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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.

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9 Comments

  1. Pat February 1, 2010

    Karen, good article. The only thing that this blog and that particular article don’t really cover is the the demand/competition/potential for Wichita’s targeted groups. Some of those facilities that are referenced are 10x the size of Century 2. It’s kind of like the NBAA convention. There are only a couple of facilities in the country that can handle an event that size. It would be interesting to see if Go Wichita has a business plan that identified the market that Wichita is trying to go after. Some are state conventions in scope. Some are probably regional and some national.

  2. KipSchroeder February 1, 2010

    Each year, the company I work for assembles over 15,000 of our 70,000 employees in a large convention based city (San Francisco, Las Vegas, Orlando, etc.). Last year the decision was made to forego the large gathering and instead meet virtually. The indirect interaction was so successful the CEO emphatically stated that we would never return to such large physical gatherings. The world is changing.

  3. LonnythePlumber February 2, 2010

    The “Stop Wichita Express” needs to stop. We need the jobs, income and economic activity. The delaying and stopping projects like the Bass Pro Shop and then complaining that nothing is getting done is counter productive. Let Wichita Go.

  4. Rothbard February 2, 2010

    The “Gunvernment Subsidy Express” is what needs to stop.

  5. Pat February 2, 2010

    I’m with you Lonny.

  6. Betty Sue February 2, 2010

    I read the’ powers that be ‘approved the subsidy to the proposed hotel this morning;
    WHAT A WASTE OF TAXPAYER DOLLARS,I,for one,do not appreciate MY money being spent to subsidize a hotel;if they want a build a hotel,let them do it,but not on the backs of taxpayers!

  7. Karen in Delano February 2, 2010

    Pat: True, I have to admit I brought the article up in the context of the arena, rather than Century II… and that I didn’t push for a lot of discussion because, well, the arena was a done deal by then, so it was too late to debate whether it was really a good idea.

    Being as how we can’t exactly ship it back for a refund, we certainly ought to support it (and the Century II complex as well), but I still have my doubts about the necessity of the tax break; it certainly looked like a hotel was likely to be built regardless, assuming the figures Goody Clancy bandied about were accurate.

    And we have to draw the line at some point… after all, we spent tax money on the arena with the notion it would “pay for itself” in secondary business and tax growth. If we turn right around and exempt those secondary businesses from taxation, that seems a bit counter-productive.

  8. Pat February 3, 2010

    Karen, thank you for your on-going support of the arena and C2. I would agree that we need to be very careful and make sure that when we, the city, offer public incentives that it is done so prudently. I’m not sure that any of us can say one way or another that a hotel would be built without the incentives. We only know that one hasn’t over the history of the project.

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