The Center for Local Innovation
Convention Centers, Stadiums, Water Parks, and Restaurants

Recommendation

Cities and counties should not use taxpayer funds to build convention centers, civic centers, sports stadiums, water parks, restaurants, and performing arts venues. Those are all inherently private-sector responsibilities.

Background

Recently many cities and counties in North Carolina have ignored the distinction between the public and private sectors by funding outright or subsidizing functions that belong to the private sector. In some cities, officials have poured money into nonessential activities while neglecting essential services such as police, fire, and roads.

These activities are often tied to the quest for "economic development" and justified by highly paid consultants who produce distorted and incomplete reports that always conclude that a proposed new, subsidized facility will be an economic boon.

Those studies always omit information regarding other cities' experiences with construction cost overruns, budget subsidies, fewer visitors than projected, and more importantly, what growth would have resulted from leaving the money in the hands of taxpayers.

Convention centers

For example, convention centers, especially those intended for national conferences, have been struggling for business. Before September 11, 2001, only two cities in the United States -- Las Vegas and Orlando -- had public convention centers that at least broke even. The rest were losing money annually for their communities. And since 2001, national attendance at Tradeshow Week 200 events has fallen to early 1990s levels. Nevertheless, consultants still return rosy predictions that generate unwarranted confidence in a proposed center's potential for economic impact, and if heeded, would result in an immense burden on taxpayers when the structure remains empty.

Charlotte and Asheville have made disastrous convention center decisions. Asheville's civic center had a predicted debt of $400,000 in 2006; in past years (2000, 2002, 2004), its debt passed $1 million. It lost sports teams in 2006, but the City Council continued to funnel it money. In 2007, the Council approved a six-year, $3.6 million capital improvement plan.

Charlotte's $148 million facility should have had 751,000 attendees annually. Instead, it has had yearly deficits because it can attract big conventions only by using deep discounts and large subsidies. Its best booking in 2007 was the Shriners convention (25,000 visitors) -- but the Shriners were given a discount and a $50,000 subsidy from the Charlotte Regional Visitors Authority, which markets the center, to underwrite costs. Nevertheless, the center was due for $2 million improvements in fiscal year 2008.

Since visitor spending is convention centers' only economic benefit, cities enact "visitor taxes" on rental cars, prepared food, and hotels. But those taxes hurt residents and local businesses who also pay them (e.g., eating out or renting a car), and it also hurts local businesses since taxes decrease tourism.

The private sector could fulfill any convention center task -- without taxpayer money. The Koury Center in Greensboro is one example. It successfully competes with subsidized city convention centers while making a profit and paying taxes that, among other things, are used to support its competition.

Restaurants

In Winston-Salem, the city spent more than $600,000 in federal grant money in loans to 10 restaurants along its "Restaurant Row." Loans from the city may cover up to 37.5 percent of project cost, with a maximum of $150,000 allocated to each restaurant. The median loan is $82,000. Interest rates are low (3 to 5 percent); repayment, deferred two years. Despite those advantages, two restaurants have already closed, defaulting on more than $176,000.

Raleigh spent $1,050,000 to fund The Mint, a "white tablecloth" restaurant in a city-owned building on Fayetteville Street. Of that, $800,000 converted the space from a bank to a restaurant; the remaining $250,000 matched the leaseholder's contributions on a $1-to-$2 ratio (every $2 the leaseholder spent the city matched with $1). The Mint signed a nine-year, eleven-month lease with the city. In its first six months rent was free. Then it was to pay about $12,000 monthly. Raleigh is an involved landlord: "substantial modifications" to The Mint's "style, service level, menu items, etc." are subject to Council review.

City governments should not invest in private businesses, especially risky ventures (restaurants fail 60 percent of the time after three years). With public dollars used, taxpayers -- including owners of competing restaurants -- are the ones forced to subsidize these ventures. Furthermore, it distorts the market: winners and losers are picked based on the City Council preferences -- not consumer opinion.

Entertainment

Winston-Salem and Forsyth County will invest in a $22.6 million baseball stadium as part of a greater project to expand residential and commercial construction. With interest, the cost of the stadium will be $38 million. Officials plan to recoup the expense from ticket surcharges, land taxes, and sale of its current stadium. But the experience of other cities shows that such a plan rarely succeeds.

Cabarrus County approved a five-year, $2.6 million incentive package to attract Great Wolf Resort, a hotel water park, to Concord. Concord added $1.5 million in five years of tax breaks. The resort is a 409-room hotel and water park -- for hotel guests only. Neighboring towns are frustrated by the pressure on water supply. The complex will use 70,000 to 90,000 gallons of water per day; if the land were developed residentially, water use would be about 39,000 gallons per day in 111 homes.

Charlotte is home to the $38 million U.S. National Whitewater Center, which consists of a man-made river, trails, lodge, and rock-climbing center. Area governments guaranteed the center's loans and promised to cover some losses in the first seven years of operation. Mecklenburg County pledged $7 million ($1 million annual limit); Charlotte, $2 million; other Mecklenburg and Gaston County governments, $3 million.

Predicted to have 20 percent profits in its first year, the center posted a $1.7 million loss; it covered operating costs, not debt service.

City council members and county commissioners should not use taxpayer funds to fund projects in the private sector. They have no expertise as venture capitalists, and they don't bear the financial risks of their choices. It is no surprise that the vast majority of these projects fail, leaving the taxpayers holding the bag.

Author: Dr. Michael Sanera
Research Director and Local Government Analyst

©2008 John Locke Foundation | 200 West Morgan St., Raleigh, NC 27601, Voice: (919) 828-3876
Contact Us | Site Map | Privacy Policy | Terms of Use