Durham, North Carolina where I finished my career and still live in retirement just issued a report on how well the convention center here has been doing at erasing operating deficits.
There were some inconsistencies and misperceptions.
At both the city and county levels, Durham has always had excellent professional management during my twenty-five years here and none more so that under Tom Bonfield as city manager.
Governments at every level are not known for being able to fully account for and allot both revenues and costs to facilities. But neither are those in the free market economy. More on that later including a new approach applicable to all sectors.
The convention center in Durham was always expected to run a deficit.
Back in the day when consultants weren’t punished for being candid with both pros and cons and most were not for sale, the consultant for the proposed Durham convention center projected a $450,000 annual deficit, which would be $1.8 million today.
But thanks to new management it now runs a $167,000 deficit and that is without fully attributing all related revenues.
For instance, if parking and ticket assessments are being used to make DPACs performance look even better, as they should, it seems the city should attribute revenues from the lease of “air rights” above it to the convention center’s bottom line.
The convention center here has always been hampered from harvesting more than its share of the out-of-town conventions and meetings drawn to Durham overall by having far too few hotel rooms in walking distance.
That is about to be more than remedied when by this summer the number of guest rooms at or within less than a block will increase nearly double to nearly 400 and another 259 within a few blocks.
A few are made feasible by revitalization but a good share are due to incessant communication, over nearly three decades now, by Durham’s marketing agency to point out downtown’s strategic location.
It is four miles from Research Triangle Park, adjacent to one Duke campus and two miles from Duke’s main campus and that of North Carolina Central University, as well as the most proximate to dining and entertainment districts.
But as the new management company has proven, the original management company back in 1989 could have closed the gap, had it not cursed the facility with a convoluted identity and a sense of entitlement.
When it opened, it not only made sense to contract management with the adjacent hotel owner but that contract was calibrated as an incentive by essentially covering all of the private hotel’s fixed costs.
But instead, the hotel company tried to brand the convention center merely as its private meeting space while still demanding preferential treatment, if not sole-sourcing to out-of-town groups selecting venues.
The city and county bear some responsibility for their own self-inflicted deficits by being passive until a few years ago with everyone except Durham’s marketing agency which it insisted must refer to the facility by it true identity while somehow dealing with the obfuscation it tolerated elsewhere.
I cringed when news reports repeated (although in much more genteel language) an urban legend that somehow Durham’s community marketing agency felt “uncomfortable” with the arrangement inferring less had been done for the convention center back when I ran the DMO.
The cardinal rule for a DMO is to do what’s best for the community as a whole when it comes to optimizing visitation including the 10% who attend conventions, while maintaining a level playing field.
When it comes to attracting out-of-town meetings, this isn’t just about being fair to local stakeholders such as hotels and other privately-owned meeting space as well as the convention center but to be absolutely fair to meeting planners and organizers.
The job of a DMO is to draw attention to Durham and then assist while meeting planners and other site selectors make the best decision for their groups as to which venue and part of town are best for their needs.
It is up to each facility including the convention center by that point to close the deal and harvest their share while the DMO provides level platforms for information.
A few community DMOs play favorites, but it is at their peril as has been so often proven, including elsewhere in North Carolina.
However, a level playing field meant that the Durham DMO always did much more to promote downtown Durham, and thus the convention center, than it did for other facilities.
We made sure the other facilities understood why, but that this extra effort would stop short of ever “sole-sourcing” the convention center to a meeting planner which is what the management company and owner of the adjacent hotel demanded.
What did we do extra? A special section on downtown including several pages of schematics on the convention center, dining maps to show proximity of restaurants, a walking tour, a time/distance/frequency shuttle schedule to and from other hotels and facilities to name just a few examples.
We even intervened to smooth over relations between the convention center management and planners from time to time back then when a sense of entitlement threatened to poison the site selection process.
But none of this overcame the primary reason the convention center performance was limited – the lack of nearby hotel rooms.
Of course there were market trends to blame. The facility opened just as the nation’s meeting planners shifted preferences to hotel meeting facilities and away from downtowns and conventions centers because the number of facilities rapidly increased, while the number of conventions went into a long slow decline,
That is still underway today.
Until now, Durham’s local governments have avoided the slippery slope many communities have fallen down when they disguise deficits by creating special slush funds to pay out of town groups subsidies to use certain facilities.
Durham visitation outperforms those communities that do “pay for business” according to analyses of participation in activities such as conventions, sports and performing arts where that tactic is used.
Sadly, community marketing organizations and chambers of commerce are often the ones leading communities over this cliff. But ultimately, the problem is not just a failure to understand the law of supply and demand.
If instead of subsidizing events, cities and counties as well as surrogates such as DMOs and chambers, where they contract other, traditional economic development services, would adopt full cost as well as full attribution accounting, they could make or recommend much better decisions.
This would be looking at the benefits as well as costs of events and facilities more holistically, like an ecosystem.
Maybe the convention center deserves partial credit for an event its existence helped intrigue even when another local facility in the community is selected.
Maybe the Museum of Life & Science deserves partial credit for increased property values in surrounding neighborhoods. Maybe facilities and events that cannibalize underwriting, should deduct that from overall an event’s overall impact.
It isn’t as far-fetched or complicated as it sounds.
But cities and counties are not alone in the struggle to adapt accounting to be more consistent and inclusive when it comes to fully allotting costs and benefits.
The free market has long avoided “full cost accounting,” instead pushing what are called negative externalities (certain costs) off on consumers and taxpayers.
Even countries are now being challenged to move beyond merely using GDP (gross domestic product) or inputs minus subsidies in value as a measure of economic health.
An alternative to using only GDP is called IW (inclusive wealth) an approach that measures the positive change in human well-being across generations in a country by factoring in the social value of all capital assets, natural, human and produced.
It is consummately free market, just without opaque freeloading.
It has been under refinement since at least 1987 and linked here is the 2014 Inclusive Wealth Report. It doesn’t reject the value of GDP. It just takes a much more full-accounting approach to growth, and particularly sustainable growth.
Natural capital includes fossil fuels, minerals, forests including non-timber resources and agricultural land. Human capital involved education and health. Produced capital includes equipment, machinery, roads etc.
Add them up and deduct things like oil capital gains and carbon damages and you have an Inclusive Wealth Index. My interest is in natural capital so I’ve read and re-read the 2012 report with a focus on that area.
Each report gives a rating overall for 140 countries and then zeros in on one of the three areas of capital, sort of like a balance sheet is used by the private sector but far more inclusively.
Accounting and metrics such as these are important because they help individuals, communities, states and countries make decisions with a full understanding of the inherent tradeoffs.
To bring it back to subsidizing events, even when the dollars are raised privately, they didn’t just magically appear without having an adverse impact on areas including other events.
Failing to grasp subtleties such as this is how communities make decisions that gradually hollow out unique sense of place.
Inclusive Wealth is a better way of looking at deficits and surpluses as well as a far more inclusive way of measuring impact.
The sooner it filters down to the local level, the better it will be for communities still able to salvage the distinct sense of place that make them worthy of love by both those who live there but those who visit regardless of purpose.