Last night the Senate gave preliminary approval to legislation authorizing the borrowing of $1 billion for expansion of the Boston Convention and Exhibition Center in South Boston.
I came to feel comfortable with the bill and did vote for it, although I share a number of common concerns about this kind of legislation:
- I’m troubled about public debt levels in Massachusetts.
- I’m nervous about the concentration of power in quasi-public authorities.
- I feel we have to work extra hard to make sure we get an accurate analysis of the economic merits of new government projects, since the pressure to move forward with projects that may create jobs is always very strong.
- I’m uncomfortable when government tries to operate like a business. The foundation of financial discipline in the business world is private money at risk. When we are using taxpayer money, we need to have a lot of transparency in place to protect the public. Additionally, those who gain power in the political process and end up running major public agencies don’t necessarily have the training and expertise to make good business decisions.
- Finally, if we can raise another $1 billion in capital, my personal first choice for deploying it would be to further improve public transportation in the region.
All of that said, after a day of reading and consulting, I came to feel comfortable with the bill. Here’s why:
- The convention center is a part of our regional infrastructure. It’s a public utility like an airport or a public transportation system. It supports our hospitality and tourism industries. It really is not a viable business on its own — even on an operating basis, the center covers only about 70% of its operating costs and the capital costs have always been entirely covered through taxation.
- I am personally unsure as to how much the convention center contributes to our economy, but for me, the deciding factor is that the huge subsidy for the center is comprised entirely of taxes on the hospitality and tourism industries: Room occupancy charges, sales taxes in the vicinity of the convention center, surcharges on Boston car rentals, sight-seeing charges, parking facility charges. For the nitty gritty on the financing of the convention center, read the 2004 bond prospectus. So, speaking very broadly, the regional hospitality industry, as a collective, is financing the project through their pricing structure. And they appear to want to go forward with the project — I’m not hearing criticism of the project from within the industry. It is really based on their politically-expressed business judgment that I’m willing to support the project.
- And what if the industry is wrong and the new space sits empty? It’s mostly the industry’s problem: While the future of the convention business is unclear, it seems very unlikely that the costs of a debacle would end up burdening the general taxpayers of the Commonwealth. The debt obligations of the convention center are not general obligations of the Commonwealth. They are special revenue bonds supported by pledged revenue sources from the hospitality industries, indeed primarily from Boston hospitality industries. If the pledged revenues sources don’t keep up with costs, there is a provision for an automatic increase in Boston hotel taxes to cover the deficit. There was some regional debate over a provision in the bill which allows the treasurer to also pledge hotel tax revenues outside the Boston area as additional security for the bonds. In the debate, the financial committee heads indicated that the probability of reaching this layer of security was low, that the provision served primarily to add comfort to bond-holders, boost the bond rating and increase the marketability of the bonds. While some legislators outside the Boston area opposed this provision, to me it felt fair — the benefits of Boston business vibrancy do extend to hospitality firms well beyond Boston itself.
- I also drew comfort about the proposal as I listened to public and private expressions of faith in the management team of the convention center coming from both politicians and business leaders.
- Given that the project is primarily financed by taxation on the hospitality industry, I did not feel feel as strongly about my personal preference in favor of using the taxing capacity to support transportation. My instinct is that the hospitality industry and its customers might be better off with $1 billion in public transportation enhancements, but I can’t prove that and I’m not prepared to tell the industry what’s most important for their customers.
- Along the way, there were discussions about process issues — transparency provisions, bidding rules, fiscal oversight — the bill the Senate passed made a number of improvements in these areas.
The House has already passed a bill, so the next step is conference committee.
You can read the official Senate press release here.
See this previous post for links to commentary and resources about the convention center.
Will:
I appreciate your transparency as ever. But I am surprised and disappointed by your yes vote. Of course the industry supports it – the idea that the money will come from the industry is disingenuous. Here’s why: 1. opportunity cost: if the hotel taxes were not going to those bonds, what would they be used for? likely something that would create more economic value for the state broadly speaking than the economic value to a very few in the hospitality industry. 2. Tourism overall is an economic engine. The hotel taxes, etc. are spread broadly – right? so when tourist come to visit the Freedom Trail or to Harvard and MIT commencements, hotel taxes are paid – which leaves less money for out of town visitors to spend. If I have to pay $10or $20 more for a hotel due to increased hotel taxes to pay for the bonds than I would otherwise for my family vacation, then that it $10 or$20 I won’t spend in local restaurants.
Derrick Jackson’s column today includes quotes from someone objective in this area who studied it – who came to the conclusion that convention centers are boondoggles.
If the private sector won’t finance it on their own, why should we, the taxpayers?
The money supposedly generated from the conventions of the last few years is not net new money brought to the commonwealth.
Thanks, Patty.
You say:
First, I think it’s roughly fair to consider this to be an industry funded project as opposed to something that “we the taxpayers” are funding. Room occupancy charges are the bulk of the revenue, so these are mostly out of state people coming that are paying the tax. You are right that some of those visitors might have a little less to spend on other things in Boston, but that is a third order effect. The second order effect is that the hotels make less profit, since they can’t raise their prices as much as they otherwise might.
Second, I think it is an absolutely appropriate role for the public sector to create a mechanism where industry can pay for a project. The hospitality industry is too decentralized to actually come together and fund something like this. If it benefited a single developer, we could put it on the developer, but the BCEC has broader benefits that affect hundreds of businesses.
As to the “boondoggle” characterization, I’m certainly aware of the skeptics of the convention business and of the possible national surfeit of convention center space. But I think that is a broad brush argument. The further success of the BCEC will depend as much on local factors as on the future of the industry generally. Boston does have a lot to offer.
Will–
Thank you for explaining your vote. I still, however, respectfully disagree. I do not see BCEC expansion as a priority that should take precedence over other more pressing needs in terms of the Legislature’s attention. For years, I believe that the Legislature has not been dealing responsibly with the slow decline of the MBTA. This has been very much to the detriment of the Commonwealth. It is time to fix the T and make it a viable transportation system for the future. There should be few higher priorities.
I would have much preferred that hotel and hospitality taxes be used to service debt related to the purchase of new equipment for the MBTA.
Will, I share your your nervousness about concentration of power in quasi-public authorities. In fact, I would not support increasing the scope of mission of any these authorities without first introducing greater standards of accountability in areas such as authorities’ hiring practices and their ability to enforce regulations on the public in general.
Joe
Sorry Will, put me in the “boondoggle” column. I’ve been to exhibits in the BCEC and it’s usually only using part of their space. We can never outdo places like Las Vegas for size, and who wants to come to Boston for a convention in the colder months – i.e. most of the year – when they can go to Las Vegas, San Diego, or Orlando?
I’m proud that Massachusetts hasn’t succumbed to the pitfall of building sports stadiums for billionaire team owners, lets not blow that good record on the convention center.
One small detail. Local residents do pay some of the taxes on the tourism industry. For those of us who rent Zipcars, I believe there is a one-time annual charge of $10 if at any time we rent a Zipcar in Boston.
I am against committing to an addition to the Convention Center. I believe the estimates that in the end it will cost more to build than we will lose in Convention dollars.
There are so many needs of the people that have already been put off in order to invest, close gaps and what not. There are important human services, housing and eduction upgrades that we need NOW and have needed for a long time.
Today I tweeted against the Boston Olympics for much the same reason. Someone tweeted back and told me to shut up because we need construction jobs. I responded that the trades should be grateful for all they have been reaping and will be reaping. I added that the Olympics are now Corporate Games. I think a bigger convention center is a corporate game too. Suffolk Construction should GO Fish!
I am in the vothttp://axisphilly.org/article/pa-convention-center-in-financial-trouble-labor-costs-cited/ no group as well.
First, Boston hotels are already too expensive to compete with Las Vegas and Orlando convention centers.
Second, I think I can drive to Foxboro faster than I can take public transpotation to the Boston Convention Center from my Brighton home.
Third, the few times I have been to the convention center, the amount of space in actual use is very small. You can say the center is used x number of days a year, but how full is it?
Fourth, the expansion is going to use land that is currently being used as a staging area for the trucks that are waiting to set up or tear down conventions. Where will they wait when that area is gone?
Look at Philly
Sorry
Writing on a tablet has its problems
http://axisphilly.org/article/pa-convention-center-in-financial-trouble-labor-costs-cited/
PA Convention Center in financial trouble; labor costs cited
I think I could find stories like this all day long?
I could go on…..
In a past life, I worked at a major consulting firm. I never heard of a preliminary study that didn’t conclude that the client should spend more money for a more in-depth study.
I’m having trouble grouping “hospitality and tourism industries” with conventions. I rarely go to conventions or events at convention centers around the country. As a tourist or business traveler, I’d really resent subsidizing conventions. Same with taxes paid to people visiting my company’s headquarters in Camb. I assume that all visitors benefit about equally from many parts of our infrastructure, and I’m fine with taxing them for that. But not for a boondoggle that far fewer use.
Will – I agree with the others here – the convention center doesn’t need expansion – it needs better management. Also, Will, if you are concerned about public debt in the Commonwealth, then don’t vote for things that add to the debt! If more Democrats understood that the debt will kill this state soon (especially unfunded pension liabilities), then we wouldn’t even consider frivolous spending like this until we get the debt under control. Basically, if you stick to your debt guns, and convince other Democrats to do the same, you will leave the state in much better financial condition for future (and the current) generations. Don’t start asking for new taxes and Prop 2 1/2 overrides if you can’t get the debt under control. Massachusetts is about to sink – like Detroit and Illinois – because so many legislators listened to the teacher unions and other public employee unions and just agreed to overburdened contracts – well, the time will come to pay the piper – soon.
More patronage jobs at the Convention Center and their various vendors for Democrats, Mayor Walsh’s cronies, and their friends and families. More votes for you guys too.
It’s a great plan for politicians.
Why not $2 billion? Or $3?
Will, I agree with other commenters that you should have voted against this project. In addition to all the other arguments against it, the land it will occupy is ripe for more productive development. By their nature, convention centers are vacant most of the time and not drawing visitors to the area.
Most of what I have read in the newspapers has been against the expansion. What do you know that makes the papers wrong? If a bigger convention center is going to bring in more people, why do the hotels need to be subsidized? Wouldn’t they be fighting to get the building rights?
I’d like to add another thing: We are not going to compete with many of the larger convention centers scattered across the country, many of them in areas with better weather. We will attract conventions and tourist business of those who want to come to Boston, because it is Boston, not because we have a giant convention center. That is certain specialized medical, bio-tech and digital industries.
To attract those conventions, I do not believe that we need an expanded convention center, but rather a functioning and dynamic city to visit. Efficient public transit to and from convention sites is one big factor. We should invest in real things that make our region attractive, not a fancy big box. When people come to Boston, they expect to find a “there” there.
Thanks to all who weighed in above. Everything people are saying against this vote does resonate for me. I approached the vote with reservations. Just to underline the fact that makes me decide in favor: This is not a general credit obligation of the Commonwealth. Broadly speaking, the Commonwealth creating a vehicle for an industry to pool funds for a project that the industry sees as a priority. It’s not like we would have that money to use for other things if we weren’t doing this project.
You are correct when you say that the money is not available for other projects. You are betting that the expansion will generate taxes to pay for the billion dollar project. I say you are wrong. If you were right the private sector would be fighting for the right to build hotels. Other States that have expanded their convention centers are not seeing the revenues that they expected. Why will Massachusetts be any different?
Will,
This strikes me as private gain, public loss. You liken it to public transport or an airport, but those are things many more people have an opportunity to use and benefit from. The convention center on the other hand does make Boston a more attractive place for business people to come and spend money and certainly, many people benefit from this economically, but the benefit isn’t nearly so direct.
People are now talking about Boston as a location for the 2024 Olympics which is just a bigger version of what the Convention center exists for.
Yesterday (Father’s day), I drove across Boston in an old car I own as a hobby. I used to be a mechanic as a way to put myself through college so I gained the skills to restore something like this. I drove from Winchester to Brookline via the most direct route, which took me down Rt 28, Memorial Dr, Comm Ave, etc. It really drove home just how bad the roads are in MA. They’re absolutely abysmal and an embarrassment. As a middle class person and the type to use roads often (and, in fact, the main state service I use), I feel like the state government doesn’t give a rat’s behind about me. Borrow $1B to fix them and I bet you’ll see just as much economic benefit.
John, I agree with you about the hotels. We put language in the senate version prohibiting the use of funds to build hotels. This money is for the public utility, the convention center itself.
Paul, I agree — that’s my instinct too. But the industry consensus is to raise taxes on themselves and their customers to build this project. If it’s any consolation, and I’m not sure it is, over the next ten years, we will be borrowing very roughly 10 times as much for roads and other transportation projects, as we will borrow for the convention center. These bonds will be serviced by gas tax revenues and general revenues.
I am aware that the money for hotels was taken out of the bill. I was trying to make the point that the private sector does not think that expansion will increase business. What studies have you seen that show expansion as a positive?
Why will Boston be different? I think we all know the answer, it won’t be any different, but it will get built anyway. The question is why will it get built even though we know the results will be poor.
And only the members of the legislature can tell you why they would vote for a bad idea?
Why would members of the legislature vote for a bad idea? The answer was given some posts above: patronage jobs. Even more than Probation jobs, jobs at the Convention Center are desirable because they require no particular qualifications: no advanced degrees, for example. Will may not have too many constituents clamoring for patronage jobs, but the legislative leadership surely does.