Piling Subsidies on Subsidies

Portland has a history of piling on subsidies to support subsidies. Depending on who you talk to, it either subsidizes rail transit to support subsidized high-density developments or it subsidizes high-density developments to support subsidized rail transit.

Like so much of Portland’s government-funded infrastructure, the twin towers of Portland’s convention center have no structural function but exist–at who knows what cost–solely because they are pretty. Wikimedia commons photo by Cacophony.

Now it is about to decide to build a subsidized hotel in order to support a subsidized convention center. Advocates imply that the hotel will pay for itself, but the truth is that an $80 million subsidy to Hyatt will come mostly out of taxes paid by other hotels in the city. Hyatt will pay another $120 million, getting a $200 million hotel for 60 percent of the cost.

Portland’s convention center is already a laughing stock of the industry. Back in 1998, the convention center was doing well, with 71 percent occupancy. But Metro, Portland’s regional planning agency and the convention center’s manager, said it could increase occupancy rates by expanding the center. Voters rejected the bond measure to expand it, but this being Portland they did it anyway. By 2005, reports Forbes, occupancies were down to 43 percent and the convention center was losing $5.5 million a year.

The Antiplanner isn’t sure what the convention center’s current occupancy is, but the number of events it hosts each year has dropped 20 percent between 2008 and 2011. It is currently losing $10 million a year, not counting $6 million a year in interest on the bonds that voters told Metro not to sell in 1998.

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Portlanders won’t, for the most part, directly pay the 13.5 percent hotel occupancy tax that will repay the bonds. But, as Portland economist Joe Cortright observes, that is “tax money that could go to other uses, not to debt service on a hotel we probably don’t need.”

Portland already has plenty of hotels, and the only one that was built with city subsidies hasn’t paid a dime on the $17 million loan it owes to the city since 2009. Opposition to the convention center hotel is coming mainly from owners of other hotels who will have to subsidize their own competition.

The good news is that Leonard Bergstein, a liberal Democrat who is one of Oregon’s most effective lobbyists, is fighting the hotel plan on behalf of investors in some of the city’s other hotels. But he has been fighting it for more than a decade and this time it looks like he, and Portland taxpayers, will lose. Even Willamette Week, which is nominally critical of the hotel deal, went out of its way to demonize Gordon Sondland (scroll to end of story), Bergstein’s boss and manager of an investment fund that owns five Portland hotels.

Portland isn’t the only city subsidizing convention centers and convention center hotels. As the 2005 Forbes article noted, the nation has a huge surplus of convention facilities because so many cities are subsidizing them to keep up with their peers.

St. Louis spent more than $100 million subsidizing a $277 million convention center hotel that opened in 2003. Exact details are murky but the hotel owners borrowed only about $100 million to pay for their share of the hotel. When hotel revenues were only 59 percent of projections, the owners failed to make payments on their loans. Banks foreclosed and sold the hotel for a mere $98 million in 2009, leaving the city holding the bag for tens of millions in subsidies. Other cities ranging from Owensboro, Kentucky to Baltimore have spent tens to hundreds of millions of dollars subsidizing hotels that flopped despite the subsidies.

If Portland elects to subsidize its hotel, it will have to compete for convention center/hotel business against these failures as well as others that are under construction or in planning stages. Washington DC is providing $134 million in TIF funds to support a convention center hotel just a couple of blocks from the Antiplanner’s DC office. Minneapolis is considering spending $125 million subsidizing a hotel. Dallas, Boston, and many other cities have built or are building similar hotels. This means Portland won’t be able to compete for convention business any better with a hotel than without it. The city should cut its losses and reject the hotel scheme.