Friday roundup: More Jaguars move threats, more bad convention center spending, time is an endless loop of human folly

It’s Friday again! And December, how did that happen? “Passage of time,” what manner of witchcraft are you speaking of? Time is an eternal, unchanging present of toil and suffering under the grip of unending plagues! Thus has it ever been!

This notwithstanding, there was some news this week, though in keeping with the theme, it looks an awful lot like the news every week:

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Consultants predict people will flock to conventions again in search of human contact, Cleveland convention center seeks $30m to accommodate them

Hotel consulting firm CBRE issued a paper on Friday on “When Will Convention and Group Demand Come Back?”, and its answer, unsurprisingly, isn’t “never, we should all find a different line of work.” The report acknowledges that the U.S. hotel industry is “facing its largest decline in demand in history,” with revenue per room in top U.S. markets down more than 80% compared to last year. But it then goes on to argue that the hotel business “may be out of the hole in a matter of three years.”

The reason for the optimism? No, it’s not the imminent arrival of Covid vaccines, nor a new hotel partnership with Lysol or Clorox, nor a sudden burst of public enthusiasm for hotel restaurant meals served in sealed plastic containers. “Once the pandemic ends, and it will end, these employees will need to come back and visit the office to collaborate with co-workers and build culture,” says the report, arguing that business and their employees will get so fed up with Zoom meetings, the wonders of Microsoft Teams, and Cisco WebEx that they will “demand more opportunities to connect in person … and conferences and conventions are ripe to benefit from the increased demand.”

After a lengthy review of the calamity the coronavirus pandemic has inflicted on hotels — particularly the large, big city downtown hotels that rely on group and convention business — the CBRE report then pivots to insisting that more people working at home will in fact stimulate more business travel. Remote workers, it notes, often feel isolated and miss non-verbal cues from coworkers, things that presumably can be cured with a quick weekend trip to a convention hotel.

The report then goes on to assert that “major conferences have already seen unbelievable growth over the past decade.” The evidence for that assertion? Exactly two cases: Salesforce’s annual “Dreamforce” conference South By Southwest in Austin, Texas.

The Dreamforce event, reports CBRE, has grown from 20,000 to 170,000 attendees in just seven years, in parallel with the success of Salesforce’s software and services. That’s been great news for San Francisco hotels and the Moscone Convention Center. But the actual story is a little more complicated. You see, Salesforce reported 171,000 attendees at the 2019 event. And 171,000 at the 2018 version. And for 2017, yes, it reported attendance of 171,000. Which was exactly the same number of attendees that the Salesforce blog said were there in 2016. It turns out that Salesforce reported 150,000 attendees in 2015.

So rather than booming growth over seven years, the Dreamforce conference has actually stalled out at the magical 171,000 for a bit. That’s still a whole lot of people, right? Yes — but not all of those people are visiting from out of town and filling San Francisco hotel rooms. The San Francisco Business Journal reported that the 2019 conference generated a total of 132,595 hotel room nights. That’s less than one room night per attendee — not what we’d see if most attendees were booking multi-night stays. In fact, a great many of the Dreamforce attendees are from Silicon Valley to the south, and the greater San Francisco metro area. They can drive, or train, or BART to the conference, and go home at night. And in 2020, they didn’t have to do even that — the 2020 conference was fully virtual.

Still, Austin’s annual South by Southwest event makes the case that people want to get together, doesn’t it?  SXSW’s “Event Statistics” for the 2019 two-week collection of conferences, events, and live music performances do show a total attendance of 417,400, although that may double-count some who attended more than one of the main conference, the music showcase, the film festival, the gaming event, the Wellness Expo, and SXSW EDU. But that same SXSW statistics summary shows a total of 55,339 hotel room nights booked. Again, lots of the attendees at SXSW are locals and daytrippers, not distant overnight visitors.

Indeed, the larger stories of Dreamforce and SXSW make precisely the opposite point from what the CBRE authors had intended. Americans do like to get together, for a variety of events and experiences. But that doesn’t necessarily translate into hotel demand. And the single best-attended portion of the whole SXSW enterprise is the music festival — accounting for 232,258 attendees in 2019, or 56 percent of the total — making it a better indicator not of business travel demand, but rather a measure of the demand for live music.

All this matters because even amid a pandemic that has turned a slow decline in convention demand into a total collapse, the convention industry is still seeking more public money to fund expansions. Just look to Cleveland, where the local convention bureau is arguing that Cuyahoga County should spend $30 million to refit its failed “Global Center for Health Innovation” to work as part of the adjacent convention center. Chicago-based Merchandise Mart Properties had promised some 300,000 medical meeting attendees annually and $990 million a year in “economic impact”; when that didn’t transpire, MMPI bailed on the project, and Cuyahoga County renamed the mart building the “Global Center” and added a $230 million Hilton-branded hotel fully owned by the county to promote conventions.

Now, the infamous Conventions, Sports & Leisure International (CSL) — the same consultants who once projected that Montreal would be an excellent baseball market without bothering to account for Canada and the U.S. using different dollars — have forecast that turning the failed showroom building into more meeting space for the Huntington Convention Center would bring $110 million in annual economic impact to the area. And all from an investment of just $30 million in county money, which would come from … somewhere. Because if one thing is a given in the convention industry, it’s that if at first you don’t succeed, just keep doubling down in hopes that doing the same thing and expecting different results will surely work eventually.

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Minnesota convention centers offering sale prices to check out state’s famed takeout food and ventilation systems

Things look grim for convention centers in Minnesota, reports the Minneapolis Star-Tribune. The management of the Duluth Entertainment and Convention Center is now resorting to promotion of its ventilation system rather than the “facility’s proximity to Lake Superior.” And in Minneapolis, Melvin Tennant, CEO of Meet Minneapolis, estimated that the city’s almost entirely empty convention venue will see a revenue drop of 75 percent this year. Terming the Minneapolis Convention Center “a catalyst for our hospitality industry,” Tennant joined his colleagues in seeking both federal government aid and some word on when state guidelines limiting the size of indoor gatherings would be eased.

In the interim, Meet Minneapolis is doing what convention centers and destination marketing organizations typically do — having a sale. With the bold headline “Get More for Less in Minneapolis,” Meet Minneapolis has been offering a host of incentives for groups meeting in Minneapolis next year. The convention center is offering a 20 percent discount on both rent and AV equipment, a $3.00 per room night rebate to the group for every hotel room used, a three percent rebate on hotel bills, and even a free round-trip Delta airline voucher — just to check out the city.

Whether the promise of sale prices and the boast that “Minnesota currently ranks #1 in takeout, curbside and delivery dining” are enough to get folks to Minneapolis appears seriously open to question as the coronavirus surges through the upper Midwest. But the city’s hotel business has been incredibly hard-hit so far this year between George Floyd’s death and the pandemic. Overall hotel revenue is down by 62 percent compared to last year — a drop just like destination cities in Hawaii. Maybe a half price sale next?

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How Cleveland ended up with $230m in debt on a convention hotel it didn’t need

The Cleveland Hilton Downtown is still open, although largely empty. The few rooms that are occupied are largely filled by airline crews, the least financially rewarding part of the hotel business. It’s not surprising. Hotels and the entire travel and hospitality industry have been devastated by the coronavirus pandemic.

But the Cleveland Hilton Downtown isn’t just any hotel. It is owned by the government of Cuyahoga County, its bills and finances the responsibility of the county’s residents and taxpayers. And now they have to pay — more than $7.9 million immediately — to meet the requirements of a $230 million debt issue the county sold in 2014.

The $7.9 million is just the first installment in what is likely to be a continuing, expensive commitment to the debt service on the Hilton. The debt payment this year comes to $20.7 million. It’s another $20.7 million next year, and each and every year until 2029, when it drops to $6.6 million. And if — as appears likely — Cleveland’s convention business doesn’t come roaring back, and the hotel isn’t filled with convention attendees, the publicly owned Hilton will have to fight for a limited pool of downtown hotel business.

How did Cuyahoga County decide it made sense to get into the hotel business? Well, back in 2004, PriceWaterhouseCoopers did a feasibility study for a new convention center in downtown Cleveland. PWC declared, “it appears that a high-quality, 600-room headquarter hotel would be required in order for Cleveland to meet the demand estimates presented in this report.” And when no private developer appeared interested in building such a hotel in downtown Cleveland, the county decided to go into the hotel business. County officials assured the public that the combination of the hotel’s revenues and the taxes it generated would more than pay the annual debt service — there was nothing to worry about. And meeting planners, it was argued, didn’t want to spread their attendees across a number of smaller 200- or 300-room hotel properties. A big hotel, right next door to the new convention center, was critical to making Cleveland a competitive convention destination.

Even as county officials began to consider a publicly-developed hotel, the city’s convention and visitors bureau, Positively Cleveland, commissioned a feasibility study from PKF Consulting for a 600- to 700-room hotel. PKF’s Peter Edelman came back in May 2013 with an analysis that claimed to justify a 600-room property: A new convention center, in Edelman’s assessment, would generate new business amounting to 131,000 annual hotel room nights, about equal to what Positively Cleveland was forecasting. With that convention business, the hotel would operate in 2020 with an occupancy rate of 68% and an average daily rate of $185. That would yield net annual revenue of $7.8 million.

Those hotel revenues, plus the 5.5 percent county hotel tax on the new hotel’s rooms, would obviously not come close to paying the debt service on a convention bond issue. So rather than issuing debt for the hotel backed by the hotel’s revenues, the county used a lease arrangement, with the actual debt (“certificates of participation”) issued by the Cleveland-Cuyahoga Port Authority. The hotel, of course, had nothing to do with the port: The virtue of the debt arrangement was that it obscured the actual source of the funds needed to repay it, and equally obscured the performance of the hotel. The county government has since said that the hotel’s actual performance and finances are “proprietary,” thus sidestepping the question of whether the hotel is actually a profit-making enterprise.

The Cleveland Hilton Downtown and the adjacent Huntington Convention Center have clearly not delivered anything close to the forecasts of PWC, PKF, or Positively Cleveland. The 2004 PWC report had pegged the center’s annual hotel generation at 125,000 room nights; PKF used an assumption of 131,000 room nights a year, Positively Cleveland 130,000. In 2016, outside of the Republican National Convention, convention center events had produced 60,215 room nights. The next year the center’s events yielded 65,118. The room night total for 2018 came to 94,416, although 19,519 were attributed to “conferences and large sporting events.”

And with the convention center underperforming, there can and should be questions about the hotel, but the county government has refused to release it to the public. The county’s hotel asset manager did allow that the hotel made an $8 million payment towards the $20.9 million annual debt service in 2019, and it is supposed to make a $9 million payment this year. But the hotel will only be able to manage $3.7 million if that, leaving the balance to be paid from the county’s other revenues. The asset management firm offered no figures for next year, simply saying “additional support will be required.”

The future of the convention business is at the very least uncertain. Yet what is absolutely certain now is the Cuyahoga county’s taxpayers are on the hook for a great many more millions in the years to come.

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Seattle’s convention center seeks a $300m federal bailout because it forgot to budget enough money to finish its expansion

That enormous gnashing-of-teeth sound from the Puget Sound area? Those wails of frustration and upset from downtown Seattle? No, it’s not a response to the pandemic and its human toll, or even to the economic dislocation that has followed. It’s the pain of downtown boosters, Chamber of Commerce leaders, and local officials faced with the pressing need to find an extra $300 million to finish the $1.8 billion (yes, billion) expansion of the Washington State Convention Center.

The expansion, termed by the Seattle Times “one of the city’s largest-ever construction projects,” has been underway since 2018, with the goal of adding 440,000 square feet of new convention space, effectively doubling its current size. In the last week, the need for an immediate federal government bailout was promoted in the media by an array of dignitaries, with King County executive Dow Constantine arguing there would be “statewide” ripple effects if the expansion isn’t completed: “The visitor industry is the core of our regional economy, with the Convention Center at its heart.”

So how did a $1.8 billion convention center expansion end up needing federal dollars? In fact, how did an expansion of a modest convention center end up costing $1.8 billion? For that, you have to go back to 2008. An expansion in 2001 had utterly failed to produce the promised new business. But by late 2008 the center’s leadership had begun to promote another expansion, with board chair Frank Finneran claiming, “We are losing more business than we are booking.” At that point, the expansion cost was pegged at a mere $766 million. But the governor and state legislature were thoroughly uninterested, and actually raided the center’s surplus hotel tax revenues to make up a state budget shortfall in the wake of the recession.

Finneran, along with the business and labor interests that backed a larger center, approached the state government again in 2010 with a plan to shift from state control to ownership by an independent King County public facilities district, with funding from the area hotel tax. The state legislature blessed that plan, and the new district sold bonds to pay off the center’s debt, preparing the way for pursuing the expansion. And the new entity turned in 2014 to outside consulting firm Conventions, Sports and Leisure International (CSL) for a feasibility study and a forecast of the new business a bigger venue would attract.

CSL — those would be the same folks who forecast that Philadelphia’s big 2011 expansion of its convention center would bring 786,000 annual hotel room nights, a number that by 2018 remained at only about 370,000 — endorsed an even larger expansion than the one proposed in 2009, forecasting that it would bring an additional 22 annual international and national events, boosting attendance by about 79,000 to just over 220,000. With a bigger expansion came a larger pricetag: By late 2015 the projected cost was up to $1.4 billion. Still, an outside financial feasibility analysis concluded that growing local hotel tax revenues would be more than enough to cover the required annual debt service.

By 2018, with a better estimate of site acquisition costs, and a series of deals with neighborhood and community groups that added over $90 million, the cost estimate was now $1.73 billion and climbing. The district still planned to sell bonds, a total of $1.08 billion in July 2018. But it now didn’t have enough projected revenue to cover the full expansion cost. The district staff and board pressed ahead anyway, anticipating that it could sell a second bond issue, for about $168 million, in 2020. The district was warned in a May 2018 analysis that the “WSCC could be vulnerable to a potential economic downturn in the 2019-25 time frame,” but still went ahead without the money to finish the project. Simply put, convention center officials bet that hotel revenues — and hotel taxes — would keep going up, year after year, which was a little like promising the bank you’ll be able pay for that big, new house with the huge raise you’re sure to get next year. They lost.

Costs have kept growing, and with the convention center expansion now 30% complete, it needs $300 million more — money that the district doesn’t have and that it likely can’t sell bonds for. With Wall Street apparently not particularly interested right now in long-term debt backed by hotel tax revenues, for some reason, officials have turned to federal stimulus dollars on offer in the wake of the coronavirus pandemic; Washington state Sen. Patty Murray told KING5 that she is “working now to explore what can be done at the federal level to help support the project’s timely completion.”

The convention business has been on the decline for years, even as convention centers continue to expand to compete for a dwindling number of events — and it’s expected to take years to recover from the current bans on large in-person public gatherings, especially if organizers start experimenting with online meetings in the interim. Nonetheless, Visit Seattle president Tom Norwalk told the Seattle Times that his organization is “very confident” that demand for conventions will continue to be strong. Just what the federal government should bet on.

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County approves $125m tax gift to Carolina Hurricanes, city approval next up

Wake County, North Carolina yesterday approved $46.6 million a year in tourism tax spending — money from a 6% hotel tax and 1% restaurant tax imposed in 1991 — and the beneficiaries are set to include the Carolina Hurricanes and the Raleigh Convention Center, though not yet a proposed Raleigh soccer stadium:

  • The Hurricanes would get $9 million a year in tax money for the next 25 years, a present value of about $125 million. The NHL franchise has been looking at an arena renovation cost of up to $200 million, so this would pay for the bulk of that.
  • The convention center would get $3 million a year for maintenance, $2.2 million a year for parking and infrastructure, $19 million flat fee for renovations and new land acquisition, and $17.575 million a year starting in the mid-2020s for an expansion and new music venue.
  • The North Carolina FC USL team didn’t get its proposed $11 million a year stadium grant, but can still apply for part of the remaining funds, where it would compete against other arts groups.

I know that some of you are thinking about now, “But isn’t the whole point of a tourism tax to promote tourism, so the tax money should be spent on things that will bring tourists to town?” Sure, but then it’s important to ensure that the spending will bring tourists to town, and the return on sports and convention spending is historically really awful in that regard: Sports teams only bring in a tiny sliver of new spending compared to what they cost in subsidies, and conventions are equally dismal.

One solution, if you’re really determined to use tax dollars to encourage people to come to your town, would be to demand some kind of direct repayment from the beneficiaries: Sure, we’ll give you a pile of free cash, but then you need to share the resulting increased revenues with the public treasury. But that doesn’t appear to be what’s going on in Raleigh; rather, the Hurricanes and other operators will keep any windfall revenues, and local government will just sit back and hope that the rising tide lifts their fiscal boat as well.

This whole plan still needs to be signed off on by the city of Raleigh, but at this point it looks like all that’s left to decide is which private interests to funnel tax money to, not whether to do it at all. (It’s possible there are some ways that Wake County could use tourist tax dollars to displace other spending that would then be freed up for broader social goods like schools or whatever, as has been the case in other locales, but none of the coverage has addressed that.) If anyone was wondering why somebody would spend $420 million to buy an NHL team with attendance near the bottom of the league, you may have just gotten your answer.

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Cincy mulls convention center redo to lure new visitors, since that worked so well last time

Cincinnati tourism officials are pressing for a major renovation of the city’s Duke Energy Convention Center, and construction of a big new hotel next door, arguing that the city would otherwise see a big drop in visitors. Mike Latsch of the Cincinnati Convention & Visitors Bureau says without the project, the city could lose 100,000 annual hotel room nights by 2022.

But the last time the city expanded the convention center, it literally had to scrape up the $140 million cost, using naming rights from Duke Energy and millions in contributions from local corporations in addition to local hotel tax revenues. The 2006 expansion actually did little to boost the city’s convention business. And in the decade since, Cleveland opened a new center, Columbus expanded its center, and Indianapolis opened a major expansion, increasing competition for scarce convention dollars.

Now, any expansion plans will have to compete for hotel tax dollars against renovations to the US Bank Arena — proposed in order to ready the venue for hosting the NCAA men’s basketball tourney in 2022 — as well as plans for a new Major League Soccer stadium. All this in a city and county that have already managed to pour an immense amount of public money into stadiums.

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Cuomo proposes spending $1B to make Javits convention center exhibit space 11% bigger

The New York State Convention Center Development Corporation recently released a Request for Qualifications (RFQ) for a designer/builder for Gov. Andrew Cuomo’s planned expansion of the Javits Center on Manhattan’s west side. So now there are some specifics on the $1 billion boondoggle, but no real indication of where the public dollars are actually going to come from, beyond that “a State appropriation of $1 billion, bond issuance proceeds, cash on hand, and other sources as required.” It’s nice to have “cash on hand.”

The project would include a new 480,000-square-foot marshaling facility, with 27 loading docks — because what Manhattan most needs are fleets of 18-wheelers hauling stuff on city streets — roof terrace for outdoor events, and 92,000 square feet of new prime exhibit space, together with added meeting room and ballroom space. That amounts to just an 11 percent increase in exhibit space — what a deal for a billion bucks in public dollars!

Gov. Cuomo proclaimed last January that the Javits was the “busiest convention center in the United States,” with more than 2 million visitors annually. The Javits’ annual report shows attendance of 2,056,500 in 2014. But that year Chicago’s McCormick Place saw total attendance of 2.34 million. So “busiest” might be open to some question. And those Javits attendance figures include big public shows like the New York International Auto Show that sees a million attendees itself, almost entirely from the New York metro area.

The real issue with the Javits is dismal attendance at conventions and trade shows, the events that draw out-of-town visitors and fill hotel rooms. In 2000, the Javits drew 1.25 million convention and trade show attendees. For 2014, the total was just 629,500. And those attendees produced just 478,000 hotel room nights — a tiny fraction of the 31.6 million room nights filled in the city in 2014. That may be why the Cuomo administration has yet to produce any kind of market analysis or feasibility study for the expansion: It likely won’t produce any real increase in the Javits’ convention business.

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Nobody is against downtown Chargers stadium/convention center, except for pretty much everybody

The San Diego Chargers want a combined stadium/convention center downtown. But the mayor doesn’t. And the county doesn’t. And the convention center doesn’t. Which should make for an amusing few months.

Having lost the great race for a deal in Los Angeles, the Chargers have now floated a plan for a combined stadium/convention center in downtown San Diego, just east of the Padres‘ Petco Park. The “convedium” scheme would stack the stadium on top of a 225,000-square-foot convention exhibit hall, with meeting space and ballrooms in a connected building. City officials and local hoteliers have long been pushing for an expansion of the existing convention center, and they’re armed with a study by our friends at Conventions, Sports & Leisure International that says a separate new center won’t boost local convention business the way a contiguous expansion would — a difference of exactly six conventions and trade shows a year.

The earlier expansion plan was blocked by the courts, ruling a scheme that used a fee on local hotels was really a tax, and that required a public vote. Now the Chargers have joined attorney Cory Briggs (who brought the suit that stopped the expansion effort) to back an initiative to change the way the city’s hotel tax is distributed.

It appears the public financing for the stadium/center combine would come from a hotel tax, and that will undoubtedly require a public vote (maybe a two-thirds majority vote) in spending-limit-heaven California. But while Mayor Kevin Faulconer and other local officials (and the hotel folks) will likely oppose it, the combination deal has lots of friends. The Chargers get to argue that a combined stadium and convention facility will bring more conventioneers to sunny San Diego. They’ve got Fred Maas, former downtown honcho and center expansion promoter, on board. John Moores, who did the deal that built Petco Park, will get a boost for his surrounding property. And the hotel types will get something, even if it’s not what they prefer.

Yet one big question mark is Comic-Con, the event that (according to the convention center) drew 130,000 attendees last year, fully 24 percent of total convention attendance. The Comic-Con folks want a contiguous expansion, not the Chargers deal. And Los Angeles and Anaheim have both tried to lure the event, which is facing increasing competition from a host of “Cons” around the country. Will San Diego lose the hordes of costumed superheroes? Will Spiderman spin a big web for a convention center?

Does it all make sense? No, but this is “Field of Schemes” after all.

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St. Louis wants to expand convention center after losing NFL, because that worked so well the last time

Coming off the loss of the Rams, St. Louis’ leaders have come up with a can’t fail strategy for boosting the city and its fortunes: Spend hundreds of millions to improve the convention center and domed stadium complex abandoned by the Rams to better compete in the national convention market. Kitty Ratcliffe, head of the St. Louis Convention and Visitors Commission, owner of the center and dome, recently proclaimed, “Our competitors are building, while we’ve been doing nothing.” The chief of staff for St. Louis Mayor Francis Slay weighed in with “We’re looking at this as a boost for the region’s tourism industry.” And they promised a consultant study “in the next few weeks” that would document the needs and set out a price tag.

Here they go again. Thirty years ago, faced with the loss of the NFL Cardinals, then-Mayor Vince Schoemehl and the region’s business leaders promoted a combined convention center expansion and domed stadium as the cure for the city’s ills. The argument by mayoral staffers was that “the City cannot feel like a ‘winner’ if it’s constantly losing things.” The city’s then budget director argued that a combined dome/convention center would be “an exciting world-class building project. We don’t often get this type of opportunity to make an international impact, like the Astrodome.”

Armed with consultant studies that promised a big boost in convention activity from what was supposed to be the country’s fourth biggest convention center, the city, county and state governments plopped down $240 million for a dome that still didn’t have a football tenant. More consultant studies said that what St. Louis really needed was a 1,000-room hotel next door to the new America’s Center complex. The head of the Convention and Visitors Commission in 1999 forecast that a new hotel would boost major conventions from 33 in 1998 to 56 in 2004, with hotel room nights almost doubling, to 800,000 a year. Mayor Clarence Harmon pressed the case for state aid for the hotel as “the foundation of our efforts to revitalize downtown and its is a cornerstone of our overall economic development strategy in the City of St. Louis.”

The new $277 million, 1,081-room Renaissance Grand Hotel opened in 2003 and immediately floundered, with occupancy and rates well below consultant forecasts. Beyond the problem of opening in the wake of 9/11, the hotel never spurred the predicted convention boom. By 2006, there weren’t 54 major conventions, but just 32. And the total continued to sink, so that 2008 saw just 438,000 convention room nights, a bit less than the 800,000 promised. With no new convention business, the hotel proved a total dud, and bondholders foreclosed on it in 2009, finally selling it for a third of debt. The story of the city’s convention business is still the same — 26 major conventions in 2014 and 425,411 room nights in 2014, almost exactly the same as the figures for 1997 and 1998.

Now, lest the city once again be viewed as a “loser,” with more promises of a “boost” for tourism, state and local officials seem poised to throw away more public money.



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