February 12, 2012
Click here to view and here to listen to Dr. Michael Sanera discussing this Regional Brief.
RALEIGH — The Raleigh Convention Center continues to rely on deep discounts to get business — knocking $569,000 off the room prices for meetings scheduled over the last six months of 2011. A new John Locke Foundation Regional Brief documents the deals.
Forty of 52 convention center contracts included these special breaks from July to December 2011. The average discount knocked 54 percent off the room’s listed price.
The new report includes a searchable website (JohnLocke.org/site-docs/research/RCC) to help taxpayers keep track of these discounts.
“Like other cities across the country, Raleigh rushed to ‘save’ its downtown several years ago by forcing taxpayers to pay for an expensive, deficit-producing convention center,” said report co-author Dr. Michael Sanera, JLF Director of Research and Local Government Studies. “Even before the doors opened, we warned in 2008 that the new convention center was destined to become a money pit for taxpayers. Our latest research suggests we were right.”
“A glut of convention center space nationwide has forced Raleigh and other cities to make a choice: Provide more taxpayer-funded discounts and subsidies to lure events to the center, or face the prospect of an empty building,” he added.
Sanera and JLF research intern Kevin Munger found that the discounts offered during the last six months of 2011 fit in with the pattern of discounts awarded during the convention center’s opening months. “During the Raleigh Convention Center’s first 10 months of operation in 2008 and 2009, discounts totaled $555,000. The average discount was 58 percent off the list price.”
More than just the average size of the discounts disturbed JLF researchers. “These discounts varied widely from customer to customer,” Sanera explained. “A dozen unlucky organizations received no discount and paid full price. Eighteen of the 40 groups with discounts received deals knocking 60 percent to 100 percent off the convention center’s listed room price.”
“Taxpayers need to be aware that RCC staff have broad discretionary power to award discounts, including the power to grant free use of RCC space,” he added. “That practice is obviously vulnerable to political favoritism and potential corruption.”
Convention center officials argue that room discounts are tied to contract requirements for food and beverage sales.
“That argument is weak for two reasons,” Sanera said. “First, revenue from food and beverage sales goes to a private company with a monopoly contract, rather than the taxpayer-funded center itself. Second, the policy is not administered evenhandedly. The size of the discount does not correspond directly to the level of food and beverage sales. This flies in the face of government transparency.”
Sanera also disputes the argument that taxpayer discounts and subsidies help Raleigh by luring people downtown. “It makes no sense for taxpayers to subsidize hotels and restaurants downtown, thus discriminating against hotels and restaurants in other parts of the city that collect taxes to pay for the subsidies.”
Taxpayers also reap no benefit from subsidies that pay for local meetings and conventions, Sanera said. “It’s unclear how many of the Raleigh Convention Center’s events simply move people from one part of the city to another.”
“Even in the case of conventions that bring people downtown from other parts of the state or nation, the discounts are neither moral nor just,” he said. “Ask yourself who pays the subsidies and who benefits from them. Very few people would have the audacity to claim openly that financially better-off downtown property and business owners should be subsidized by taxpayers who are not well off.”
The Raleigh Convention Center’s costs outweigh its benefits, Sanera said. “Many Raleigh leaders boast that the city is at the forefront of progressive trends,” he said. “As far as convention centers go, Raleigh is a follower rather than a leader. The city has failed to learn from other convention center catastrophes across the country.”
“Raleigh is going down the same dismal road that leads to never-ending taxpayer subsidies that transfer wealth from the have-nots to the haves,” Sanera added.
Dr. Michael Sanera and Kevin Munger’s Regional Brief, “Raleigh Convention Center: Throwing good money after bad,” is available at the JLF website. For more information, please contact Sanera at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].