Covid schmovid. City Council wants a new Convention Center.

City Council is poised to take an important step toward building a new Convention Center. Today it is considering a resolution that would authorize city staff to enter negotiations with the owners of two properties that the city is eyeing for the future CC. The resolution authorized staff to provide up to $6.3 million in “earnest money,” which suggests they are envisioning paying as much as $600 million just to acquire the land for an expansion. 

This move comes after a meeting on Tuesday in which HVS Convention, Sports & Entertainment, the nation’s leading Convention Center consulting group, presented an economic analysis touting the benefits of a bigger Convention Center. The report argues that Covid-19 is a temporary setback for trade shows, conventions and meetings, but the industry will eventually claw its way out of the abyss and Austin will need to have a bigger Convention Center if it hopes to compete with peer cities. 

If there has ever been an instance in which HVS recommended that a city not expand its Convention Center, I’d like to see it. I have a strong suspicion that that’s a recommendation they’ve never made. Yesterday emailed Thomas Hazinski, who heads the firm’s consulting practice, to ask whether they have ever advised a city not to expand. I haven’t gotten a response yet. 

Now, technically HVS wasn’t hired to tell the city whether to expand the Convention Center or not. Council already had a report by a group of folks at UT that it used to justify the expansion last year. That report actually focused more on potential designs for a new CC, but it offered some pro forma economic analysis as well. 

You may have to zoom in to see the figures below, but at the bottom you’ll see that the UT study presents three scenarios for the number of jobs that a larger CC will create. In the “base case,” which essentially is what the report considers a middling outcome, the new CC will add 355 jobs to the local economy. In the “upside case,” they project it will add 954 jobs.

The HVS analysis was far more optimistic. Even though it projected an increased attendance of only 350,000 per year, it projected that the expansion will add 1,772 jobs to the local economy. That’s nearly twice the number of jobs that the UT study projected in its “upside” scenario where CC attendance increases by 500,000.

What explains the huge discrepancy in these projections? Hard to say. Both studies say they relied on same IMPLAN input-output software to estimate the economic and employment impact of CC expansion. 

Things were likely bad even before Covid
Considering how much taxpayers pour into Convention Centers, there’s surprisingly little analysis of their economic impact. Heywood Sanders, a professor of public administration at UT-San Antonio, seems to be the only scholar who has paid much attention to the issue over the past 20 years.

In a report that he just prepared, Sanders says that Convention Center attendance at the nation’s four largest facilities (Chicago, Las Vegas, Orlando, Atlanta) has still not returned to the levels experienced before the 2008 financial crash.

At the very least I would like to see HVS and other Convention Center proponents address these facts. The prospect of an enormous investment in an industry that was not even keeping pace with population growth before the pandemic is troubling. 

Here’s what has happened in Las Vegas since the major expansion in the early years of the century. It appears that the expansion prompted an immediate spike in attendance but that quickly evaporated in the Great Recession and has never recovered.

Sanders highlights a few major national conventions that have seen their attendance dip. For instance:

If he’s cherry-picking, I’d like to be presented with some examples that prove it. 

Even the figures provided by industry cheerleaders aren’t very encouraging. According to the Center for Exhibition Industry Research, the industry has underperformed the overall economy more often that it has overperformed it. But the convention industry suffers far greater than the overall economy during downturns. 

See below how the industry compared to GDP over the past decade. It got absolutely crushed in the years following the 2008 crash and in recent years it has generally grown at a rate slower than overall GDP. This is despite a steady stream of investment by cities to expand Convention Center space. 

So, about COVID…
The short-term impact of COVID on tourism in general and conventions in particular makes the 2008 recession look like a picnic. Hotel tax revenue, which is what is needed to fund the new CC, has plummeted. For what it’s worth, in a July assessment of the city-owned Hilton Hotel, Standard & Poors projected that revenue per room will not return to 2019 levels until 2024. 

The intense decline in the short-term is worrisome enough, but what about the long-term impact of the fundamental shift in work behavior prompted by the pandemic?

The past six months have certainly highlighted the limits of Zoom meetings. But they’ve also highlighted the opportunities. People are eager to talk with their colleagues face-to-face again, but it would be foolish to assume that everything is going to return to the way it was before. Because frankly, it shouldn’t. Being in the same room with clients and colleagues is beneficial, but it’s not always necessary. My guess is that, assuming that this pandemic is eventually resolved, more employers are going to tolerate more remote work, more flexible schedules and they’ll likely spend less on conventions.  

Here’s some more background I’ve written on the Convention Center and why local leaders insist we have no choice but to continue supporting it. 

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2 thoughts on “Covid schmovid. City Council wants a new Convention Center.

  1. “My guess is that, assuming that this pandemic is eventually resolved, more employers are going to tolerate more remote work, more flexible schedules and they’ll likely spend less on conventions. ”

    You’ve left out the potential alternative, that with more remote work we end up seeing an _increase_ in convention attendance.

    Anecdotally I’ve heard of companies taking this occasion to go entirely virtual, forgoing even having an office. For such companies, there’s still a requirement for occasional in person meetings for sync ups or even just team building.

    So if you’re going to fly a bunch of remote workers somewhere, and meet somewhere (since you don’t have office space) why not kill two birds with one stone and do so at a convention.

    Hypothetical, sure. But so’s the “likely spend less on conventions”.

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