Talk about a wake-up call. One day last month the Massachusetts Convention Center Authority in Boston lost its entire 2003 state subsidy — $13 million, or about 40 percent of its operating budget. State government is desperately trying to plug a $3 billion budget gap. The authority has laid off a fifth of its staff and at press time was trying to have some funding reinstated. (The construction of the new Boston Convention and Exhibition Center has not been affected by the cutback, the authority reports.)
“We know that we need to move swiftly,” explains Andy Antrobus, a spokesman for MCCA, which also operates the John B. Hynes Veterans Memorial Convention Center and several other facilities. “We're spending money every day that we potentially don't have.”
Massachusetts is not alone. After its annual meeting in November, the National Governors Association concluded that cities and states are facing their worst budget crisis since World War II. The result is a kind of triple whammy for the hospitality industry.
The lower hotel occupancies of the last two years have reduced revenues, cutting, sometimes deeply, into occupancy taxes — the lifeblood for most convention and visitors bureaus. Meanwhile, many expanded or new convention facilities, conceived during an economic boom, are coming online in a post — 9/11 climate. The competition to fill these facilities has severely hampered convention centers' ability to recoup lost revenues by raising rates and fees.
There's no clear consensus on how these trends might eventually trickle down to meeting planners. But convention centers and government-backed organizations will almost certainly be looking for alternative ways to pay their bills. Here's what might result:
Bed taxes are popular sources of income, especially in politically and economically sensitive times. “A potential increase in bed tax is something we're watching very closely,” says Lisa Block, director of meetings for the Society for Human Resource Management and the outgoing Professional Convention Management Association chair. “It's a very popular kind of thing to raise because it doesn't affect local constituents.”
A number of states also may be mulling sales tax hikes, which can inflate the overall tab for a convention. Block says she recently received notice of a one percent increase in the sales tax in Orlando, where her annual convention will be held next year.
Convention centers may try to raise rates to recoup some of the subsidies they have lost from state and local governments, but that doesn't seem to be a realistic solution.
“The only way to pass on [costs] is if everybody does it,” says Eugene Dilbeck, president and CEO of the Denver Metro Convention and Visitors Bureau. “We're seeing the opposite — cities giving away space to get more business or capture delegates. As long as there is more supply than demand, we will see continued aggressive pricing to lure meetings into communities.”
Carl Thompson, executive director of the Society of Government Meeting Professionals in Alexandria, Va., says he has seen convention facilities bend over backwards to attract government business. And Julia Richardson, senior director of conventions and meetings for the Association for Career and Technical Education, Alexandria, Va., says some CVBs have stepped in to help defray the costs of shuttle services or work on ways to reduce convention center meeting room costs.
Another problem, at least for the short term, is that printed materials have already set fees for future conventions. “We might do some upselling to counter that,” explains Lou Pavledes, director of Detroit's civic center department, which includes the Cobo Conference and Exhibition Center. That would entail asking exhibitors to spend more on electrical services or food and beverage to boost revenues. About $12 million of the center's $27 million budget comes from the city, some of that indirectly from the state of Michigan, which is facing a $1.8 million deficit.
Denver's CVB collects revenue only from hotels in the city of Denver, which includes about 16,000 rooms. Yet some 36,000 rooms in the metro area benefit from large conventions. So the bureau has been discussing ways those other hotels can contribute more, especially through marketing.
Some cities are hoping that the local business community will help them ride out tough times. “You have to count on the private sector dollars to increase, through special membership rebate programs and that kind of thing, but also through general support of the industry from the corporate community,” according to H. Scott Phelps, president of the Greater Hartford (Conn.) Convention and Visitor Bureau. “Most corporations here realize the importance of conventions and meetings to Hartford,” he explains. “It's really pure economic development.”
Meanwhile, the bureaus that have been hit the hardest have had to look for creative ways to reduce their costs. Many have focused on rent, grants, and salary freezes; some have had to lay off staff. In Los Angeles, for example the bureau laid off about 15 percent of its staff, the first layoff in its history. The Charlotte Convention & Visitors Bureau, which has survived repeated cuts in its budget, has trimmed its printing and advertising costs.
“We still provide videos and information sheets, but some of those things we provide in a different way,” says Kim Rickwood, vice president of marketing and partnership development. “You may once have seen a high-gloss, six-color brochure given to every attendee, while you might now find a simple, single-page front and back with the same information.” Fortunately, bureaus seemed to have kept their hotel reservations services intact.
The Dallas CVB, with a budget hurt by declining occupancy tax revenues and facing a need to get business on the books, even borrowed money from the city to help promote its newly expanded convention center properly. Unfortunately, that move backfired and resulted in overzealous media scrutiny of the bureau's spending habits. (See sidebar, page 43).
CVBs and convention centers seem to appreciate the need to cultivate meetings and convention business, and many are confident that governing authorities also value tourism and conventions. The Greater Pittsburgh CVB, which has been adjusting to a $200,000 to $300,000 decline in state funding, is following a philosophy toward convention business that is typical of its counterparts in other cities. The bureau froze salaries, left some positions unfilled through attrition, and cut back on advertising and other programs.
“One of the things we made a commitment to is that we would not deplete our service capabilities [for meeting planners],” says Robert Imperata, executive vice president. “We're doing everything — if not more than — we did in the past because we recognize these are the individuals who can bring us back.”
Heightened touchiness over public spending has put CVBs around the country under public scrutiny. In Dallas, a local television reporter jumped on travel and entertainment expenses by the city's bureau, resulting in a City Hall probe into spending and other practices and an audit of those expenditures. As we went to press, Dave Whitney, who served the Dallas CVB for 13 years, resigned. In Los Angeles, hoteliers riled over the CVB's support of a convention headquarters hotel project called for the president and CEO to resign and prompted an audit of the organization's sales reporting procedures. A review initiated by the board of the Cincinnati CVB resulted in a major restructuring. The list goes on.
While this harsh spotlight may seem like a new development, CVB operations have long been an open book. “I think that CVB budgets are subject to a lot closer scrutiny than just about any other enterprise in the convention industry,” says Michael S. Olson, president and CEO of the American Society of Association Executives. “Often they are audited twice, once by their own organizational process, then by whatever government oversight body they answer to.”
Criticism of the Dallas CVB cited trips to a Dallas “gentlemen's club,” golf outings, and reimbursement for employees entertaining clients in their private homes. A spokesman for the bureau, however, says nothing dug up by the television reporter has caused any criticism from its clients, the local hospitality community. And while a $250,000 reception for Meeting Professionals International members by the LA bureau may have raised a few eyebrows, bureau President and CEO George Kirkland counters that the expense was “customary and usual, and substantially funded by the private sector.”
Michael Gehrisch, president and CEO of the International Association of Convention & Visitor Bureaus, says many outside the business don't understand what's required to get business on the books. “If a bureau goes to a trade show and spends $15,000, that might seem like a lot of money, but that might bring a piece of business worth $5 to $6 million in the future.”
Associations with a large contingent of state employees or members who depend on state funding can expect to see fewer attendees at their events. Julia Richardson, senior director of conventions and meetings for the Association for Career and Technical Education, Alexandria, Va., has already seen the impact of reduced government spending on education. Until recently, ACTE's annual convention drew about 10,000 attendees. For the last few years that figure has hovered around 7,000, with many teachers, administrators, and counselors unable to find funds for the trip.
“We've had to significantly cut back on the number of things we can offer during the convention, and we've had to increase our registration rates,” she says. Budgets for F&B and audiovisual equipment have both taken hits.
After getting burned the first year attendance dropped, Richardson has also reduced her lead time for booking conventions. Five years ago, she was scheduling convention centers five years out; today, she limits it to two years.
The California Association for Health Services at Home, whose members include employees of home health agencies funded through federal and state programs, is bracing for a smaller turnout at its annual meeting. But the bigger concern is budgeting for a series of one-day workshops across the state, says Gina Sutherland, director of education for the Sacramento association. “We had to look at ways we could do business differently,” she says. She has cut back on direct mail marketing programs in favor of e-mail. The group is also trying to schedule the workshops in hospital facilities to save money on hotel meeting rooms.
In California, which is facing a $35 billion deficit, the state government is understandably less willing to pay for its employees to travel. “Hotels in San Diego or Palm Springs may be offering a great deal, but it looks better to have a board meet in Sacramento,” says Amy Lamm, a sales representative with Giselle's Travel in Sacramento.