Third-party not a ‘pixie dust’ solution for convention center

Dean Dennis likely placed doubt in those who were certain hiring a third-party operator would resolve the funding shortfall for the Fort Smith Convention Center. The source of the doubt is ironic considering that Dennis is a third-party operator of a 45,000-square-foot convention center in Pueblo, Colo.

Dennis, a vice president of business development and client relations for Global Spectrum, was in Fort Smith on Monday (Nov. 15) to share with the Fort Smith board of directors his expertise of private management of convention centers. Global Spectrum operates 92 venues, including 26 convention centers. The company, a subsidiary of Comcast, generated about $600 million in total revenue in 2009 with 11,137 events in its facilities.

THE PROBLEM
The Fort Smith board of directors spent most of 2008 and 2009 trying to come up with a solution to plug the annual deficit. A state turnback program ends in June 2010 from which the city has received about $1.8 million a year. In 2010 the city will receive only $888,723 in 2010.

Proposals to fix the funding shortfall include:
• A half-percent prepared food tax to cover convention center costs only, and estimated to raise $900,000 annually;
• A 1% percent prepared food tax to cover convention center costs that would raise an estimated $1.8 million annually. The annual allocation would be $1 million for the convention center, $240,000 for a convention center maintenance fund, $250,000 for Marshals Museum operating costs, $60,000 for various festivals, $50,000 for Bass Reeves monument (2012 and 2013 only), and $50,000 for arts community (beginning in 2014);
• Reallocation of 0.5% street tax funds to cover only the annual costs to operate the convention center. The reallocation is estimated to raise about $943,000 annually.

An ad hoc committee appointed by the board earlier this year discussed a third-party operator option. Their initial look found that a third-party operation would not fully address a funding shortfall.

NO ‘PIXIE DUST’
However, the board did not accept the ad hoc committee recommendations, with Dennis brought in for Monday’s final 2011 budget hearing to revisit the third-party option. Dennis dropped a bombshell when he said a third-party operator will not fix the funding issue.

“This facility is still going to need a funding source,” Dennis told the board. He added that there is “no pixie dust that makes a million dollar deficit go away. That’s not how it works.”

Even more alarming was that Dennis said the city would have to build a full kitchen in the convention center before it would be attractive to a third party. He said a convention center must have control of a full food and beverage operation to be financially viable. He estimated such a renovation could cost up to $1 million.

Dennis also told the board that convention centers aren’t built to be moneymakers, but are instead built “to drive business into your local economy.”

Not only would adding a kitchen be costly, but several board members and Convention Center Director Frankie Hamilton reminded each other of the promise in the late 1990s to local restaurants owners that if they supported the convention center expansion, the center would be open to caterers.

“We made them a promise,” Hamilton said, and added that several area restaurants have invested a lot of money in their business to provide convention center catering services.

‘LESS CERTAIN’
City Director-elect George Catsavis, the most vocal advocate for a third-party operator to take over the convention center, admitted after the meeting to being “less certain” about the viability of that option.

“I still think it could be an option, but after tonight, I don’t know. I’d like to see maybe a structured offer, but I don’t know. I’ll have to think about it more,” Catsavis told The City Wire.

City Director Cole Goodman and Mayor-elect Sandy Sanders were doubtful that a third-party operator would be the best solution, with Goodman saying that running the risk of “putting local caterers out of business” is not a solution. Sanders said it is unclear how paying a management fee and still being responsible for many convention center expenses would fix the funding issue.

“Where is it where we’re going to be better off (with a third-party operator)?” Sanders asked.

Dennis encouraged the board to submit a request for proposal to private management companies and see what comes back.

Claude Legris, executive director of the Fort Smith Convention & Visitors Bureau, encouraged the board to make a decision because the uncertainty is creating doubt among potential users of the convention center. Legris explained that competitors bidding for large conventions are suggesting to decision makers that the future of Fort Smith’s center is in doubt.

“It is really starting to have an impact” on efforts to recruit conventions to Fort Smith, Legris explained. Because conventions book 2-3 years in advance, Legris advised the board not to be surprised if the number of conventions coming to Fort Smith decline in 2012 and beyond.

If a 1% prepared food tax is approved by voters, the Fort Smith Convention & Visitors Bureau would be contracted by the city to manage the convention center. Legris told board members he believed the commission overseeing the CVB would consider a third-party operator.

“We would look at every possibility,” he said.