Center’s expansion also carries risk

Tarajee Beyah is more than a junior-level chef at the Park Hyatt Philadelphia at the Bellevue hotel. She is an enthusiastic supporter of spending $700 million in public funds to expand the Convention Center.

"The expansion hopefully will bring a lot more jobs to the city and help people who are struggling," said Beyah, 28, a graduate of a job program supported by taxes paid by conventioneers and other hotel guests. "We need to make sure it's beneficial . . . to everyone."

Her sentiment mirrors what the region's political and business leaders have promised for years when the massive wing is added to the center.

Officials tout the job-creating and tax-enhancing promise of using state funds from slot-machine parlors to justify the largest capital investment Pennsylvania has ever made. They say a bigger center will let the city better compete with rivals, spur construction of up to 2,500 Center City hotel rooms, and prod North Broad Street development.

But those optimistic officials are much quieter about the downside risk. Interviews with two dozen officials, experts and residents, and a review of economic studies, show that unless Philadelphia executes a stellar convention-marketing plan, the $700 million project is unlikely to pay off as advertised.

The city is almost certain to enjoy some economic benefit. But the costs and risks also will grow alongside the building itself as Philadelphia chains an even larger slice of its economy and tax base to the convention and hospitality industry.

Looming over the project is the stark reality of how competitive the national and regional convention market is - and how Philadelphia, with a lingering reputation for high costs and labor rancor in the center, fits into the mix.

Today, City Council is scheduled to meet to resolve yet another instance of rancor. Council members demanding more minority participation in construction jobs threatened to blow up the expansion by opening the site to nonunion workers. The sides have reached a compromise specifying the percentage of women and minority groups in the construction workforce.

When the 376,000-square-foot addition is completed in late 2010, the building will cover the area between Arch, Race, 11th and Broad Streets, besides its existing wing over the Reading Terminal Market. It will have the largest ballroom on the East Coast and 541,000 square feet of exhibit space on one level, matching what Washington has and topping other Northeastern cities.

Yet the addition represents less than 5 percent of almost 8 million square feet of new exhibit and meeting space scheduled to open in the United States and Canada by 2010. The Center for Exhibition Industry Research, a trade group, says 2.1 million square feet of space opened just last year, and 57 convention centers were under construction nationwide.

Critics of spending public money on new facilities say every region believes it will benefit from conventions and bigger buildings in which to hold them.

"The meeting planner or event organizer who considers Philadelphia has an array of choices," said Heywood Sanders, a public-policy professor at the University of Texas at San Antonio and a well-known critic. Estimates for additional city and state tax revenue as a result of the expansion "are implausible," he said. "They simply can't and won't happen."

Slack convention bookings actually could hit taxpayers twice: Philadelphia's publicly owned center, like others nationwide, does not generate enough revenue to cover its own construction and operating costs. So the city and state cover that expense from their own coffers, and hope to recover it from additional hotel-room, sales-tax and wage-tax revenue. But if that revenue does not materialize, the state must make up the shortfall.

This is a clear risk, however, that every local political and business leader interviewed for this report said was worth taking. They cite a decade's worth of economic-development studies by outside consultants - most of them commissioned by agencies such as the Convention Center Authority or Philadelphia Convention and Visitors bureau that have been advocating for expansion.

The studies say the city's location in the populous Northeast, its well-regarded convention sales force, and its attractive, functional facility have - and will - make expansion worthwhile.

"There's no question [that] making the expansion pay off is the challenge," said Buck Riley, a Paoli lawyer and chairman since May of the authority, the state agency that owns the building. "The center has to be run competitively . . . and we have to market it to the outside. We have to do better than others."

The only negative outlook came from a Boston consulting firm in reports for Gov. Rendell's office. The firm questioned whether the center and bureau were too upbeat, and said meeting their projections "will be a lofty challenge." The firm said the bureau was projecting a dramatic increase in business even though the number of conventions nationwide has been decreasing since 2002, a trend that is expected to continue.

The report was leaked to the media after state funding was appropriated. Rendell and regional political leaders had persuaded the Pennsylvania legislature to use $880 million in gambling revenue for it: $700 million for construction and $6 million annually for 30 years for operating losses.

Under the agreement Council is to vote on today, the city will be obligated to provide $15 million a year for the center's operating losses, down from about $19 million a year now.

So the hard part of making it all work starts now.

"We have to expand our sales and marketing to larger customers with greater space needs," said Jack Ferguson, executive vice president and chief salesman at the Philadelphia Convention and Visitors Bureau.

"And we need those 2,000 additional hotel rooms, so we can continue to offer a package to planners of larger meetings of hotels within walking distance of the building," Ferguson said.

Philadelphia may need to boost its sales and marketing budget to get the job done. The bureau is spending $5.9 million this year, Ferguson said. But in Boston, the sales and marketing budgets total $11.7 million this year for a new convention center comparable to Philadelphia's and its older Hynes Convention Center, according to the Massachusetts Convention Center Authority Web site.

Still, Philadelphia does well with what it has. The convention bureau wins awards annually from industry associations and trade magazines for its convention sales and operations.

Its sales team has capitalized on steady health-care-related conventions, which make up about 40 percent of all meetings here. Health care was one of the few industries nationwide that did not sharply reduce its gatherings as a result of the 2001 recession.

The health-care field has "not slowed down at all, and there's no real evidence it's going to," said Doug Ducate, president of the Center for Exhibition Industry Research.

But the challenge facing the sales force was on display during a site visit last month by Gwynn Breckenridge, director of meetings for the International Association for Dental Research. It is considering Philadelphia; Baltimore; or Charlotte, N.C., for its 2014 annual meeting.

Over two days, salespeople led Breckenridge on a tour of the Convention Center, a half-dozen nearby hotels, the National Constitution Center, the Reading Terminal Market, and the Parkway. She asked numerous questions, such as "how many chairs do you have for the largest session at my convention?" (The answer from center sales director Russell Kice: "16,000, and we can rent more if needed.")

In an interview later, Breckenridge gave no indication if she favored Philadelphia. She noted that the city had a better mix of upscale and mid-price hotels than most others, and her members would like Center City's attractions. But then Breckenridge mentioned the biggest hurdle the city has to overcome.

"Unfortunately, Philadelphia gets bad publicity about all the union regulations," she said. "We've asked for more information about what exhibitors can do for themselves."

Indeed, the Convention Center's union regulations and labor costs are practically the only aspect of its arsenal of services, facilities and amenities that worries officials.

After a strong start in the 1990s, the number of big conventions being booked since 2003 has dropped sharply amid a nationwide slowdown. Exhibitors, with rival centers scrambling harder than ever for their business, cited Philadelphia's high labor costs and ugly jurisdictional disputes between unions.

A new customer-service agreement between the six unions in the building and the authority, signed in 2003, has helped lower some exhibitors' costs and leave a better impression, convention officials said.

Labor leaders say their wages, although higher than those at many of the rival centers, are not the problem. They blame costs piled on by the exhibitors' own event managers and fault the center for failing to detail the costs in audits, as required.

"Management's failure to implement parts of the agreement has resulted in higher costs to the customers," said Michael Barnes, business agent for the Stagehands Union Local 8.

Riley, the authority chairman, said the center's costs and what keeps them high must be dealt with. "We've got to get to the bottom of it and find out where the real cost is," he said.

Mayor-elect Michael Nutter, a former chairman of the center's board, agreed that labor and customer-service issues must be resolved.

"There are some things I can do with customers and customer issues," Nutter said. "But we have to make sure we're paying attention to the details of service."