In its continuing effort to revitalize downtown, the City of Phoenix is seeking to expand the Phoenix Civic Plaza: the big concrete boxes north of the ballpark used to host conventions and car shows. To finance the expansion, the city wants to issue $300 million in bonds, and is looking for the state to kick in an additional $300 million. The city is pushing the expansion as a necessary upgrade to a so-called vital economic engine. The reality is that the Civic Plaza is an engine that is almost wholly fueled by public subsidies, and its importance to the state and local economies is vastly oversold.
Proponents argue that expanding the Civic Plaza will increase the economic impact of the convention business. However, spending by conventioneers on things like hotel rooms, food, liquor and souvenirs represents only a miniscule part, 6 percent at most, of the overall economic impact of tourism in the Greater Phoenix area. And that may be an overestimate.
The estimate used by expansion supporters assumes the average conventioneer spends $1,500 over a four-night stay. Greater Phoenix Convention and Visitors Bureau numbers, however, show a ratio of only 1.5 nights per person. Furthermore, daily spending per attendee is not $400, but approximately $200. This means direct spending is probably closer to $65 million rather than the $282 million supporters claim.
The Civic Plaza's impact at the state level is even tinier-at most 2.5% of the state's $12 billion tourism industry. Nevertheless, the city is hoping that even in these tough budgetary times the legislature will cough up $300 million-approximately 34 times what the state will spend this year to attract visitors through its Tourism Office. Furthermore, the downtown tourism machine needs a steady flow of public subsidies to keep operating at even this feeble level. The city claims that it will cover its $300 million from Civic Plaza Funds, which makes it sound as if the money will be made up from renting Civic Plaza facilities and equipment to conventions and tourists. However, nearly 80 percent of money in the Civic Plaza fund comes from taxes paid by Phoenix residents for restaurants, printing and publishing, contracting, advertising, towing and transportation.
In addition, if the Civic Plaza expansion moves ahead, taxpayers will no doubt be asked to subsidize additional hotel space downtown. Right now there are not enough rooms downtown to attract the big events. The 2007 NCAA Women's Basketball Final Four, for example, passed on Phoenix because of a dearth of hotel rooms. Despite this seeming demand, no developer has yet committed to building another hotel downtown. Even the city's offer of up to $20 million in subsidies hasn't tempted developers.
The slowdown in the economy has underscored the inherent risk of the hospitality industry. Certainly, it is no time to be gambling with taxpayers' money. Even before this downturn, cities were finding themselves disappointed in the results of expanding their convention centers. Atlanta expanded its convention center by 46 percent, but usage only increased 10 percent. Los Angeles doubled the size of its convention center but had virtually no increase in usage. It is currently facing a plunge from more than 1 million nights booked in 2000 to about 345,000 in 2001.
If Phoenix wants to build another big box downtown, it should consider a Wal-Mart or Target store. Aesthetically, it could not be much worse; it wouldn't require any subsidies; and it would provide a much-needed retailer south of I-10. More seriously, the city should sell the Civic Plaza. Convention center operations and the meetings industry are well-developed private business activities. If there is a market demand for greater exhibition space or hotel space, private business will recognize the opportunity and fill that need.