Last October, the Sacramento City Council approved an $83 million Community Center Theater renovation and a $16 million Memorial Auditorium upgrade, and continued planning for a Sacramento Convention Center expansion that could cost as much as $170 million. Whoosh, more than $250 million from our city’s checkbook committed to brick and mortar.
But Sacramento’s convention center investments have been economic disasters. The original 1974 building soon had cash flow problems, so the city raised the hotel tax from 5 percent to 10 percent. When expanded in the mid-1990s, the center generated even more red ink, so the city borrowed $10 million from its risk fund. That loan still has a balance of more than $5 million, and the annual payments of $250,000 won’t end until 2043.
Mayor Darrell Steinberg has launched a second look at the convention center project with five meetings of stakeholders: hoteliers, developers, tourist industry specialists, labor leaders and city staff.
“We want our hotel taxes to provide the best economic impact for Sacramento,” Steinberg declared at the group’s first meeting in January. His implied message: He’s not rubber-stamping the $170 million project.
At the second gathering in early February, he told stakeholders he wasn’t convinced the expansion would encourage new hotels downtown. Was he signaling he thought the construction target too pricy?
At the third meeting, three expansion options were presented: 24,300 square feet, 62,000 and 109,300. At the fourth session, the middle option’s cost was estimated at $110 million to $125 million by Tony Giannoni, a reputable local developer. This option was the mayor’s “Goldilocks” choice, and will likely be endorsed at the final meeting on Thursday.
The mayor’s $125 million expansion option has modest savings and lacks boldness. With greater construction debt, Sacramento will continue to sink into red ink. Granted, the existing center has design problems and lacks enough meeting rooms, but can’t they be addressed with a smaller budget, say $60 million?
Not every stakeholder appears willing to sign off on Option 2. For example, Chris Weare, director of research and strategy at the Greater Sacramento Area Economic Council, questioned the lack of a cost-benefit analysis on the expansion. His idea was brushed aside.
Caroline Beteta, CEO of Visit California, the state’s leading tourism organization, suggested another option: “Do nothing.”
Shouldn’t the mayor at least consider Beteta’s fourth option, freeing $8.2 million a year in hotel taxes when the existing convention center debt is paid off in 2020? This revenue could provide significant financial ballast for riverfront redevelopment, a long-delayed city goal, or other tourist projects.
Another possible option is to consider closing shop on the convention business entirely and sell the building to a reputable gambling firm. Why should Placer County, with its successful Thunder Valley resort, and soon Elk Grove, have casinos while Sacramento does not?
There’s a problem for future convention bookings – the concurrent construction project next door with the theater renovation that will chase even more business away than in the 1990s, thereby crippling the expanded center’s cash flow. Expecting otherwise is optimistic fiction.
And remember, when does any big-dollar project come in on budget? Never.
Dennis Neufeld is a board member of Eye on Sacramento, a local watchdog group. He can be contacted at email@example.com.