This Cart Lacks the Horsepower

Posted on May 28, 2003 | Type: Op-Ed | Author: Satya Thallam
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On May 1, the Arizona Republic reported, "state lawmakers will consider a $300 million request from Phoenix to help pay for...Civic Plaza expansion." But the entire Phoenix Civic Plaza hullabaloo may be a case of putting the cart before the horse.

Calls to expand the Civic Plaza can be traced back to a 1999 study commissioned by the city to examine the civic center's economic impact. Ironically named "Conventional Wisdom," the study found that the "PCP ranks very low," in terms of "hotel room supply within five blocks, and number of retail establishments within one mile."

"Large conventions are reluctant to use (the plaza) because there are only 1,629 downtown hotel rooms and attendees need to be shuttled from outlying hotels," the report says. While an adequate civic plaza may be the cart that carries conventions, hotel rooms are the horse that brings them in.

The report, which projected that expansion would increase revenue and attendance, assumed there would be construction of at least 1,000 first-class hotel rooms in the downtown area by 2001. The authors made it clear that hotel capacity expansion would necessarily come ahead of increased convention space. Underscoring this sequence, the report explains, "regardless whether an expansion occurs or not, more downtown hotel rooms are needed to meet current market demands."

However, the market has a different story to tell. Hotel room capacity in the greater Phoenix area has been increasing. The J.W. Marriott Desert Ridge Hotel, the Westin Kierland, and the Sheraton Casino Golf Convention Center are all large, recent additions to the Valley all outside the downtown area. First class convention accommodations offer a resort atmosphere starkly different from their downtown counterparts. And rightly so. Arizona's competitive advantage is in its climate and natural beauty, not its downtown amenities.

So Phoenix is asking for $300 million (on top of the $10 million yearly subsidy it already receives) for a project that private investors haven't touched. With the lack of required ancillary facilities, slumping business travel and tourism, and competition from resorts and hotels in other parts of the Valley, this request is entirely misguided. Not to mention that the state is wrestling with a $1 billion budget deficit.

But a more devilish possibility is what comes after the expansion.

Once any expansion is completed, the increased capacity is likely to be the mallet that sounds the drum for subsidizing hotel construction. With more room for conventions and a well-established lack of hotel rooms, public handouts to hotel developers will likely follow.

After sinking almost $45 million in capital costs into the Tempe Town Lake, Tempe has yet to see the expansive construction of first-class commercial and residential buildings that was promised. To date, only one mid-rise office building has gone up adjacent to the lake. Municipal subsidies for development projects are perilous investments at best, and Tempe's all-or-nothing endeavor has so far shown to be no different. Phoenix is crossing its fingers that the Civic Plaza expansion will be an economic silver bullet, even when there is little hope that it will succeed.

What's more, approval of locale-specific state expenditures of this magnitude would open the floodgates to lobbyists from cities all over Arizona. After all, if the state can make a high-risk bet on Phoenix, why not bet on Mesa or Tucson?

If Phoenix were really keen on improving its appeal to convention planners, it would push to lower the room tax on hotels. That would encourage the needed expansion of hotels, laying the groundwork for increased demand for the Civic Plaza.

Despite all signs pointing toward a failed downtown project, the City of Phoenix has decided to eschew conventional wisdom by getting the horse/cart arrangement backward.

The Legislature should not spend a dime of the taxpayers' money on expanding the Phoenix Civic Plaza.

--Satya Thallam is a fiscal policy researcher at the Goldwater Institute, a Phoenix-based free market think tank.

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