New report says Sacramento Convention Center is a taxpayer money pit

Fielding renewed charges that it’s a money-losing subsidy hog, the Sacramento Convention Center is nonetheless seeding the ground for another tax-funded expansion boom. Meanwhile, a debate ensues about whether this big-box tourism model is withering—or needs to get even bigger to survive.

“The convention center is an economic driver,” says general manager Judith M. Goldbar, paging through a new report that claims exactly the opposite.

For this scrutiny, Goldbar can thank Eye on Sacramento, a tax-minded watchdog group that contends the center frittered away $218 million in city funds since 1999. That money comes from a tax on hotel guests and other temporary lodgers that Eye on Sacramento says would be better used to employ police officers, maintain city parks and pay for a long-delayed upgrade of the Community Center Theater.

“There are a lot of areas that are of a lot higher priority than maintaining a mediocre management over at the convention center,” says Eye on Sacramento research director Dennis Neufeld, one of the report’s co-authors.

For her part, Goldbar, who’s more comfortable promoting tourist-friendly garden shows and nail expos than answering questions about how she spends the city’s money, doesn’t dispute Eye on Sacramento’s figures. She acknowledges that the center reaps the lion’s share of Sacramento’s transient-occupancy tax—a fancy term for a 12-percent “hotel tax” overnight visitors pay whether they’re renting a motel room or a private campsite—but says that’s how it’s supposed to be.

Since the convention center completed a major expansion in 1996, it’s received approximately $16 million a year in hotel-tax receipts—80 percent of the fund. Much of the money chips away at the center’s bond debt, while nearly $6 million supports operations like salaries and benefits, property taxes and additional overhead.

“It’s not all payroll and toilet paper,” says administrative officer Tina McCarty.

But it is a hefty carve-out in a city with several municipal mouths to feed, leaving “just crumbs that go the the general fund,” Neufeld says. The center’s modest revenue growth since fiscal year 2000-01 calls into question the wisdom of bullish ’90s projections, he adds.

Without the subsidy, the convention center likely wouldn’t survive, at least not in its current form. That hasn’t discouraged officials from considering another major build-out, even as critics say the center isn’t using up the space it has now to warrant such pipe-dreaming.

But others say you gotta build it bigger to make them come.

“We’re either in the convention-center business or are soon going to be out of the business,” McCarty says.

Those within the convention business say they’re the reason hotel-tax receipts doubled since fiscal year 1995-96—from $9.8 million then to $19.7 million in 2012-13—and maintain that they were always supposed to collect most of it.

“It’s not ’A River of Red Ink’ if this is the city’s business plan,” says Goldbar, referring to the Eye on Sacramento report’s bruising title.

And to be sure, chapter 3.28 of the Sacramento City Code directs the hotel tax—which was established in 1976 and last raised in 1992—to be spent solely on “public assembly and convention halls.”

But ordinances can be changed, and Eye on Sacramento isn’t the only critic of the city’s approach.

Three years ago, the city commissioned a top-to-bottom review of its financial operations. The audit spawned a 120-plus-page report from Management Partners, a government consulting firm. Among other things, it concluded that Sacramento gave much more of its hotel-tax funds to the convention center than the nine other most-populated cities in California.

Six of the nine cities invested 100 percent of their hotel-tax receipts in their general funds. Three cities put 40 percent to 52 percent back into these accounts. At the time of the April 2010 report, Sacramento returned 17 percent to its general fund. Today, that figure is closer to 13 percent.

“The principle for the establishment of the TOT is that visitors to a city should pay their fair share of taxes to support the core services and infrastructure needs created by the presence,” the report states. Giving most of the money to the convention center, it contends, “denies the City significant revenue from one of the few sources that can offset” the lack of property taxes from state-owned buildings.

Both the Eye on Sacramento and Management Partners studies recommend the city cut down on its convention-center dole by contracting out maintenance and operation of the center to a private company.

The convention center’s deputy general manager, Matthew Voreyer, maintains that “private management would be different,” but couldn’t specify how when asked.

Management Partners also suggests the city could allocate more hotel-tax money to its general fund once the convention center repays its $8 million-a-year debt seven years from now. But that money won’t be available if the city decides to refinance the existing debt toward another phased expansion, as some are calling for.

The Sacramento Convention & Visitors Bureau’s Brian Larson is leading a study that could recommend doubling the convention center in size once the current bond is paid off.

The genesis for the study was a 2010 consultant’s report that found Sacramento’s convention center struggling to keep up with the Joneses in San Francisco, San Jose, Los Angeles and a number of other competing convention towns. Sacramento is due to fall even further behind once a number of those cities complete their own planned expansions, argues Larson, who’s on the bureau’s executive committee. “Don’t need to be first, but don’t want to be last,” he quips.

To put Sacramento square back in the fair-to-middling column could cost anywhere from $50 million to $200 million, according to media reports, figures Larson says he can’t confirm.

“I know those are Craig Powell’s figures, but Craig Powell likes to just pull [them] out of his ass,” he says, referring to Eye on Sacramento’s president.

Meanwhile, Eye on Sacramento says there’s no way the city can look to its TOT fund to support another expansion, upgrades to its community theater and act as a potential insurance policy if parking revenues can’t cover proposed arena bonds.

Whether the fund is overextended is a question for city officials, Larson says. (A spokesman released a blanket media statement calling the Eye on Sacramento report “inaccurate.”)

“We think it will have some serious impact on whether the expansion gets approved or not,” Neufeld says of his group’s findings.

As for how much bigger Sacramento’s convention center can—and should—get, Larson believes there’s plenty of space for the time being.

“For now, my job in my lifetime is to support [convention-center expansion]. … We want sustained growth, smart growth, for the next 25 years,” says Larson, one of five hospitality-industry leaders on the bureau’s six-person executive committee. “The next one? That’s on somebody else.”