City-Commissioned Study Says Dallas Convention Center Will Make More Money Without Headquarters Hotel

After approving in February 2008 the expenditure of $170,000 for a feasibility study to refinance the $260 million debt on the Dallas Convention Center, the city in October announced it would use $40 million of the refinancing to expand, upgrade and renovate the convention center. Additionally, the debt savings would be utilized to eliminate the annual subsidy from the city's general fund supporting the operation of the convention center, as outlined in a briefing to the council's Economic Development Committee.

Since the Vote No! group claims Dallas desperately needs a convention center hotel in order for the city to stop subsidizing the convention center from the general fund, we decided to dig up the documents related to the bond issuance on the refinancing, which took place February 11, 2009. The 342-page document includes the 181-page feasibility study dated January 30 from HVS Convention, Sports & Entertainment Facilities Consulting, which is the same company that performed feasibility studies on the convention center hotel for the city in 2008, 2004 and 2001.

The study projects the convention center's net income for the next 10 fiscal years using two scenarios: with and without a headquarters hotel. The first three years are exactly the same because the hotel would be under construction. However, the next seven years show the total net income with the hotel projected at $43,998,000 compared to $50,310,000 without the hotel, a difference of $6,312,000.

This evidence is damning to Mayor Tom Leppert and the Vote No! campaign, as it proves they have been misleading voters when making statements suggesting the convention center will lose money if the hotel isn't built.

At a Bachman Recreation Center debate in early March, Leppert said the convention center is uncompetitive for three reasons, one of which is because it loses $3 million per year.

"That comes right out of your wallets my friends because that comes out of the general fund. Three million dollars. And that number's not going to go down," he said. "Keep in mind, that's your tax money. So as that gets worse and worse and worse, we've got to get better. It's not unreasonable to believe over the next 30 years, it's going to be over $150 million in taxpayers' money if we don't do something."

Council member Ron Natinsky debated at the Farmers Branch Recreation Center in late February and made a similar claim. "If you take $5 million over the 30 years of the program on the hotel, that's $150 million that I can stand here and tell you we are absolutely going to lose -- if not more," he said.

Natinsky ramped up the scare tactics by doubling that amount, claiming "our convention people" estimate the convention center will lose approximately $10 million annually.

"Well, $10 million a year of your taxpayer money is $300 million at the end of 30 years, and we will lose that," he said. "We made a decision that the risk of losing $300 million is significantly larger than the risk that we calculated on the other side."

Council member Tennell Atkins talked at Paul Quinn College recently about the convention center as a $1 billion asset "sitting there" and how the city "just mothballed" Reunion Arena.

"That convention center is going to be $10 million in debt to the taxpayers," he said. "You'll have to pay for that some kind of way. It won't go away."

So how is it possible that the convention center will make more dough without the hotel? The study predicts a headquarters hotel will attract more visitors and raise revenues, but the result is also much higher operating expenses. Additionally, hotel occupancy taxes are the main source of pledged revenue on the convention center bonds, and those will be lower with a hotel because the occupancy taxes from the convention center hotel are pledged to pay back the bonds on the hotel, not the convention center.

Other highlights from the study:

• The average yearly net income for the convention center without a hotel from fiscal years 2011/12 to 2017/18 is $7,187,143. That's a total net income of $215,614,286 in 30 years compared to the claim that it will lose $150 million over the same period of time.
• Attendance at the convention center is getting better, not worse.

FY 2004/05: 200,931 convention and trade show attendees; 945,129 total attendees

FY 2005/06: 278,804; 989,621

FY 2006/07: 291,511; 1,007,113

• Mayor Leppert and the Vote No! campaign frequently refer to Houston and Denver as examples where convention center hotels have put Dallas at risk, but Dallas is still outperforming those cities.

Calendar year 2007, Houston: 241,183 convention and trade show attendees; 656,857 total attendees

Fiscal year 2007, Denver: 276,984; 904,991

• It's not just about a hotel: "In conjunction with HVS, National Service Research conducted a Web-based survey of state association event planners located in and around Texas ... NSR asked event planners to rate the overall attractiveness of Dallas and other selected markets considering the existing facilities located within each market and each city's unique atmosphere and amenities. Dallas ranked third behind San Antonio and Austin."
• Again, it's not just about a hotel: "Respondents cited high per diem costs particularly in the lodging market to be their primary reasons for avoiding the DCC."
• The study reports a subsidy of $3,943,786 was issued last year from the general fund to the convention center, yet it only lost $855,485.
• Before the convention center hotel will open its doors, another 1,848 new rooms are expected to enter the Dallas market.
• "With the absence of a headquarters hotel, the Dallas hotel market is forecast to stabilize at 58.7%, roughly one-tenth of a percentage point higher than projected if the hotel is built."
• The total bond issuance was $324,940,000.
• Instead of having $40 million left over, $60,046,125 was deposited into a project fund.
• As we discussed in November, the reserve account (which is $22,466,208) for the convention center must remain at this level. It's not a "rainy day" fund that can be drained to zero as the pro-hotel group has sold the $50 million reserve fund for the hotel.