Wednesday, December 10, 2008

Public Finance: MLS and Convention Centers

I guess I'll admit at the outset that this post doesn't really have a single, solid point, just musings about two Portland public finance issues in the news in the last day or so.

First there is the convention center hotel project. Now I understand the basics: to attract big out-of-town conventions, it is necessary (it is argued) to have a adjacent big hotel to house conventioneers and potentially have additional banquet and lecture space. Building such a hotel privately is more expensive because private debt is more expensive than public debt, so the idea is to have the city finance the construction and then contract with a major hotel chain to manage the property.

I have lived through just such a project in Denver where they undertook a major expansion/renovation of the convention center and built an 1100 room hotel across the street with public money. Apparently, it has all gone very well: bookings have doubled and the hotel not only pays for the servicing of the debt but actually returns money to the city from excess revenue. I found a Dallas News article claiming that many cities have had considerable success doing these projects.

But does it make sense for Portland? I don't know but there seem to be some major challenges. First, the Oregon Convention Center is small. Really small. Denver enlarged their convention center by 50% before the hotel to assure their ability to attract large conventions. [The American Economic Association's annual conference - a gigantic affair - is going to Denver for the first time in 2011] Second, the competition for conferences is pretty fierce and while Portland in the Summer is a lovely place to visit, it is going to be hard to compete against places like Phoenix (and even Denver) for bookings in the other times of the year. Third, the bond market at the moment has gone haywire and the cost of municipal bonds may be far too high if they can even find buyers. Finally, the convention market may be hit hard by the economic downturn, though I think this will be a couple of years at the most, so by the time the hotel comes on-line, we should be getting back to OK times again.

So the moral here is it CAN make a lot of sense and be a huge boon for the city, both financial and in terns of redevelopment. The area around the convention center in Denver was awful but the renovating of the center and the new hotel rejuvenated the area and attracted new private investment as well. Of course, this was in the downtown core so it was a bit of an easier sell than in Portland. But it is by no means certain that it WILL make a lot of sense.

The second public finance issue in Portland is Merritt Paulson's proposal to remake PGE park for an MLS team and build a new baseball stadium for the (Portland) Beavers.

I have blogged about this in the past. I have two points. One, the view that there will be net positive investment in the city from this does not reveal itself in the data, though it can be an effective way to focus investment (as is the idea for the Lents location for the baseball stadium). Two, the benefits for Portland may not all be pecuniary and there may, in fact, be long-term pecuniary benefits that we don't see in studies of the impact of stadium investment. The non-pecuniary stuff is the exposure, the civic pride and involvement, the utility Portlanders get from having an MLS team. This could be negligible, but it may not. I was surprised in Brazil, the cradle of soccer civilization (sorry England), to see MLS shirts on young hipsters. This may lead to long-term pecuniary benefits just the same way we think of arts and cultural assets in a city. You create a place creative and energetic people want to live and work, you attract businesses and even tourists. I admit, MLS is a very small star in the sports universe of the USA, but I believe it will become huge and worldwide within my lifetime. Merritt Paulson, a smart guy, is betting $40 million on the same thing.

[I do have one HUGE concern: it used to be that MLS had a no-artificial turf policy, but they have abandoned this unfortunately. I hope Paulson is not planning on turf for PGE park, because I, for one, will not pay to see pinball soccer played on turf. It is painful to watch.]

The challenges for this project are similar to the hotel: uncertain economic times ahead, a bad bond market, and questions about the net revenue projections.

I often think that electoral cycles make the government too myopic and this leads to too little investment in the medium and long term economic health of the cities and states that they serve. So I am pre-disposed to think that taking some risks for future investments is a good thing, and I am here as well. I personally hope that Portland can find a way to do both.

1 comment:

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