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Defying Convention
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| City Chief Administrative Officer Miguel Santana has recommended that the city begin soliciting bids for a private operator to run the Los Angeles Convention Center. Photo by Gary Leonard. |
City Looks to Reduce Role, and Aid Its Battered Budget, With a Convention Center Move
by Ryan Vaillancourt
DOWNTOWN LOS ANGELES - As Mayor Antonio Villaraigosa, the City Council and other top Los Angeles officials struggle with a $212 million deficit this fiscal year, plus the $484 million gap anticipated next year, the city’s top budget advisor is recommending numerous steps to save money. One of the options under consideration is the partial privatization of the Los Angeles Convention Center.
Last Wednesday, Chief Administrative Officer Miguel Santana recommended to the City Council that the city begin soliciting bids for a private entity to take over operations of the 720,000-square-foot, municipally owned and managed facility in South Park.
Officials are quick to state that they are not recommending selling the Convention Center. Rather, as Santana detailed in a Jan. 29 report that offers a slew of proposals to help balance the budget, he hopes instead to shift the operational duties to a private entity by July 2011. A request for proposals from private contractors, if authorized by the council, could be issued by June, according to the report.
The plan seems to have political support: Since at least last year, Ninth District Councilwoman Jan Perry has been pushing for policy changes that would give the Convention Center more flexibility to function like a private enterprise and less like the city department that it is.
“We need to assess whether or not we are maximizing our revenue opportunities,” Perry said.
Santana’s report outlines a number of other proposals that could reduce the city’s costs associated with the Convention Center, including outsourcing all of the sales and marketing functions to L.A. Inc., the city’s convention and visitors’ bureau. L.A. Inc. already handles sales and marketing for citywide conventions, the mega-gatherings that draw visitors to the city and produce thousands of hotel bookings. So-called “gate events” that draw mostly local attendees, such as the Los Angeles Auto Show, are handled in-house by the Convention Center’s marketing and sales team.
Mark Liberman, L.A. Inc.’s president and CEO, declined to comment on the proposal because he said he has yet to discuss the issue with Santana’s office or the Convention Center.
The report also suggests the formation of a working group of top city officials to oversee the bidding process.
The Balance Sheet
The Convention Center is not the only facility that could receive some form of private treatment. A process has already begun to lease 10 city-owned parking lots, including the Pershing Square lot in Downtown, to private entities. Plans are also being explored for a public-private partnership with the Los Angeles Zoo.
The parking garage plan would entail sizeable upfront payments to the city, but it remains unclear whether a new Convention Center operator would be charged any sum at first.
Unlike many city departments whose revenues are not on track with annual projections, the Los Angeles Convention Center is actually in relatively stable financial health, according to Santana’s report.
This year, it is projected to cover its operating expenses through revenues, just as it has for the past three years, said Pouria Abbassi, the center’s general manager.
Even if the Convention Center doesn’t represent an immediate burden on the general fund, it’s the future that concerns Santana. The city’s primary cost associated with the facility is its debt obligations: As of July 2009, the city still owed about $480 million in bonds tied to the Convention Center’s 1971 construction and 1993 expansion, according to the report.
Under its debt service plan, the city pays off about $40 million a year, using a set-aside portion of the Transient Occupancy Tax leveled on hotel guests. But with the hospitality industry slumping, the city is projecting decreased revenues from the TOT, according to a Jan. 26 report from City Controller Wendy Greuel. The study projects hotel taxes to raise $121.9 million by June, which is $8.3 million shy of the $130.2 million in revenue that was projected at the start of the year. In years when the TOT does not generate enough revenue to cover the Convention Center debt service, the city must dip into its general fund, Abbassi said.
So in order for a private operator to decrease the city’s costs associated with the facility, they would have to be able to contribute to the city’s debt obligations, Santana said in the report.
While the Convention Center’s revenues are now approximately enough to cover its operating expenses — and not much more — there may be instant opportunity for an operator to increase the facility’s cash flow: Abbassi estimates that he could boost annual revenues by as much as 8% if he were able to price the facility according to market conditions.
A quirk in the city administrative code dictates that Convention Center space can only be rented for $.32 per square foot. It’s the same price no matter what time of year and no matter how much demand there is. Greuel blasted the system in an audit last year, and Abbassi is pushing for change.
“The current governance structure that we have at the Convention Center is one that needs to be looked at, reviewed and updated to be more in tune with the business of running a convention center in the 21st century,” Abbassi said.
Long before city officials began discussing the threat of bankruptcy, Perry and Abbassi had laid the foundation to change the strictures on pricing. The council’s Trade, Commerce and Tourism Committee approved a motion in November that would allow the facility to raise or lower the rent by 50% depending on activity level.
That proposal, however, is still being studied by the city, said Abbassi, who points to the inherent slow movement of municipal bureaucracy as one of the biggest challenges to staying ahead of the business curve.
Working Group
The Los Angeles Convention Center is a bit of an anomaly. It is one of only two publicly owned and operated convention facilities in the country, the other being in Anaheim, Abbassi said.
In most major cities, including Chicago and New York, convention centers are run by independent, nonprofit authorities that partner with local government. That model maintains public ownership, but allows the center flexibility to make business decisions without undergoing the slow municipal approval process. A small number of major convention centers, including the Moscone Center in San Francisco, are privately run.
Any shift toward a partially privatized model could run into opposition from labor. About 75% of the facility’s 135 employees are union workers protected from layoffs.
“If they’re just going to contract it out, we’re not for that,” said Bob Schoonover, president of the SEIU Local 721, which represents city employees. “But we are for making it better, getting more people to come to conventions, obviously. We’d like to see some kind of compromise.”
If Santana’s proposals are embraced, the task of implementing them would fall into the hands of a new group consisting of representatives from the Convention Center and the offices of the mayor, CAO, chief legislative advisor and the city attorney. The group would be charged with developing and overseeing the bidding process.
Beyond looking for potential operators capable of helping the city reduce its future role in the debt service, the group will have to determine whether regulations of its tax exempt bonds actually allow such a change in building governance, Abbassi said.
Santana has also recommended that the city retain a private bond counsel to advise the group on what changes it can make without jeopardizing its tax-exempt status.
“I think the key part of all of this is what the bonds really allow us to do, and none of us can make that determination, so I’m really encouraged that the CAO said, ‘Hey, we need expertise in that area,” Abbassi said.
Contact Ryan Vaillancourt at ryan@downtownnews.com.
page 7, 02/08/2010
©Los Angeles Downtown News. Reprinting items retrieved from the archives are for personal use only. They may not be reproduced or retransmitted without permission of the Los Angeles Downtown News. If you would like to re-distribute anything from the Los Angeles Downtown News Archives, please call our permissions department at (213) 481-1448.
Last Wednesday, Chief Administrative Officer Miguel Santana recommended to the City Council that the city begin soliciting bids for a private entity to take over operations of the 720,000-square-foot, municipally owned and managed facility in South Park.
Officials are quick to state that they are not recommending selling the Convention Center. Rather, as Santana detailed in a Jan. 29 report that offers a slew of proposals to help balance the budget, he hopes instead to shift the operational duties to a private entity by July 2011. A request for proposals from private contractors, if authorized by the council, could be issued by June, according to the report.
The plan seems to have political support: Since at least last year, Ninth District Councilwoman Jan Perry has been pushing for policy changes that would give the Convention Center more flexibility to function like a private enterprise and less like the city department that it is.
“We need to assess whether or not we are maximizing our revenue opportunities,” Perry said.
Santana’s report outlines a number of other proposals that could reduce the city’s costs associated with the Convention Center, including outsourcing all of the sales and marketing functions to L.A. Inc., the city’s convention and visitors’ bureau. L.A. Inc. already handles sales and marketing for citywide conventions, the mega-gatherings that draw visitors to the city and produce thousands of hotel bookings. So-called “gate events” that draw mostly local attendees, such as the Los Angeles Auto Show, are handled in-house by the Convention Center’s marketing and sales team.
Mark Liberman, L.A. Inc.’s president and CEO, declined to comment on the proposal because he said he has yet to discuss the issue with Santana’s office or the Convention Center.
The report also suggests the formation of a working group of top city officials to oversee the bidding process.
The Convention Center is not the only facility that could receive some form of private treatment. A process has already begun to lease 10 city-owned parking lots, including the Pershing Square lot in Downtown, to private entities. Plans are also being explored for a public-private partnership with the Los Angeles Zoo.
The parking garage plan would entail sizeable upfront payments to the city, but it remains unclear whether a new Convention Center operator would be charged any sum at first.
Unlike many city departments whose revenues are not on track with annual projections, the Los Angeles Convention Center is actually in relatively stable financial health, according to Santana’s report.
This year, it is projected to cover its operating expenses through revenues, just as it has for the past three years, said Pouria Abbassi, the center’s general manager.
Even if the Convention Center doesn’t represent an immediate burden on the general fund, it’s the future that concerns Santana. The city’s primary cost associated with the facility is its debt obligations: As of July 2009, the city still owed about $480 million in bonds tied to the Convention Center’s 1971 construction and 1993 expansion, according to the report.
Under its debt service plan, the city pays off about $40 million a year, using a set-aside portion of the Transient Occupancy Tax leveled on hotel guests. But with the hospitality industry slumping, the city is projecting decreased revenues from the TOT, according to a Jan. 26 report from City Controller Wendy Greuel. The study projects hotel taxes to raise $121.9 million by June, which is $8.3 million shy of the $130.2 million in revenue that was projected at the start of the year. In years when the TOT does not generate enough revenue to cover the Convention Center debt service, the city must dip into its general fund, Abbassi said.
So in order for a private operator to decrease the city’s costs associated with the facility, they would have to be able to contribute to the city’s debt obligations, Santana said in the report.
While the Convention Center’s revenues are now approximately enough to cover its operating expenses — and not much more — there may be instant opportunity for an operator to increase the facility’s cash flow: Abbassi estimates that he could boost annual revenues by as much as 8% if he were able to price the facility according to market conditions.
A quirk in the city administrative code dictates that Convention Center space can only be rented for $.32 per square foot. It’s the same price no matter what time of year and no matter how much demand there is. Greuel blasted the system in an audit last year, and Abbassi is pushing for change.
“The current governance structure that we have at the Convention Center is one that needs to be looked at, reviewed and updated to be more in tune with the business of running a convention center in the 21st century,” Abbassi said.
Long before city officials began discussing the threat of bankruptcy, Perry and Abbassi had laid the foundation to change the strictures on pricing. The council’s Trade, Commerce and Tourism Committee approved a motion in November that would allow the facility to raise or lower the rent by 50% depending on activity level.
That proposal, however, is still being studied by the city, said Abbassi, who points to the inherent slow movement of municipal bureaucracy as one of the biggest challenges to staying ahead of the business curve.
The Los Angeles Convention Center is a bit of an anomaly. It is one of only two publicly owned and operated convention facilities in the country, the other being in Anaheim, Abbassi said.
In most major cities, including Chicago and New York, convention centers are run by independent, nonprofit authorities that partner with local government. That model maintains public ownership, but allows the center flexibility to make business decisions without undergoing the slow municipal approval process. A small number of major convention centers, including the Moscone Center in San Francisco, are privately run.
Any shift toward a partially privatized model could run into opposition from labor. About 75% of the facility’s 135 employees are union workers protected from layoffs.
“If they’re just going to contract it out, we’re not for that,” said Bob Schoonover, president of the SEIU Local 721, which represents city employees. “But we are for making it better, getting more people to come to conventions, obviously. We’d like to see some kind of compromise.”
If Santana’s proposals are embraced, the task of implementing them would fall into the hands of a new group consisting of representatives from the Convention Center and the offices of the mayor, CAO, chief legislative advisor and the city attorney. The group would be charged with developing and overseeing the bidding process.
Beyond looking for potential operators capable of helping the city reduce its future role in the debt service, the group will have to determine whether regulations of its tax exempt bonds actually allow such a change in building governance, Abbassi said.
Santana has also recommended that the city retain a private bond counsel to advise the group on what changes it can make without jeopardizing its tax-exempt status.
“I think the key part of all of this is what the bonds really allow us to do, and none of us can make that determination, so I’m really encouraged that the CAO said, ‘Hey, we need expertise in that area,” Abbassi said.
Contact Ryan Vaillancourt at ryan@downtownnews.com.
page 7, 02/08/2010
©Los Angeles Downtown News. Reprinting items retrieved from the archives are for personal use only. They may not be reproduced or retransmitted without permission of the Los Angeles Downtown News. If you would like to re-distribute anything from the Los Angeles Downtown News Archives, please call our permissions department at (213) 481-1448.
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