Press Release

Raleigh to celebrate taxpayer-funded ‘money pit’

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RALEIGH — Raleigh’s new downtown convention center already has offered almost $2.3 million in room rental discounts to secure convention business, including an average 58 percent discount for events scheduled through June 2009. A new John Locke Foundation Regional Brief predicts the $221 million center will turn into a “money pit” in the years ahead.

Click here to view and here to listen to Dr. Michael Sanera discussing this Regional Brief.

“The Raleigh Convention Center will open with a spectacular party Friday, but the taxpayers will wake up from the party with a painful hangover,” said report co-author Dr. Michael Sanera, JLF Research Director and Local Government Analyst. “The New RCC promises to be a money pit of gigantic proportions.”

“Analysis of 164 convention and meeting contracts shows that Raleigh Convention Center officials have given conventions a whopping $2.26 million in discounts for RCC room rentals,” Sanera added. More than $500,000 in discounts cover events scheduled in the next 10 months, and some discounts cover events scheduled as late as 2023.

Sanera and JLF Research Intern Clint Atkins found that six conventions already have been given $166,720 in subsidies from a special account set up to lure conventions to the RCC. When combined with the deep room-rental discounts, these six conventions account for a combined total of $351,220.

This is just the beginning, Sanera said. “Although many taxpayers do not realize it, city and county officials who built the RCC knew from the beginning that it would require taxpayers to pay for steep discounts and to pay large subsidies to attract conventions and meetings,” he said. “These are the minimal costs that taxpayers must fund even before the RCC opens its doors.”

Taxpayers would be wrong to assume that the convention center could operate like a private business, Sanera said. “You might think prices for space and services would cover the operational expenses and even pay off the debt incurred to build the convention center,” he said. “Unfortunately, the opposite is true. The only way for the RCC to attract users is to offer deep discounts on rooms and services and even pay large subsidies to attract conventions and meetings.”

Of 68 events scheduled through June 2009, room discounts have averaged 58 percent, Sanera said. “Some groups are paying nothing or as little as $1 to rent space,” he said. “This might make sense for a city organization, like the Raleigh Appearance Commission, but large corporations are getting similar deals.”

Sanera also questions the secrecy associated with the convention center’s exclusive caterer, Centerplate. “It might make sense to offer room rental rate discounts if profits from catering services equal or surpass the room’s list price,” he said. “But it is impossible for anyone outside city government to confirm how much the city will profit from the meals served at events. Centerplate refuses to make its contracts available, and they’re not public records. Without public accountability, the door is open for graft, corruption, and deals that hurt the taxpayer.”

Raleigh and Wake County officials admit they must pay money to lure big conventions to Raleigh, and they’ve set up a taxpayer-supported Business Development Fund to make those payments, Sanera said. “Raleigh is not the only city playing this game,” he said. “As Raleigh tries to outbid cities such as Charlotte and Greensboro by offering even larger subsidies, it is clear that the primary loser in this bidding war is the taxpayer in Charlotte, Greensboro, and Raleigh.”

Convention center supporters offer two suspect arguments to justify taxpayer funding, Sanera said. “First, they argue that the tax funds propping up the convention center come from hotel and prepared-meal taxes, not general tax revenues,” he said. “It’s a weak argument.”

“Wake County residents pay the vast majority of the 1 percent prepared-meals tax, and all Wake County hotel and motel patrons pay the hotel tax, even the customers at low-end motels who will never use the convention center,” Sanera added. “Plus general fund money would be needed to cover any convention center shortfall.”

The second argument contends taxpayer subsidies are small compared to the overall economic impact from conventions, Sanera said. “We’ve already seen the convention center’s economic impact estimates drop from $100 million a year to about $8 million,” he said. “Plus those estimates ignore some key facts. One, conventions and meetings targeting Triangle residents offer no economic impact — just a shift of venues. Second, many state-level meetings and conventions would be held in the Triangle with or without a new RCC. There’s no economic impact from those meetings.”

Once the numbers are limited to national meetings, the economic impact argument looks less rosy, Sanera said. “Do out-of-state attendees who spend money in downtown Raleigh justify the deep room discounts and subsidies used to attract national conventions?” Sanera asked. “Especially when Raleigh is competing for business with taxpayer-subsidized convention centers in Charlotte and Greensboro, it appears that taxpayers are the big losers.”

If the convention center’s losses look bad now, prepare for more bad news in the future, Sanera said. “Experience from new convention centers in other cities shows that the first year or two are the high-water mark,” Sanera said. “After the luster wears off the new building, it is harder and harder to attract conventions and meetings — even with deep discounts and large subsidies. This initial level of taxpayer-funded costs will only grow larger.”

Dr. Michael Sanera and Clint Atkins’ Regional Brief, “The New Raleigh Convention Center: A taxpayer-funded money pit,” is available at the JLF Web site. 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].

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