As Losses Mount for Taxpayer Backed Hotel, Politicians Scatter
Investigative Journalist Stephen Janis discusses the growing burden for city taxpayers of supporting the ailing Baltimore Convention Center Hotel with Heywood Sanders, a professor of public administration from the University of Texas, San Antonio.
STEPHEN JANIS, PRODUCER, TRNN: Hello. My name is Stephen Janis, and I’m an investigative journalist for the Real News Network in Baltimore.
It was a project touted as a moneymaker for the city, and a way to attract larger conventions. I’m talking about the Baltimore Convention Center Hotel. It was 2005 when then-mayor and now presidential candidate Martin O’Malley persuaded the city council to approve $300 million in taxpayer-backed bonds to build it. But those plans have not worked out.
The hotel has been a consistent money-loser, and instead of generating profits for the city, it has needed taxpayer support to pay its bills. And this week, more bad news when the hotel notched a $5.6 million loss. It was the seventh consecutive year of red ink. And even worse for the city, it needed another $1.3 million infusion of cash from taxpayers to pay its bonds.
Here to discuss why the Hotel has failed to meet expectations is Heywood Sanders. Sanders is an expert on the convention center building boom that has left cities in debt, in many cases with little to show for it. He is a professor of public administration at the University of Texas, San Antonio, and the author of the book The Convention Center Follies.
Heywood, thank you for joining us.
HEYWOOD SANDERS, PROF. PUBLIC ADMINISTRATION, UNIV. OF TEXAS, SAN ANTONIO: My pleasure, Stephen.
JANIS: So your initial reaction to these losses — this is the seventh year of consecutive losses. What’s your takeaway from this latest financial report?
SANDERS: Well, it’s here we go again. Actually, the loss is to some degree a paper loss. If you discount the depreciation, the hotel actually made a modest, little operating profit. But the reality is, it is performing so much worse than anyone in Baltimore or the highly-paid consultants who helped get the city into the deal in the first place ever discussed, when this was under review by the mayor and city council.
JANIS: So you’re talking about — even though the hotel is in its, like, seventh year, I believe, it still owes $300 million on the bonds. Can the cash flow from the hotel pay off the bonds?
SANDERS: No. And just to have a sense of how much it’s missing, the annual bond payment comes to something on the order of $16 or $17 million. The best you can do on the hotel’s bottom line is about $2.7 million.
Put in context, I went back and took a look at the study from the HBS consulting firm, about how that hotel was supposed to do. And last year it was supposed to be producing about $22 million in profit. So the bottom line is, the city’s getting about twelve cents on the dollar, in terms of what that hotel should be doing right now.
But the unfortunate thing is the story then was, build this hotel. Put it up right next door to the Baltimore Convention Center, and there’ll be an almost magical, absolutely guaranteed increase in the city’s convention center business, bringing millions in new revenue from visitors. Well, the problem is the latest figures for last year, 2014, show the convention center’s attendance is pretty much at the same place where it was in ’97 or ’98. And unfortunately, that’s true for every major convention center in this country.
JANIS: How did this happen? I mean, maybe give people a little bit of background. Just because we had this hotel, the city — a very poor city, Baltimore, spends $300 million in taxpayer-backed bonds that they’re now paying off to build this hotel. How did this whole sort of idea get hatched, and where did this come from?
SANDERS: Well, it’s a long story, played out over decades. And they’re decades that go back to the old original Baltimore Civic Center, that’s been seriously and singularly renamed over the years, that I think is, now bears the Royal Farms name on its front.
But by and large, the city’s business and political leadership, in your case the greater Baltimore [committee], was motivated to [revitalize and reinvent] downtown. And the idea was, hey, let’s build a major convention venue. At the time the convention center was first conceived of and built, the city was in the midst of the great promise of the Inner Harbor urban renewal effort. It looked like tourism would be a wonderful thing to ride. And you know, the initial returns from investments like then-mayor, later-Governor Schaefer’s vision of the National Aquarium, Harborplace sounded, began to look really outstanding. Baltimore has been touted for years as a great urban turnaround success story.
But the dilemma that you have is, you build a convention center, but at the same time you’re building it, Washington DC is building a brand new convention center. New York is expanding their Jacob Javits Convention Center. There’s a new convention center in Richmond, and a great big, [recently] the expanded convention center in downtown Philadelphia. Everybody can play this game. And when everybody plays the same game with the same big, brand new convention center, pretty much everybody loses.
JANIS: Well, so looking, going forward, I mean, the city revealed — and of course this contradicts what they said, that they’re going to have to draw more money from the taxpayers. Is this going to be, you think, a consistent need to take more money out of the taxpayers, you know, the general fund to support this hotel?
SANDERS: Well, the dilemma is — and you’ll recall it from the length of time you’ve covered the hotel story — is every year the promise is, this is the year where the Hilton will succeed big. This is the year where the Hilton’s going to turn it around. The dilemma you face is the convention business around the country is now overbuilt. There are far more convention centers and convention center space than we can fill.
And so what has happened in some of the most historically successful convention destinations in the country, places like Orlando and Las Vegas, they’ve doubled the size of their convention centers. Literally invested hundreds of millions, expanded the centers twice over. And they’re doing the same business they did fifteen or sixteen years ago. That is, they’ve spent hundreds of millions, they can’t move their convention business much at all.
So the dilemma you face is, you’re doing the same thing, and competing with a host of other cities. For me what’s even more amusing is, not terribly long ago Cleveland opened a brand new convention center, two years ago. You know what they need next door to their convention center in Cleveland? A 600-room, county-owned — they’re in the process of building right now.
JANIS: That was Heywood Sanders talking about the future of the Baltimore Convention Center hotel. My name is Stephen Janis and I’m reporting for the Real News Network in Baltimore. Thank you for joining us.
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