Tag Archives: Economic development

Wichita’s pursuit of convention business: a wise strategy?

One of the reasons Wichita city leaders say we need to provide subsidy to a proposed hotel in the downtown WaterWalk development is that the rooms are needed to support the city’s effort to gain convention business.

On its face, this pursuit of convention business seems like a noble effort by city leaders. Vast streams of economic development will follow if they are successful, they say. Providing subsidy to a hotel in support of this effort, they say, should be a simple decision. Especially when supporters like Wichita city council member Jeff Longwell tell us that much of the subsidy to the hotel will be paid by visitors to Wichita.

But I’ve not seen discussion in Wichita on whether this pursuit of convention business is wise. Heywood T. Sanders, who is professor in the Department of Public Administration at the University of Texas at San Antonio, is a noted critic of public efforts to chase convention business for economic development. His report 2005 Space Available: The Realities of Convention Centers as Economic Development Strategy was published by the left-leaning think tank The Brookings Institution. It provides a look at the realities of the convention trade.

Heywood writes that convention center business has been on the decline, and it started well before the terrorist attacks in 2001. In a section titled “Trends: Portrait of a Faltering Industry” we can read that attendance is down, exhibit space demand is down, and hotel room demand in cities has fallen too.

The author notes that the decline in convention business is a structural decline: “[Reasons for decline] are the product of industry consolidation, particularly in the hardware and home improvement industry, reductions in business travel in the face of increasing cost and difficulty, and alternative means of conveying and gathering information.” These are not cyclical trends that are likely to reverse in the future.

Despite shrinking demand, cities are building more convention space: “Despite diminishing demand, the last few years have seen a remarkable boom in the volume of exhibit space in U. S. convention centers.” The building of larger convention centers in many cities means that more cities are able to host the larger events, or, cities can now host several smaller events simultaneously. The result, says the author, is fierce competition for both large and small events.

Then, what about the costs? The author introduces a section on costs with: “The studies that justify both the new center space and the publicly-owned hotels paint a picture of tens of thousands of new out-of-town visitors and millions of dollars in economic impact. Despite that rhetoric, these projects carry real risks and larger potential costs, particularly in an uncertain and highly competitive environment.”

The convention center is just the start of costs: “A new [convention] center is thus often followed by a subsidized or fully publicly-owned hotel.” Wichita, of course, has a fully publicly-owned hotel, the large 303-room Hyatt. Now Wichita seeks to subsidize a hotel in the WaterWalk development. This proposed hotel does not provide as many rooms as Wichita convention planners say the city needs, so it is likely not to be the last such proposal for a subsidy to hotel developers.

Other things Heywood says that are likely to be proposed are a sports arena. Wichita, of course, just opened a taxpayer-financed and government-owned facility. Entertainment, retail, and cultural attractions are often proposed, he writes, and Wichita downtown planners have indicated their desire for these. Downtown boosters are likely to propose a sales tax to support these efforts.

The conclusion to this paper describes Wichita’s current situation and foreshadows what is likely for the future of Wichita:

But if taxing, spending, and building have been successful, the performance and results of that investment have been decidedly less so. Existing convention centers have seen their business evaporate, while new centers and expansions are delivering remarkably little in terms of attendance and activity.

What is even more striking, in city after city, is that the new private investment and development that these centers were supposed to spur — and the associated thousands of new visitors — has simply not occurred. Rather, city and convention bureau officials now argue that cities need more space, and more convenience, to lure those promised conventions. And so underperforming convention centers now must be redeemed by public investment and ownership of big new hotels. When those hotels fail to deliver the promises, then the excuse is that more attractions, or more retail shops, or even more convention center space will be needed to achieve the goal of thousands of new visitors.

We already see some of this excuse-making taking place: Private investment in downtown Wichita has been weak, it is said, because there’s not yet a critical mass of development. It is promised by downtown boosters that given enough public money critical mass will be achieved, and private investment will rush in. But since there is no definition of what constitutes critical mass, this excuse is always available to justify failure.

Listen to an interview with Sanders from 2009. A transcript of an interview with Sanders from 2004 is at “A Lot of Hooey”: Heywood Sanders on Convention Center Economics.

Stretching figures strains credibility

I recently read that the Wichita Airport’s economic impact was estimated at $1.6 billion per year. I thought this seemed high, so I investigated further.

I became aware of this study prepared by the Center for Economic Development and Business Research at Wichita State University, available here: Wichita Mid-Continent Airport Economic Impact.

By reading this study I learned that the employees of Cessna and Bombardier — 12,134 in total — are counted in determining the economic impact of the airport. Why? To quote the study: “While it might appear that manufacturing businesses could be based anywhere in the area, both Cessna and Bombardier require a location with runways and instrumentation structures that allow for flights and flight testing of business jet airplanes.” This is true, but it is quite a stretch to attribute the economic impact of these employees to the airport.

For one thing, if we count the economic impact of the income of these employees as belonging to the airport, what then do we say about the economic impact of Cessna and Bombardier? We would have to count it as very little, because the impact of their employees’ earnings has been assigned to the airport. This is, of course, assuming that we count the impact of these employees only once.

Or suppose that Cessna tires of being on the west side of town, so it moves east and starts using Jabara Airport. Would Cessna’s economic impact on Sedgwick County be any different? I think it wouldn’t. But its impact on the Wichita airport would now be zero. Similar reasoning would apply if Cessna built its own runway.

Or it may be that someday Cessna or Bombardier will ask Sedgwick County for some type of economic subsidy, and they will use these same economic impact dollars in their justification. But these dollars will have already been used, as they were attributed to the airport.

To its credit, the WSU study does provide some figures with the manufacturing employees excluded. The impact without the manufacturing employees included is estimated at $183 million, or about 11 percent of the $1.6 billion claimed earlier.

It is a convenient circumstance that these two manufacturers happen to be located near the airport. To credit the airport with the economic impact of these companies — as though the airport was involved in the actual manufacture of airplanes instead of providing an incidental (but important) service — is to grossly overstate the airport’s role and its economic importance.

Of course the airport is important to Wichita. We should seek to measure its impact sensibly instead of stretching to attribute every dollar possible to it. When advocates of any cause manufacture figures like the $1.6 billion economic impact, it casts doubt on other arguments they advance.

Links referred to: Wichita Mid-Continent Airport Economic Impact