By Dana Hedgpeth
Washington Post Staff Writer
Monday, February 19, 2007
Nearly four years ago, city officials opened the $850 million Washington Convention Center with a string of superlatives. The largest publicly financed project ever built in the city, they said, would attract more than a million visitors a year, fill hotels and set off an economic boom.
Instead, convention attendance is dropping, the surrounding neighborhood is yet to be transformed by the promised new development, and conventioneers are filling fewer hotel rooms than expected.
The number of hotel rooms booked is especially significant because it is the most accurate measure of performance, and last year hotel convention bookings missed projections by 13 percent. Bookings are likely to fall short of projections by 24 percent this year and 29 percent next year.
To pay for the center, the city raised its tax rate for all hotel rooms and restaurant meals. It is hard to measure how much of the promised $1.4 billion boost to the local economy has occurred, and convention center supporters no longer cite the regional economic impact figure because they admit it is nearly impossible to track.
One underlying reason for the record so far: When making their predictions, officials figured Washington's hotels would give conventioneers discounts, making the city an attractive venue for associations of dentists, insurance agents and engineers. But hotels are so filled with tourists, lobbyists and businesspeople who are paying top rates that hotels have little reason to offer the discounts that convention planners seek.
The city's solution is to increase its investment, pressing ahead with plans to build a $550 million hotel next to the convention center, financed in part with a $135 million tax subsidy from the city, which convention center officials expect to be repaid with tax revenue generated by the project. The rest will be privately financed.
"We've got to do better," said William A. Hanbury, president and chief executive of the Washington, D.C., Convention & Tourism Corp. "The convention center and the hotel community all realize we need to do a better job of selling D.C. as a convention center destination. With a hotel, we'll be better able to sell the city."
A headquarters hotel, Hanbury said, will give him more rooms dedicated to convention-goers. But critics of the idea that convention centers provide significant economic benefits argue that a hotel will not reverse the trends and is simply throwing good money after bad.
"The center was promised to bring out-of-towners who stayed in hotels and spent money," said Heywood Sanders of the University of Texas at San Antonio, who studies the performance of convention centers and is a longtime critic of such publicly financed projects. "They routinely overpromise, and they never do what they're supposed to do. The question is how badly they perform. Putting in a hotel is no guarantee that it will improve the center's performance."
Washington's convention center was expected to attract visitors with money to spend, not to make money itself. But the loss is now expected to be wider than originally projected -- $22 million this year, compared with the initial projection of $10 million. Two big reasons were increased costs for power bills because of general increased utility rates and higher security expenses. Upkeep is costly: $180,000 a year to clean the glass and windows, $35,000 to repair wood doors and panels, $10,000 to replace carpet, and as much as $150,000 to fix paint and drywall damaged from moving equipment in and out.
Most convention centers lose money or barely break even. In Washington, the center is subsidized by a dedicated tax passed in 1994: 4.5 percent of the city's hotel tax and 1 percent of the restaurant tax goes to paying off the bonds issued to help pay for the center. The center got about $80 million last year from the dedicated tax revenue, which goes to financing its $36 million in annual debt service and other expenses.
The convention center hosted roughly 100 events in 2006. A Washington Post analysis of its performance focused on large conventions and trade shows and excluded one-day meetings, public events such as the car show, and parties booked at the facility.
Hanbury and his supporters say that more people are walking through the convention center doors than expected and that more people stayed in hotels in 2005. But convention hotel bookings -- or, as people in the tourism trade put it, the number of heads on beds -- started to slip in 2006, a trend that looks as if it will continue in the next two years. The challenge the center faces is that its conventions include local residents who are not bringing new dollars to the city.
"In 2005, there was a lot of excitement about the new building, and we benefited because groups that rotate from East Coast to West Coast were coming our way," said Joe Stern, former senior director of sales at the Grand Hyatt hotel near the center. "But in '06, you're looking at book collectors and stamp collectors. These are wonderful organizations, but the economic impact is not the same as your medical organizations, which come in larger numbers and have greater impact."
The World Philatelic Exhibition, in fact, was the largest event last year, but, like the auto show, it brought fewer overnight visitors who feed the economy with money that wouldn't otherwise have been spent in the area.
The stamp show drew 80,000 visitors to see the first U.S. stamps, among other attractions. Convention center officials calculate that the show generated $83 million in spending, one-fifth of the $405 million that they say all conventioneers brought to the city last year. They got that number by multiplying the number of attendees by the industry standard of $1,039, which includes spending on a hotel, food, taxis and shopping. But critics say not everyone spends that much, especially those on a one-day trip. In any event, the 2006 level was below the kind of spending that was promised when the convention center was planned. Then, spending of $522 million in 2006 was projected.
But organizers of the show, who say attendance is hard to track because admission was free, estimate that half of their attendees didn't spend the night, with many traveling for the day from as far as Richmond and Philadelphia.
Unlike earlier, the center now is trying to accommodate price-sensitive groups, encouraging them to meet at off-peak summer and winter dates when discounts might be arranged.
"There have been pieces of business we were not successful with because we were not aggressive in concessions," Hanbury said. "We have to offer space at a discounted rate, and you have to have the rooms from the hotels and make sure the hotel package is competitive from a cost perspective."
Washington and other cities find conventioneers a compelling economic driver. They spend money and leave, so they don't require social services. Across the country, a boom in convention centers, built in the name of economic development, has made the always-competitive business of attracting big conventions even more brutal. An estimated 8 million square feet of space is expected to come online in the next few years, even as attendance at shows remains steady and demand for the space grows only modestly.
Critics say that for all its strengths, Washington isn't necessarily set up for hosting big shows. Washington doesn't have the central location of Chicago, the low rates of Atlanta, or the casinos and golf of Las Vegas.
The new 2.3 million-square-foot convention center -- double the size of the old one -- was supposed to attract bigger shows than its predecessor. Instead, though it has booked more shows, they tend to be smaller ones, with lower attendance, on average, than the old center had in its peak years, according to figures from Hanbury's group, which is responsible for bookings.
In 1993, the old convention center reported yearly attendance of 446,825; over its first three full years, the new center averaged 456,400. Center officials say, however, that the latest numbers are audited and that those from the 1990s were not.
Convention officials say the center's promises can still be kept. Reba Pittman Walker, chief executive and general manager of the Washington Convention Center Authority, which runs the center's daily operations, said she has hired a new and aggressive saleswoman to go after short-term business.
"We're working hard to make sure we remain a world-class destination for conventions," Walker said.
Staff writers Cecilia Kang and Thomas Heath contributed to this report.