LOS ANGELES — In the race of hope against evidence, evidence usually loses when it comes to cities planning convention centers, say some skeptics of the convention center "arms race."
Such doubts have done nothing to keep four California cities from joining in the race, with San Diego, Anaheim, San Francisco and Los Angeles all trying to complete $300 million to $500 million expansions of their convention centers.
"I don't get it," economist Christopher Thornberg, founding partner of Los Angeles-based Beacon Economics, LLC said when asked why cities seem so determined to carry on in the face of data from critics who say the centers' economic benefits don't match cities' expenditures.
One of the foremost skeptics of convention center economics is University of Texas at San Antonio professor Heywood T. Sanders.
His book, "Convention Center Follies," released in June, questions why cities are spending billions of dollars to build convention center expansions when the economic benefits are so meager.
Time after time over the past 50 years, Sanders said, actual convention center business has failed to meet projections when cities expanded their convention centers.
"Demand is up slightly from 2000, but the supply of exhibit hall space has increased by 37%," he said. "The result is a market described even by the industry as a buyer's market with an oversupply of convention space."
The questions don't daunt California convention center promoters, though several cities still struggle with legal and political obstacles.
City leaders see the expenditures as an important economic development tool.
"It is in the city's financial interests to move forward with expanding the convention center, which is doing well financially already, but is an underutilized asset," said Paul Krekorian, who chairs the Los Angeles City Council's Budget and Finance Committee. "By continuing to work with AEG to refurbish and expand it, the hope is that it will become an even more popular destination for large conventions that draw people in from outside Southern California and provide enhanced economic benefits to the city."
Krekorian said the city does a good job of attracting vacationers to Los Angeles attractions like beaches, Hollywood and theme parks, but it also is a priority to attract visitors to concentrated, multi-day events at the convention center.
"The two types of tourism aren't mutually exclusive, but big conventions are special," Krekorian said. "They can stimulate the economy downtown and also lead to a flow of tourists at other local attractions."
The city had hitched its convention center plans to entertainment conglomerate AEG's seemingly stalled efforts to land a National Football League team and build a stadium in downtown L.A. But it began work on a "Plan B" to expand and upgrade its convention center well over a year before the coming Oct. 18 expiration of AEG's contract.
This month L.A. officials are expected to announce which three architects have been selected to create a convention center plan.
"It is essential to initiate a Plan B due to the time required to develop and complete architectural designs for a different project," Gerry Miller, the city's chief legislative officer, and Miguel Santana, the city administrative officer, said in a joint report issued in May. "The Los Angeles Convention Center has not been upgraded in over 20 years and is limited due to a lack of contiguous exhibit space."
They also cited the plans of the city's three California competitors.
"Convention clients have taken notice and commented that their future plans with regard to Los Angeles are dependent upon the city taking decisive, clear action to modernize the LACC," the report said.
San Diego's convention expansion efforts, begun in 2011, have yet to pan out. The city received permits for its plan last year. But a hotel bed tax increase approved by hotel owners in a vote was overturned by a judge last month. The judge ruled that the tax increase - needed to finance the expansion -- had to be put before the entire electorate.
San Diego officials do not have a Plan B after the City Council voted last week to not appeal the judge's ruling on the hotel tax.
According to the mayor's office, a "no build" alternative is not on the table.
"Expanding the convention center is one of the most important actions we can take to grow our local economy and create thousands of new jobs for San Diegans," said Mayor Kevin Faulconer in a prepared statement.
Over the past several weeks, Faulconer said his office has been meeting with stakeholders, including the lodging and convention industry, the National Football League San Diego Chargers, JMI Realty, and various experts to discuss options for moving forward.
"As I take a fresh look at expanding the convention center, I am open to all options," Faulconer said.
These include finding alternative financing for the current plan to expand directly next to the existing convention center as well as exploring a non-contiguous expansion at a different location that could include a new stadium for the Chargers, he said.
Among its California peers, San Francisco, which is slated to break ground on its $500 million expansion to the Moscone Center, appears to be in the lead.
Anaheim canceled a previous $300 million convention center bond sale after underwriter Citi withdrew the deal following the filing of a lawsuit challenging the bonds by an activist group. With the lawsuit still pending, the Anaheim City Council voted for a second time in July to sell up to $300 million of bonds to pay for a 200,000-square-foot expansion of the Anaheim Convention Center.
Officials in all four cities point to others' efforts in their justification for expansions. But they are also competing with other metropolises nationwide that are also spending money for significant expansions to their own convention centers, Sanders said.
Sanders questions whether that money could be better spent upgrading city infrastructures or in restoring city services that were slashed during the recession.
"There is lots of this," Sanders said. "So why is that, in a market that even the industry describes as a buyers' market that is overbuilt?"
He came to the conclusion that local business leaders drive much of the growth, because the revitalization of business districts increases land values, which benefits them.
"I don't view all local politicos as blithering idiots, who are totally irrational," Sanders said.
Sanders said convention center revenues have been pressured since 1999 by increasing competition between cities and changes in technology that have resulted in decreased business travel. Rebates offered by the cities to compete for the larger conventions also lowered the profitability for each city, he said.
Los Angeles spent $5.3 million providing incentives to convention organizers in 2012.
The competition for convention center business dates back to the 1950s, but the declines catalogued in Sander's book over the past 15 years are the most dramatic. He ticked off example after example where consultants' projections missed the mark.
A study from PKF Consulting showed that hotel room nights generated by the Los Angeles Convention Center declined to 192,000 in 2013 from 349,325 in 1999, Sanders said. The numbers rebounded to 257,000 in 2011 after falling to 180,000 in 2005.
"The numbers are bad for a whole set of reasons," Sanders said. "What L.A. has been able to do in recent years with AEG's investment in L.A. LIVE, has not been sufficient to turn down this long term persistent decline in convention center business."
Economist Thornberg said he doesn't get what motivates cities to spend so much money chasing after convention center business when the economics indicate it isn't paying off. Given how high occupancy rates are in Los Angeles, it makes even less sense to give hotel developers incentives to build, he said.
"Los Angeles has the highest hotel occupancy rates in the country right now," Thornberg said. "The rates are high, hotel owners want to be there."
He added that he finds it hard to believe that hotel developers would not build in downtown Los Angeles without incentives. In addition to providing incentives for convention organizers to come to the city's convention center, Los Angeles is also offering breaks on bed taxes to hotel owners building in downtown.
Whether expansions to the convention centers are worthwhile depends on the outlook for the convention business, Thornberg said.
"If they are all competing against each other, there could end up being more space than necessary," he said.
Thornberg agreed with Sanders that if the majority of convention center business is from local attendees, as opposed to out-of-town travelers, the investment is not likely to pay off.
Alan Reay, president of Irvine-based Atlas Hospitality Group, said that business travel is way up and if cities don't upgrade or expand they will be in a weaker position than other competitors.
"It is a competitive business - and if they don't expand, they risk losing existing business and the ability to attract larger conventions," Reay said.
He doesn't think that doing large convention center expansions in places like Ontario, Bakersfield or Riverside make sense, because they will not be able to attract larger national conventions. For cities like San Francisco, Anaheim, San Diego and Los Angeles that are destination spots, he said there is value.
"They are demand generators," Reay said.
