Austin’s Convention Center Loses $28 Million a Year. Do We Really Need a Bigger One?

Austin Convention Center Financial Losses

Austin hotels profit handsomely whenever a big trade group or association comes to town for a convention. But in the meantime the city government is footing a good chunk of the bill for these conventions.

The city’s convention center department on average lost net $28 million a year in the most recent five years reported – a shortfall made up by city taxes. And now the City Council wants spend about $1.2 billion expanding the center. Is it worth it?

Supporters of the proposal argue that a larger convention center would bring new jobs and revenue in the form of higher collections from sales tax and hotel occupancy tax. But according to a March 2019 study by the UT Austin School of Architecture, Center for Sustainable Development, the cost of the expansion would dwarf any tax gains brought by new visitors.

Even in the best-case scenario looked at by UT Austin planners, “The incremental tax increases would not be sufficient to cover the capital costs of such an expansion,” the study says. The expansion would be economically justifiable only because of “enhancement to Austin’s ‘brand value,’” plus the intangible value of attracting “influential business travelers” to Austin, they wrote.

In short, the $1.2 billion proposed investment in Austin’s Convention Center is not going to pay for itself.

That’s one reason why a group called UnConventional Austin is campaigning to prevent the city from doling out more tax dollars to the Convention Center. The group is asking voters to support a ballot measure, City of Austin Proposition B, that would require voter approval of any expansion costing more than $20 million.

The Chamber of Commerce and other interested parties are opposing the measure. “Proposition B would make it impossible to expand the convention center, hurting our reputation as a premier destination for conferences, and costing the city revenue from lost future business,” said Chamber Board Chair Brian Cassidy.

The Austin American-Statesman, which also opposes the ballot proposition, penned an editorial arguing that Austin already misses out on many events because the existing Convention Center is overbooked or is too small.

The Statesman editors also point to what they call a “compelling” architectural vision for remaking the Convention Center and the surrounding downtown area: “Ground-floor shops and restaurants would replace the long, drab Convention Center walls facing the streets; convention space would go upstairs.”

“Office towers in this complex would bring daily activity and valuable revenue to the city. Streets once cut off by the Convention Center could reopen. Instead of standing apart from the public space, this new Convention Center could be a vibrant part of it,” says the editorial.

A concept drawing of the proposed expanded Austin Convention Center

One unanswered question is how badly the proposed expansion could end up hurting the city’s finances in the event of an economic downturn. Some critics argue that the supply of convention and exhibit space nationally has expanded steadily even as the demand for such spaces has declined since the 1990s.

“There is no guarantee that in the future there will be enough latent demand to use an expanded convention center to its full potential,” the UT School of Architecture noted in its study, which was commissioned by the City Council and led by Dean Almy, the Director of UT Austin’s Graduate Program in Urban Design.

Almy and his co-authors noted that they were not able to find reliable, complete data on whether national convention center attendance is in decline.

“There is no guarantee that in the future there will be enough latent demand to use an expanded convention center to its full potential.”

In a 2015 report, the Texas Comptroller’s Office noted that there are more than 90 convention centers in Texas. “Convention space continues to grow throughout Texas and across the nation, despite at least some indications that the market is saturated — and that conventions themselves are less popular,” says the report, which was co-authored by an editor at the Comptroller’s Office and a senior data analyst.

If the convention industry takes a big hit, taxpayers could end up on the hook for well more than the $1.1 billion capital cost of the expansion as operating losses at the Convention Center grow.

Yet planners don’t seem to have looked into this possibility. Even the “downside case” considered by the UT study assumes that attendance at Convention Center events increases by 10% to 550,000. No scenario considers a decline in the convention business overall.

That’s in spite of an investigation by KXAN News last year that found that the city may be inflating attendance numbers of convention events, citing discrepancies between city data and industry-provided attendance numbers.

Even in the current business climate, the Austin Convention Center is only competitive against other cities because it is government-subsidized, the UT Austin study says in effect: “If the Austin Convention Center were to attempt to close its operating shortfall by raising its rates, it would likely lose a great deal of convention business to many peer cities whose rate also assume similar operating losses.”

Another unanswered question is how the city will pay for the expansion if its plan to use hotel occupancy tax revenue doesn’t turn out to be sufficient. “UnConventional Austin raises fair questions about whether the hotel tax could cover the expansion costs… and how much tax revenue would be lost from several downtown blocks coming off the tax rolls,” says the Statesman editorial. “For months we have been pressing for those details.”

“No doubt the city still needs to figure those things out. But we don’t see that as a reason to kill the project now.”

On the ballot this November voters will see the following proposition, City of Austin Proposition B:

“Shall an ordinance be adopted… limiting the City’s spending to construct, operate, maintain, or promote the Austin Convention Center to 34% of Austin’s Hotel Occupancy Tax revenue, and requiring all remaining Hotel Occupancy Tax revenue to support and enhance Austin’s Cultural Tourism Industry to the potential exclusion of other allowable uses under the Tax code; and requires the City to obtain voter approval and public oversight for convention-center improvement and expansion costing more than $20,000,000?”

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