Convention Center Expansion Pricetag: $5 Billion in Foregone Revenue

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Convention Center Expansion Would Cost About $5 Billion in Foregone State Revenue

Claim that BCEC can be expanded without new taxes or fees only tells part of the story

BOSTON – A proposed $1 billion expansion of the Boston Convention and Exhibition Center (BCEC) would divert billions from state coffers by delaying the reversion of convention center tax receipts to the general fund and could endanger capital funding for much-needed transportation improvements and other capital expenditures, according to a new Policy Brief published by Pioneer Institute.

Does Boston Convention & Exhibition Center Expansion Really Pay for Itself?

Update: Watch author Charles Chieppo’s interview with BNN News Host Chris Lovett on this topic:

The original 1997 convention center finance plan levied a series of taxes, including a rental car surcharge, an additional tax on hotels in Boston and Cambridge and on tourist trolleys, to fund BCEC construction. The plan calls for revenue from the taxes to revert to the commonwealth after convention center bonds are paid off in 2034, but the expansion proposal would push back the date for tax receipts to revert to the general fund until around 2050, causing the commonwealth to forego about $5 billion in revenue over that time.

“The BCEC expansion plan is akin to pushing out the date for fully funding public pension liabilities,” said Pioneer Institute Senior Fellow Charles Chieppo, author of “Does BCEC Expansion Really Pay for Itself?” “The annual cost doesn’t change, but because we would pay for far longer, the overall cost goes through the roof.”

The expansion plan would make another important change to the way the BCEC is financed. Each year, the commonwealth sets a limit on how much it can borrow to fund capital expenditures that is calibrated to ensure that debt service costs don’t exceed 8 percent of budgeted revenue.

Currently, about two-thirds of the more than $180 million in receipts from the statewide 5.7 percent hotel occupancy tax flows into state coffers. But language in pending legislation would allow that money to be diverted to “further secure” bonds sold to fund convention center expansion.

Hopefully the money would not be needed to prop up the marketability of convention center expansion bonds, but even if that’s the case, the commonwealth would no longer be able to assume hotel occupancy tax receipts as revenue for purposes of calculating the amount available for other capital expenditures.

Even in 1997, when then-House Speaker Thomas Finneran wisely set up a generous revenue stream to keep the BCEC out of financial trouble if bookings were scarce, he didn’t allow statewide hotel tax receipts to be diverted to prop up convention center bonds.

Thanks largely to solid leadership from Massachusetts Convention Center Authority (MCCA) Executive Director James Rooney and his team, the BCEC is outperforming many of its competitors.

But the larger convention market remains bleak. As Boston Globe columnist Jeff Jacoby noted in 2011, the square footage available for exhibitions nationwide soared from 40.4 million square feet in 1990 to more than 70 million square feet in 2011. But while the supply of convention space has mushroomed, demand for that space has plummeted. A few years ago, TradeShow Week reported that attendance at conventions and trade or consumer shows plummeted from 126 million in 2000 to just 86 million in 2010.

Perhaps the best indicator of the state of the convention industry is that TradeShow Week, once the industry bible, ceased publication in 2010. In some cities, convention halls are literally giving space away.

Charles Chieppo is a senior media fellow at Pioneer Institute and a former voice chair of the MCCA board of directors.

Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.