The Texas Comptroller, Glenn Hegar, has published a report that is worth reading. The takeaway, based on our read, is that Texas could be going overboard on building Convention centers. He says that they are a “common if expensive strategy for local economic development. Once a feature of the largest cities, today convention centers are increasingly common across America, established in the hope of luring visitor traffic that can revitalize communities.”
“They can help provide a sense of place, hosting annual events that come to characterize a city, such as South by Southwest in and around the Austin Convention Center or the Houston Livestock Show and Rodeo at the NRG Stadium.
But the sheer number of convention centers has made the market highly competitive, putting pressure on these venues to expand and add the latest innovations to attract events. In Texas and elsewhere, state and local governments have responded by increasing incentives and subsidies for the construction, renovation and maintenance of convention centers and their surrounding hotels and infrastructure.”
These incentives can be controversial, though. Convention centers are highly expensive operations, and most don’t make a profit — particularly when considering the debt service payments involved in their construction. Private investors are reluctant to invest in such uncertain ventures, which leaves the tab with taxpayers. Advocates of convention centers argue that these operating losses are more than compensated by added jobs, investment and economic activity produced by visitor spending.
According to the Governor’s Economic Development and Tourism office, Texas is home to more than 90 convention centers. Yet convention space continues to grow throughout Texas and across the nation, despite at least some indications that the market is saturated — and that conventions themselves are less popular. A 2012 report by Citylab, for instance, noted that U.S. convention space had risen by 50 percent in the preceding 20 years, yet “attendance at the 200 largest conventions peaked at about 5 million in the mid-1990s,” and had declined steadily since.
Local Support for Convention Centers
Local governments have several economic development tools and financial incentives available for the construction and maintenance of convention center facilities. One key tool is the hotel occupancy tax (HOT).
Texas has had a state hotel occupancy tax since 1959, with a current rate of 6 percent of the cost of lodging. Its revenues are allocated primarily to the state’s General Revenue Fund, with the remainder supporting the advertising and marketing activities of the Governor’s Economic Development and Tourism office.
Texas cities first received authority to impose a similar, local tax in the early 1970s. Local HOT revenue must be used to promote tourism and the hotel and convention industry.
In Lampasas, the 2017 report shows that the 7% tax on Hotel and Motel stays accounted for some $135,878 of income. 16% of that, some $21,088 was allocated to construction of facilities, and another $24,175 was allocated to promotion of Lampasas as a tourism destination. Yet another contribution to tourism promotion is allowed under the general heading of promoting the arts in the community. Some $3,113 went into that category in 2017.
The balance of the HOT funds are put in holding accounts for future use, such as more construction in our parks system, or the building of a convention center, currently considered at the 580 Sports Park.
But, as the Comptroller’s report questions, is it “Worth the Investment?”
“Convention center complexes remain a potent symbol of downtown development and dynamism, and local officials and business leaders are likely to continue calls for more spending to keep them competitive for state and national events. Such moves reflect a general belief that convention centers pay for themselves through higher hotel and sales tax revenue, more jobs and more private investment. Most, however, do not cover their operating costs, and competition among them has risen sharply.
Public investment in convention centers is likely to continue, but it’s important to ensure public scrutiny.”
The complete report is at Texas Comptroller of Public Accounts.gov – Fiscal Notes.