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The Convention Center’s decision to host shelter operations has proven to be a smart business move during a pandemic that left many event centers vacant. Now, with new guidance from the state, Convention Center managers are preparing to transition back into an events center.
When the pandemic halted travel last year, the Convention Center’s financial outlook looked bleak.
The decision to transform the center long considered a leading economic engine of the region’s tourism economy into a shelter – first for homeless San Diegans and now for young migrants – won praise as a humanitarian effort. But it also helped the Convention Center avoid the most dire financial outcomes, and saved some jobs.
Now, with new guidance from the state, Convention Center managers are preparing to transition back into an events center. For now, no one is sure when business travelers will return en masse with money to spend. The tourism industry, its workers and city budget decisions are riding on what happens next.
Last Tuesday, Gov. Gavin Newsom announced that California convention centers could begin hosting large events again in mid-June if the pandemic outlook continues to improve. Hours later, the City Council voted to pursue a legal argument that a hotel-tax measure that could fund a Convention Center expansion – but fell just shy of the typically required two-thirds threshold for passage – actually passed.
The state decision doesn’t ensure convention-goers will return in the volumes they previously have. And the Convention Center Corp. is still asking the city to provide $10.2 million in subsidies in the fiscal year that begins in July to help balance the facility’s budget.
What is certain: The Convention Center’s agreement to host up to 1,450 migrant teens and children per day through mid-July ensures the facility can’t welcome eventgoers until August.
Convention Center Corp. officials hope the operation can help boost the agency’s budget in the meantime. It’s already helped them avoid another round of layoffs and start bringing back some staff who were previously let go.
The federal Administration for Children and Families’ Office of Refugee Resettlement agreed in a contract signed last month to pay the Convention Center Corp. up to $25.5 million to host the youth shelter and provide various services until at least July 15. For now, the operation is using more space than the homeless shelter that preceded it, meaning rent and various service payouts will likely be higher. Rent payments alone could total nearly $4.6 million a month and will be based, like all other payments, on the space and services the operation uses. The contract also incorporates up to $2.3 million in contingency funds. The Convention Center has said that any net revenues from the operation will be used to replenish reserves depleted during the pandemic.
Following the governor’s announcement, Convention Center Corp. CEO Rip Rippetoe said he told federal officials that the contract must end in July. The Convention Center is now preparing to host events again in August and hoping for the best.
In the last fiscal year before COVID-19 drove dozens of convention cancelations, the Convention Center Corp. estimated that its events pulled in $27.4 million in taxes on its attendees’ hotel stays and another $1.5 million in sales taxes, collections that backed city services and initiatives.
Last March, San Diego’s tourism economy shut down overnight. Days after Newsom issued an unprecedented stay-at-home order, then-Mayor Kevin Faulconer announced that the Convention Center would become a homeless shelter. By April 1, dozens of homeless San Diegans were moving in – and hundreds of people later slept there each night on cots spread six feet apart.
The move not only provided hundreds of people who had been staying in packed shelters elsewhere in the city more space to protect them from a disease we knew little about, it helped the city keep the Convention Center afloat financially.
During most months of the operation, the city used state and federal funds to pay the Convention Center Corp. about $2.3 million in rent and operations and maintenance costs.
From July 2020 through February 2021, the corporation reports it pulled in about $18.4 million from the shelter operation plus about $1.2 million from other sources – a 31 percent decrease from the overall revenues the agency reported during the same period the previous year.
Elvin Lai, chair of the Convention Center Corp. board, said the decrease in revenues reflects the fact that the agency was continuing to collect rent but was missing out on service offerings and spending that typically bring millions more in revenue to the center.
“We are dependent on the actual attendees of the conventions to support the Convention Center and to build up that ancillary revenue,” Lai said.
Checks that came in from the shelter operation and the Paycheck Protection Program helped at least some Convention Center workers hold onto their jobs.
The Convention Center reports it had managed to hold onto 226 staff as of last July, down from 486 in late March 2020. Full-time workers who remained saw their hours as much as halved, and layoffs and furloughs continued throughout 2020, Convention Center spokeswoman Maren Dougherty said.
Budget projections became more dire as the shelter operation concluded.
As of late March, only 188 employees remained at the Convention Center.
Rippetoe said the Convention Center Corp. prepared to lay off another two dozen workers at the conclusion of the homeless shelter operation during the week of March 21.
Then Health and Human Services Secretary Xavier Becerra called County Supervisor Nathan Fletcher on Saturday, March 20, to ask whether the Convention Center could serve as a shelter for migrant children seeking asylum, triggering a series of conversations and meetings. By the following Friday, the Convention Center Corp. had signed a contract with a division of the Health and Human Services agency.
Rippetoe canceled the Convention Center’s planned layoffs, and the corporation began recalling staff to support an operation more expansive than the homeless shelter before it. That has included 20 people who had been previously laid off.
The corporation estimates more than 220 Convention Center full-time equivalent employees – which includes a mix of full-time and part-time employees – will be needed to directly support the migrant shelter. About 40 support staffers will be called on to help with indirect needs such as building maintenance and management.
Carl Winston, director of San Diego State’s School of Hospitality & Tourism Management, said the Convention Center’s decision to host shelter operations has proven to be a smart business move during a pandemic that left many event centers vacant. Essentially, it lessened the corporation’s losses.
“They’re acting like a company trying to stay as profitable as possible,” Winston said.
He noted that while the city directed large sums of state and federal dollars to the homeless shelter operation, the decision to use the Convention Center also lessened the need for the city to bail out an entity it manages.
Still, advocates questioned the city’s decision to funnel significant cash to its Convention Center during a pandemic that hammered the city’s budget and many San Diegans’ livelihoods, and whether the city and county should have invested in hotel rooms that naturally allow for social distancing rather than a mega shelter at the Convention Center.
The city has said the Convention Center allowed it to space out shelter beds and maximize already stretched services in one place.
Rippetoe said the Convention Center has had to keep its financial duties to the city in mind as it rushed to serve emergency humanitarian needs.
“We have to be very fiscally responsible. That’s the expectation,” Rippetoe said. “So when we were asked to meet these emergency needs, we took the business approach of saying, ‘Alright, that’s great, but if we’re going to cover all of these costs, we need to be paid rent that covers those costs and any of the ancillary services that come with it.’ It’s been a decision that allows us to fulfill our fiduciary responsibility as a corporation that’s an operating entity on behalf of the city.”
While the Convention Center offered it a 15 percent discount on rent and provided some of its space free of charge during the homeless shelter operation, Rippetoe said the corporation shared its standard rates with the federal government when it requested them. The federal government agreed to pay them.
Convention Center Chief Financial Officer Mardeen Mattix said the corporation is hoping to more than cover its own costs associated with the migrant shelter operation so it can replenish its reserve account.
But Mattix told Voice of San Diego the migrant shelter operation won’t lessen the need for a $10.2 million subsidy that the Convention Center Corp. sent to Mayor Todd Gloria’s team as they worked on next year’s budget. The request comes in addition to support the city has for years provided to cover debt service for a previous Convention Center expansion, clear groundwater from under the facility’s parking garage and back efforts to book conventions. The city budgeted more than $15 million for those costs last fiscal year.
Mattix said the Convention Center Corp. has asked Gloria’s team to consider penciling the subsidy into next year’s budget for now and prepare to revisit it in January.
By then, Mattix said, the Convention Center will have concluded the migrant shelter operation and will have a sense of how its events business is faring as the state of the pandemic – hopefully – continues improving.
“I think we need to see how this plays out and reassess if they should leave it there,” Mattix said.
Gloria spokeswoman Jen Lebron confirmed that the Convention Center Corp.’s ask has been on the table during budget deliberations but would not say if it remains in Gloria’s proposed budget set to be released soon.
If Gloria includes the ask in his proposed budget, the City Council will ultimately decide if it should remain.
Regardless, Rippetoe believes the latest shelter operation – and the cash coming with it – are helping prepare the Convention Center for its reopening.
“(It’s) allowing us to keep our good staff retained so when we bring back the conventions and the trade shows and events, we have people there who know what to do,” Rippetoe said.
The question is whether crowds will also return.
Among the major challenges: $111.4 million in capital needs and $7.4 million in predicted repair needs over the next decade, expenses that could be backed by the Convention Center ballot measure if a court decides it passed with a simple majority.
In the meantime, the Convention Center Corp. reports it already put off or canceled more than $2.6 million in planned projects and equipment replacements it couldn’t afford during the pandemic.
“There are no funds to repair anything,” Lai said. “We are now basically saying at the end of the day, ‘If something comes up, city of San Diego, you are our backstop if we need to take care of this.’”
Heywood Sanders, a professor of public policy at the University of Texas at San Antonio and an expert on the economics of convention centers, predicts there will be more competition for the events that remain.
After all, Sanders said, convention center expansions have continued elsewhere, and some centers have already shown signs that they will be quicker to offer incentives to lure events.
For example, the agency that runs McCormick Place in Chicago last month asked state lawmakers to revive a $15 million incentive fund to entice convention and trade shower planners.
“Faced with the pandemic, people are competing for those same events they once did but much, much more,” Sanders said.
The day after Newsom’s announcement that convention centers could begin hosting large events again in mid-June, Rippetoe said he didn’t expect the industry to bounce back immediately. He acknowledged that reduced business travel budgets, the state of the coronavirus and various precautions and the ease of international travel could significantly impact the industry.
He predicted that it could take a year and a half to bounce back.
The annual meeting of the American Academy of Orthopedic Surgeons, which brought a reported 25,119 attendees to San Diego in 2017, is one of the first seven events on the calendar.
A spokeswoman for the group told Voice of San Diego last week that it was still planning an in-person gathering in San Diego from Aug. 31-Sept. 3 and said it would release more information on its attendance policies following more guidance from the Convention Center and the state.
The Newsom administration said last Tuesday that events would be capped at 5,000 until October absent proof that all attendees had been fully vaccinated or tested for coronavirus, leaving event organizers to decide how to make it work – or to keep their attendance under 5,000.
The American Psychological Association, which brought a reported 13,400 attendees to San Diego in 2010, is for now scheduled to kick off its convention in San Diego on Aug. 12.
Spokeswoman Kim I. Mills didn’t have a definitive response when VOSD checked on the status of those plans.
“We are currently evaluating how the new rules on indoor gatherings would impact the APA convention,” Mills wrote in an email to VOSD. “As the best science on keeping people safe continues to evolve, APA will work with the San Diego Convention Center on the best path forward.”
Rippetoe said the Convention Center expects to hear by May 1 whether the organizers of the August events now on the facility’s books still plan to hold them in San Diego.