Letter: 'Why Kill the Golden Goose?'
The city of San Diego needs to do its fiduciary due diligence in the following matters related to outsourcing the booking of the Convention Center facility to ConVis.
“Boozy schmoozy.” That is how the Union-Tribune editorial described the lack of accountability and wasteful spending of tax dollars in booking conventions in 2004. Hawaiian vacations, golf trips, liquor and extravagant executive bonuses had been a regular business practice in the San Diego Convention & Visitors Bureau (ConVis), a private nonprofit contracted by the Convention Center. Fred Sainz, who was then a spokesperson for the Convention Center had this to say about the shortcomings of ConVis operations:
“If it came down to fancy parties and being nice, then we’d be winning the game. What it comes down to is the business deal. Clients aren’t interested in fancy parties involving expensive bottles of wine and a hangover the next day.”
The city wanted accountability. It decided to have the Convention Center book its own facility, so that one agency was responsible for the performance of the consolidated facility. Sounds like common sense, but it made economic sense too, as taxpayers did not have to pay for separate marketing any more, an annual savings of $2.5 million to public funds. This is an unusual move, as most convention centers have a visitors’ bureau booking conventions. Hotel executives were disappointed. Joe Terzi, the ConVis chairman, had this message for the city of San Diego: “You are harming the organization whose primary role is to drive TOT [Transient Occupancy Tax] collection. You’re killing the golden goose.”
The golden goose thrived, with ConVis out of convention booking business. Under the Convention Center facility’s own management, hotel room bookings increased by more than a third in 2005. Sound management policies rather than fancy boozy parties helped market San Diego through a difficult recession, even as industry competitors like Las Vegas, Orlando, Atlanta and Chicago have fared poorly. Sales goals have been consistently exceeded, something that ConVis failed to do.
As much as they cried wolf, ConVis continued to remain on the chopping block whenever the city had a budget gap. However, loathe to raise taxes on themselves, hoteliers figured out how to fund ConVis, by creating a Tourism Marketing District in 2008 that taxes tourists 2 percent on their hotel room bills by calling it a “special assessment.” ConVis’ public funding has since doubled to $19 million this year. To compare, the total expenditures on all branch libraries in the city is $18 million annually. With a new management plan expected to be presented to the City Council next month, 55 percent of the assessment is earmarked for ConVis which means that it have guaranteed funding of $550 million over 40 years. That is, it will have almost as much money to spend on marketing as the construction of the Convention Center expansion.
Even though ConVis is swimming in public funds (more than 70 percent of its revenue is from the tourism district), it remains a private membership organization controlled by hotel and tourism executives. There has been little public oversight of this body, no disclosure of executive compensation, and no oversight of the governance of ConVis by the city. Publicly-funded program decisions are made opaquely by an unaccountable board, hidden from public disclosure under the Brown Act or the California Public Records Act. And unlike city employee rules, the contract with ConVis does not prohibit alcohol.
Impact On Taxpayers
It was not enough to capture the funding for marketing, as the golden goose for tourism is the Convention Center itself. One in seven TOT dollars is generated by convention visitors. Hence hoteliers recently revealed a contract to outsource the marketing of the Convention Center itself for long-term conventions and trade shows. The proposal was rushed to the City Council in such a hurry that the Independent Budget Analyst could not evaluate its fiscal impact, and there was no city council committee hearing. This contract is being simultaneously proposed at the same time that hoteliers are voting on establishing a tax to finance the Convention Center expansion.
A single line by Mayor Jerry Sanders’ administration says: “This action will have no impact on the City’s General Fund.”
No impact? The Convention Center is a publicly owned and operated facility with a management agreement with the city of San Diego that makes it economically dependent on TOT. Out of the center’s $32 million operating budget, the city’s contribution has varied, but has recently been $3.4 million annually. This TOT is used for marketing, promotion and capital projects, like effluent dewatering at the facility. It is also used for rental credits to offer discounts to conventions and trade shows. As recently as in 2009, the center offered $3.1 million in rental discounts. Since the San Diego Convention Center Corp. is a public benefit corporation of which the city is the sole member, the city is responsible for the center’s finances.
ConVis will be focused only one metric: “heads-in-beds,” that is the number of hotel rooms booked. This is a questionable approach to management of a public facility. Although “heads-in-beds” events constitute a significant share of attendance at the San Diego Convention Center, almost 60 percent of the total events held at the center over the years are meetings, community events, and food and beverage events. Consumer shows draw the largest number of attendees per event, and attract national media, but few hotel rooms get filled. Large events like Rock ‘n Roll Marathon that draw Southern California audiences do not perform as well in filling hotel rooms. Meetings and events with food and beverage also draw food and beverage revenue for the center, and fill in the gap between larger conventions. As these events are held by local businesses and organizations, they do not generate “heads in beds” that would benefit ConVis members. Business and corporate meetings give San Diego exposure worldwide, and attract investment, but do not fill up a large number of beds. They also compete with ConVis member hotels.
The Convention Center needs to balance the large-scale operational turnover around the national conventions with the trade-shows, smaller events and meetings to fill the space in between them. It cannot operate based on rentals alone. The existing rental revenue from non-local conventions and trade shows comprise less than a third of the operating revenue of the center. Food and beverage and ancillary services make up a majority of the revenues of the current center, for which it may compete with adjacent hotels. Ancillary services include event and cleaning services, ticketing, parking and audio-visual services. These charges are often related to the quality and type of event.
The city of San Diego needs to do its fiduciary due diligence in the following matters related to outsourcing the booking of the Convention Center facility to ConVis:
• Who decides what rates to set for convention booking? If the solvency of the Convention Center is threatened by rental discounts offered by ConVis, the city’s general fund will have to backfill the discounts.
• Who makes decisions on local events and corporate meetings booked over 14 months in advance? These events pose a direct conflict of interest with members of ConVis, who operate hotels in downtown and Mission Valley that accommodate smaller conventions. If the smaller, local and corporate events can be accommodated in their own hotels, and carry food and beverage revenue with them, ConVis members can poach on Convention Center business.
• What are the capital needs of the existing Convention Center facility? If there are significant capital improvement needs that impair the center from offering the quality of space that a world-class convention expects, then the priority of funding should be to fix it, rather than to book it. This balance needs to be struck by the management that has been responsible for operating the center successfully.
The bottom line is that the Convention Center is doing such a good job that it has outgrown itself, and needs to be expanded. So why kill the golden goose?
Murtaza Baxamusa is an adjunct lecturer with the Sol Price School of Public Policy, University of Southern California; and the Director of Planning and Development for the San Diego Building Trades Family Housing Corporation.
Want to contribute to discussion? Submit a suggestion to Fix San Diego.