L.A. WATCHDOG — The City of Los Angeles is embarking on an ambitious, $470 million plan to modernize and expand the Convention Center so that it can compete with first-tier West Coast cities such as San Francisco, San Diego and Anaheim in attracting large-scale conventions. This undertaking is expected to be completed by 2020. Designed to promote tourism, it is one of the main drivers of our economy, stimulating the private development of hotels, restaurants, residences and office and retail space in the South Park neighborhood and the rest of DTLA.
This expansion will increase the Convention Center offering to almost 1.25 million square feet, up 43 percent from the current level of 870,000 square feet. At the same time, the new and improved Convention Center campus is designed to be an integral part of the community, linking seamlessly with the neighborhood, L.A. Live, and Staples.
This includes a privately financed, upscale Convention Headquarters Hotel of at least 1,000 rooms that will be strategically located on city-owned property, likely near Staples and L.A. Live on the north end of the campus.
The city intends to finance this $470 million expansion with debt, which, when combined with existing Convention Center debt of almost $300 million, will total a staggering $770 million. This debt will be serviced by the Convention Center’s 25 percent share of the Transit Occupancy Tax, which is expected to yield the Convention Center $54 million this fiscal year. By 2020, this tax is projected to increase by over 20 percent to $261.8 million, resulting in $65 million to service Convention Center debt.
However, our cash-strapped city does not have the financial flexibility to finance this expansion and other immediate worthwhile projects. They include the $1 billion to replace its aging and neglected equipment (including police cars, fire engines, and ambulances) without blowing a gaping hole in its Debt Management Policy. The policy limits debt service for Non-Voted Indebtedness to less than 6 percent of General Fund revenues. This violation would send the wrong message to the investment community, resulting in a downgrading of the city’s credit rating and higher interest rates.
Raze and Rebuild West Hall
The City Administrative Officer has recommended that the city enter into a Public Private Partnership (a “P3”) where the city would select a turnkey development partner to design, build, finance, operate and maintain the expansion of the Convention Center and the development of the surrounding real estate. Under this recommended alternative, the 44-year-old West Hall would be demolished and rebuilt (not retrofitted as currently envisioned). The partner would develop 9 to 14 acres of the 54-acre campus by creating “an integrated mixed-use real estate development” that would help to offset the costs of associated with the Convention Center, a loss leader that cannot even begin to pay the interest on $770 million of debt. Needless to say, any development plans need to be consistent with the Community Plan.
A Public Private Partnership protects the city from any cost overruns associated with the expansion of the Convention Center and the construction of the Headquarters Hotel and isolates it from any operating losses. The partner is responsible for maintaining the campus in excellent condition, a task that the city has demonstrated that it is incapable of doing on a sustained basis.
While the terms of the P3 need to be worked out, including any “availability service payments” by the city to service the debt, the net result will bring in more cash for our city’s deficit-prone budget by creating a more vibrant Convention Center, more out of town visitors. This will lead to increased Transit Occupancy Tax revenue, and lower contributions to the Convention Center.
Expansion of the Convention Center in conjunction with a well-capitalized partner is a win-win for our financially challenged city. Don’t blow it.
(Mr. Humphreville writes L.A. Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and a member of the Greater Wilshire Neighborhood Council. Mr. Humphreville publishes Recycler Classifieds — www.recycler.com. He may be reached at lajack@gmail.com)
