half the time. Even a modest shift toward hybrid meetings will increase their deficits. That’s not a minor concern, considering that municipalities and tourism authorities already owe billions of dollars in debt and that they’re adding new obligations on top of all that red ink.
“Convention Centers are a stagnant and dying industry that require endless taxes,” the former mayor of Seattle wrote shortly after the lockdowns began last year. “The pandemic exposed its fragility.”
Now the bill is coming due.
And as with all bills run-up on the public credit card, taxpayers will have to pay for it.