Sacramento's Convention Center money pit

The Sacramento Convention Center is living proof that even if you build it, they don’t come.

Despite insistence from Convention Center officials that the center is an economic driver, a new report shows quite the opposite; the convention center is an economic sinkhole.

That sucking sound coming from the downtown is $16 million in annual losses over a 10-year period, and cumulative losses over the past 14 years of $218 million — greater than the city council's proposed $211 million cash subsidy of the proposed sports arena for the Sacramento Kings.

The city has an answer for this conundrum: rebuild an even bigger, more expensive Convention Center, rather than outsource the convention business, as most large cities are doing.

According to Eye on Sacramento, the public policy watchdog group which produced the report, the annual $16 million convention center deficit is being funded by the city's 12 percent hotel tax. “Fully four-fifths of the $20 million annually brought in by the hotel tax is consumed by losses at the convention center, while most California cities use their hotel tax revenue to fund an array of services, particularly support for the arts,” EOS reported.

Eye on Sacramento has worked for several years for transparency and effectiveness in Sacramento local government. The group has produced many in-depth reports on areas of city government, including crunching the real numbers on the proposed Kings arena project.

Convention center losses = 160 new cops

Eliminating the $16 million annual subsidy of Convention Center losses would allow the city to hire 160 new police officers, EOS found. “The annual loss equates to 59 percent of the new taxes the city is collecting from voter passage last year of a one-half percent hike in the sales tax, Measure U. The annual $16 million loss is more than the city spends out of its general fund each year on park maintenance.”

The Sacramento Bee, the city’s newspaper of record, has been silent on the new report, released September 4. Craig Powell, the President of Eye on Sacramento, said he sent several emails including the report to the Bee editorial board, but has not even received a response.

However, the Sacramento News and Review, an alternative weekly newspaper, did a comprehensive story on the convention center report.

I recently spoke with Powell about the EOS report.

“City leaders have a growing penchant for creative, and aggressive, municipal financing,” he said. “The city is poised to announce plans for both a major expansion of the 134,000-square-foot convention center and a $50 million rehab of the 2,422-seat theater.” The theater remodel has been driven by legal pressure to bring the theater into compliance with the Americans With Disabilities Act.

But according to Powell, there are two problems:

* The convention center expansion and theater rehab would be financed almost entirely with new city borrowings.

* And the only available funding source for debt service on such borrowings — the city’s 12 percent hotel tax — is already slated to serve as collateral for the approximately $250 million of bonds the city plans to sell to finance its promised $211 million cash subsidy for the new arena (in addition to approximately $140 million of noncash city subsidies).

It should be difficult for the city to justify spending $50 million to $200 million on expanding the convention center when its existing operations are running up eye-popping losses, Powell explained. But the city is about to double down on failure based on the argument that Sacramento needs to expand exhibit space to remain competitive with other West Coast cities.

Hotel tax is city revenue source

Powell said Californians had no idea how the hotel tax would expand as a revenue source for revenue hungry local governments, or how quickly local governments would come to rely upon it. The “Transient Occupancy Tax” was first passed in Sacramento in 1965 as a 4 percent hotel tax. It was raised to 5 percent in 1968, and by 1978, was up to 10 percent.

Voters approved a 1-cent increase in 1990, a ½-cent increase in 1992, and another ½-cent in 1994, bringing it to today’s 12 percent.

According to Powell, the city has overcommitted the 12 percent hotel tax to fund:

* Collateral for the repayment of hundreds of millions of dollars in bonds to finance the construction of a sports arena at Downtown Plaza;

* Funding the expansion ($50 million to $200 million) of the Sacramento Convention Center;

* Helping finance a $50 million rehab of the Community Center Theater; and

* Funding a number of projects for Sacramento's struggling arts community.

Had Sacramento city councils ever allowed development along Sacramento’s two beautiful rivers — the Sacramento River and the American River — perhaps Sacramento would be a destination point, as other river cities are. Sacramento is a valley town and is not a prime destination point.

In the real world, private sector businesses outgrow existing facilities before committing to build larger structures. Building a bigger convention center will not turn Sacramento into a destination city, and will only force Sacramento taxpayers deeper into the unsustainable money pit.