the DronesClub	the smackdown	Fierce Creatures	Little Blenheim	Barmy in Wonderland	the dernier cri

In November, 1997, the Commonwealth of Massachusetts authorized the spending of $800 million toward building the new Boston Convention and Exhibition Center. Even before ground was broken on this new facility, New York, Atlanta, San Jose, Anaheim and other major American cities had elected to enlarge or replace their own convention centers. In each case, the goal was to bring in more out-of-state visitors and the dollars that come with them. Each city came armed with a host of feasibility studies virtually assuring policy-makers that they would capture a greater share of the market.

Critics, however, warned that taxpayers would inevitably have to subsidize the new convention center with costly subsidies as too much floor space pursued a convention market growing at a slower rate. With this criticism in mind, the City of Boston and the Commonwealth of Massachusetts predicted success based on a formula of moderation. Policy-makers intentionally made conservative assumptions, crafting legislation with a wide enough revenue base to protect the taxpayers in the event the new center was a failure. To maximize the Boston Convention and Exhibition Center’s potential to generate revenue, the BCEC would focus on those conventions that enhanced the flow of out-of-state delegates in and out of hotels and restaurants, rather than simply booking the largest conventions. The convention center was not a policy end in itself, but the capstone of urban development on the South Boston Waterfront. This paper will examine the role of the Boston Convention and Exhibition Center, both in its capacity as a successful convention center and as a catalyst spurring lucrative investment in the Commonwealth of Massachusetts and the City of Boston.

 

List of Tables and Figures
Table 1: Multiplier Effects for Convention Centers		28
Figure 1: Delegate Spending Per Diem Centers		29
Table 2: Net New Economic Impact By Type and Region Centers		31
Table 3: Annual Employment Effects		32
Table 4: Summary of Tax Rates Effects		33
Table 5: Estimates of Incremental Fiscal Impact Effects		33
Table 6: Major Boston Developments Effects		40

Introduction

Like so many other massive construction projects, the construction of the new Boston Convention and Exhibition Center on the South Boston Waterfront has been called a 'political boondoggle' and a 'costly albatross' around the neck of Boston. Scathing editorials have accused policy-makers of pursuing this 'white elephant' even as developers besiege City Hall to build lucrative mixed-use commercial and residential projects. Why build with public revenues, these critics argue, when developers are ready and willing to invest their own capital into equally lucrative projects? Why build expensive convention centers, they say, when urban and social benefits are not immediately apparent, or years away at best? As cities across America rushed to build convention centers and expand existing facilities, critics warned against too many square feet of floor space chasing a market growing at a much slower race. In the face of the realities of the economic cycle, critics pointed to a long line of major American cities that were inevitably forced to bail convention centers out with costly subsidies, thereby reducing the available funds necessary for other civic projects and initiatives.

In spite of this criticism and in spite of activists' demands for affordable housing, health care, school funding, and homeless shelters, the Commonwealth of Massachusetts and the City of Boston elected to spend over $800 million on the new Boston Convention and Exhibition Center in South Boston. As Boston emerged from the recession of the early 1990s, this massive public investment was touted as the seed whose roots would eventually extend far and wide enough to protect Bostonians in the wake of the next economic downturn. The new convention center would provide the impetus for a symbiotic relationship between Boston and investors: the Boston Convention and Exhibition Center would expand the economy with a wider, more diverse base of out-of-towners with deep pockets, while investors would build an equally diverse base of commercial, residential, and mixed-use developments on the new South Boston Waterfront to attract more convention delegates to town.

This is the study of both why and how Boston and Beacon Hill policy-makers arrived at the decision to build the Boston Convention and Exhibition Center. This study will examine the new convention center's place in the larger picture of Boston's urban development history, as well as its pivotal role in facilitating investment and development along the Waterfront District in the future. At the same time, this study shall examine the innovative financing structure created to protect taxpayers in the face of economic uncertainties. This study shall also explore the new sources of taxable revenue created by jobs, tourism, and urban investment stimulated by the new convention center. Finally, this study seeks to clarify the lessons the Boston Convention and Exhibition Center policy-makers have learned in their efforts to maximize the facility's potential while avoiding the failures of other major projects like the 'Big Dig.'

Urban Development in Boston: A Historical Overview

Boston's position as a center of intellectualism, business innovation, and international commerce in the nineteenth century had given way to a declining port city with a sluggish economy by the mid-twentieth century. By Mayor James Curley's fourth and final term, the city's lack of fiscal credibility discouraged corporate investment, and though Curley had a progressive record of neighborhood improvements, his legacy was marked by a thorough neglect of the urban infrastructure. In an era of changing attitude towards a professional and responsible government, voters turned out the rascals of an earlier age and ushered in a new age of competent government.

Under Mayor John Hynes and successive administrations, Boston began taking stock of its current and future needs based on rationale thinking rather than on private interests. Boston emerged from the stagnation of the past at a moment in time when government led the way in urban planning and renewal. In the 1950s, local development agencies like the BRA were undertaking larger and far-reaching development projects in the name of urban renewal. From the 1950s through the 1970s, Boston saw the redevelopment of the West End and Scollay Square, the rehabilitation of Quincy Market, and the construction of Prudential Center on the Boston and Albany rail yards. "When combined with the heightened city competition for every conceivable type of economic development," massive construction projects were well underway financed both by urban renewal grants from the federal government and in public-private partnerships.

The Prudential Insurance Company had expressed interest in a new development project on the site of the abandoned Boston and Albany rail yards between Boylston and Huntington Streets, but legal technicalities had stalled the project for years. As part of Mayor John F. Collins’ "New Boston," the entire site would be declared blighted and developed "in such a way that would be useful to the public and beneficial to the entire community." The all-but-abandoned rail yard was declared blighted in early 1960, a declaration both recognizing the deterioration of the land and the need for it's revitalization. This declaration permitted the Boston Redevelopment Authority (BRA) to use its powers of urban renewal to seize the land and proceed with clearance and development. With the passage of Chapter 121A in the Massachusetts General Court, this "blighted area" was turned over to the Prudential Company to begin development of the lot, building an "island within the city," encompassing living, working, and shopping all under one roof. The master plan, designed by California architect Charles Luckman, incorporated apartments, parking, and shopping within a self-contained "island" of buildings. Prudential’s willingness to build public and private-use facilities was a profound step in rejuvenating Boston, creating what one BRA official said was "a new, slick, shiny image that would attract new development."

Prior to the 1960s, Mechanics Hall on Huntington Avenue, the Boston Garden, or hotel ballrooms were the only spaces that could accommodate large public meetings in Boston. The new Prudential Center master plan would redress this shortcoming. The Prudential would give space to an adjoining auditorium, which was dedicated on February 21, 1965 as the War Memorial Auditorium. Mayor Collins declared that the War Memorial Auditorium, one of the largest in the country at this time, would make Boston a major center for national and international conferences. The War Memorial Center boasted 150,000 square feet of exhibition space, seating facilities for up to 6,000 people, a large meeting room for 900, and a series of breakout rooms and exhibit areas.

As many cities faced urban decay and "white flight" to the suburbs in the early 1970s, Boston was enjoying a mini-boom. Through innovative legislation, the adult entertainment industry was forbidden in Boston except in the two-block area between Essex and Kneeland Streets, known as the Combat Zone. The construction of the massive State Transportation Building in Park Square led to substantial private investment and revitalization in that neighborhood, and Massachusetts Port Authority further stimulated development by rebuilding roads and upgrading the decaying ports. The Commonwealth granted a 99-year lease on air rights over the Turnpike ramps, and private developers quickly created the series of hotels and shops that are known as Copley Place today. In 1979, Mayor Kevin White dramatically enhanced the image of Boston as a popular tourist destination with the infrastructure investments and revitalization of Quincy Market and Fanueil Hall at Government Center.

By 1979, the Auditorium, renamed the John B. Hynes Veterans Auditorium, was no longer capable of capturing its potential in the $320 million convention business. In the forward to the BRA’s 1979 report on the Hynes’ facilities, Mayor Kevin White wrote, "Boston loses scores of conventions that want to come here for one simple reason: our facilities are not big enough." In their report, the Boston Redevelopment Authority noted that Boston lost out on untold revenue due to the Hynes’ 150,000 square feet and its inability to accommodate large conventions or multiple bookings and the shortage of nearby hotels. With the potential to double the $320 million annually generated by the convention industry, the BRA report recommended $35 million to expand the Hynes from 150,000 square feet to 250,000 square feet of exhibit space, including 60,000 square feet of meeting space, an additional 50,000 square feet of retail space, and a 600-car parking garage.

Despite the BRA’s recommendation to expand, the Hynes Auditorium’s very existence was in question in the early 1980s. Voters approved Proposition 2˝ in November, 1980, capping property tax rates at 2.5%. With the passage of Proposition 2˝ , a study commissioned by the City of Boston concluded that "it’s senseless for the City of Boston to continue operating a convention center that requires taxpayers to pay $300,000 a year in operating losses."

The end of federal dollars for urban projects, however, breathed new life into the convention center's role as an urban development tool as President Ronald Reagan announced the end of direct aid to cities. As federal sources closed, cities turned to the convention center as the means to stimulate the urban infrastructure and attract out-of-town visitors. As a promise of fiscal salvation, cities justified the expense of building convention centers, open air malls, squares, arenas, stadiums, and waterfront developments. As a whole, these projects were "significant for [their] ability to persuade civic leaderships everywhere in North America that the rewards are great enough to commit large amounts of public resources without any guarantees of success." Given the pervasive mentality that convention centers and exhibition facilities were the panacea for attracting new revenue streams, many cities entered the convention center "sweepstakes," gambling that their facilities would be the ones to bring in the promised dollars.

Whether an urban renewal strategy or a revenue-enhancing undertaking, the question remains: is it government’s role to be involved? If tourism represents a strategy that combines job and profit opportunities for a city, it is not inconceivable for the affected industries that profit from convention centers to pool resources and buy shares into a privately-owned and operated convention center?

One principal reason the government must become involved in operating a convention center is that business interests, organized labor, and elected leadership have "short-term pressure demands that preclude commitments to public policies that require more than a few years to distribute tangible benefits." Second, because of broad disposition of the tourism-related industries, it makes no sense for them to buy into a privately-funded convention center. For example, the owners of the Marriott hotel would find their Boston location incurring costs to compete for tourist dollars with their Orlando location. Third, they would also face stiff competition from 'free-riders,' those hotels or industries that chose not to participate in the convention center, but derived benefit from its existence anyway. From the private-industry perspective, it would be better for an autonomous governmental body to bear the operational expenses of a convention center. Fourth, with the actual convention center often incurring an operating loss, it makes no sense for the private owners to subsidize this loss when the benefits accrue throughout the city and all sectors of the economy.

A public sector role in financing and operating the convention center becomes necessary as an expression of cooperative federalism. This view, first enunciated in the 1950s, is based upon the idea that the different levels of government work in tandem in service to the common weal. In this case, however, federalism becomes a metaphor for the relationship between state/city government rather than national/state government. Like the mythical hydra, the public sector is, in fact, a single beast with many heads of power. Public services like transportation, tourism, the port authority, and the Turnpike authority illustrate the point of cooperative federalism. Each of these services has wide-reaching ramifications at each level of government, and the provision of these services is based not upon Max Weber’s hierarchical government, but upon negotiation among the various centers of power. (An example of this is the disposition of the 27 acres of space freed by the sinking of the new Central Artery; while technically it’s the prerogative of the Massachusetts Turnpike Authority, the actual decision-making is the product of give-and-take between city planners, state agencies, and private interests.) This vision, once articulated and codified into a law or a public mandate, becomes the charge of appointed agency directors, whose agencies may serve varied goals, but inevitably work in tandem toward a unified goal set forth by the decision-makers. The private sector, on the other hand, is best suited toward achieving a single set of self-serving goals without coordinating among other, wholly unalike directives in order to achieve a broader series of objectives.

The private sector has long recognized the greater advantages of the convention center for the Commonwealth, but the hospitality industry failed to shoulder the demands of operating a convention center. In the face of this market failure, it falls to the city/state to recognize that if the potential advantages of a convention facility are to be realized, the public sector must step in to maximize market outcomes and maintain the microeconomy. The public sector is best positioned to maintain a system whereby those who make the most profit are forced to contribute goods and services (linkage payments and jobs) to the needy. As part of the overall government structure, the MCCA’s de facto role becomes one of maintaining employment and stable prices in the hotel/hospitality industry, and creating a favorable balance of trade and economic growth. In return for aiding the local hospitality industry, the financing authority ties the expense of the convention center to the very industries that stand to benefit the most.

As a policy outcome, the convention center ultimately becomes an easier "sell" than other projects because they "can be portrayed as having the potential to provide both a considerable number of jobs and increased tax revenue generating capacity. These projects may also demonstrate how projects of this type produce a ‘satisficing’ decision for public officials who do not have to openly choose between one popular social group over another."

Whether or not lawmakers agonized over the role of government and policy alternatives, suggestions of closing the Hynes Auditorium were quickly ended. Legislation was enacted to increase the hotel-motel tax from 5.7% to 7% to support the construction of a new arena and expand tourist facilities. With bookings at the Hynes scheduled through 1990 and 3,500 hotel rooms under construction, President Robert Cummings of the Greater Boston Convention and Tourist Bureau declared Boston, "in the major leagues among the nation’s convention sites by 1985."

By the end of 1983, Hynes Convention Center had been transferred to the newly-formed Massachusetts Convention Center Authority (MCCA). Expansion estimates of $35 million in 1979 had risen to $121 million. By the final report, total costs, land acquisition, and other considerations were projected at $150 million dollars. MCCA Executive Director Francis X. Joyce proposed legislation granting the MCCA the authority to issue $200 million in bonds, "though we don’t intend to use it all." By late 1984, the legislature authorized the MCCA to sell $100 million in bonds to finance the reconstruction and expansion of the Hynes Auditorium into a full-service convention center. The bill would require the Authority to come before the legislature each year for authorization to draw upon the funds.

Between the late 1980s and 1990, analysis showed attendance at the Hynes Auditorium grew to 480,498 convention and conference and trade-show attendees. By 1994, the Greater Boston Convention and Visitors Bureau reported that of all the meeting planners who expressed interest in Boston and eventually chose to host their events elsewhere, 85% cited "insufficient contiguous exhibit space." Hynes ranked 43^rd among all American cities in the amount of exhibit space in its principal convention facility. Smaller cities offered more exhibit space in their single-level exhibition halls than did the Hynes Convention Center, with two floors of less than 100,000 net square feet each. Professional tradeshows like MacWorld, the International Boston Seafood Show, and the Yankee Dental Congress had annual attendance growing faster than the Hynes could forseeably accommodate, and the Hynes was in danger of losing these venues to other facilities. According to Francis Joyce, the very location of the Hynes Convention Center in the Back Bay posed problems with its narrow streets and the difficult accessibility of its loading docks for large trucks; the new center would have to incorporate state-of-the-art loading bays if major trade-shows could best utilize the facilities. With an estimated 1,000 more shows estimated for 2000 over 1990, the MCCA again reconsidered its convention facility needs.

In 1993, the MCCA contracted with PriceWaterhouseCoopers’ Sports, Leisure, and Convention Center Group for a study estimating market demand for convention facility space in Boston as well as to determine if the existing facilities satisfied present and future demand. This study also identified alternative methods of expanding or adding new convention space. In short, this study determined that Boston "is likely to lose existing events which cannot be accommodated on one level to other centers unless a larger supply of contiguous exhibition space is added to the Boston market." Compared to other major market centers, Boston ranked 22^nd out of 24 in terms of overall square feet, with 111,000 square feet of contiguous space out of 193,000 total square feet. Given the amenities of quality service by well-trained convention center staff, modern facilities, as well as a desirable urban atmosphere with proximate hotels and restaurants, the report concluded that Boston had the opportunity to capture new and larger shows, host concurrent events, and capture a larger share of the convention market.

There was simultaneous support for a new convention center in the political sector during the early 1990s. Former Speaker of the House Charles Flaherty was open to the idea of a new center "more as an investment." The convention center debate did not have a set group of opponents in the sense that political, grass-roots, business, or private interests were flat-out against the idea altogether. According to John Simon (former special assistant to the Secretary of Administration and Finance), the Pioneer Institute, a conservative think-tank in Boston, issued several reports in the mid-1990s criticizing the convention center, "saying this [the convention center] was something of a boondoggle. By and large. . . interest groups were just opposed to "how" [the convention center was to be built, financed, and operated]; the "what" had very little opposition. It was the "how" that had a lot of opposition. . . . It wasn’t fighting over whether the convention center should be built, it was fighting over who should control it, and that was, to the extent there were political battles, what the battles were about."

Chapter 152: The BCEC Legislation and Financing the Convention Center

Whether Massachusetts would pursue a combination sports/convention megaplex facility or just the Convention Center, there was widespread acceptance in political circles that Boston needed a new convention center. A new convention facility was seen not just as a means to maintain Boston's current foothold in the convention center market, but a means to increasing Boston's share in the lucrative growing exhibition, trade show, and convention business. Believing the combination sport/convention megaplex to be politically less palatable than the convention center alone, early studies pushed the idea of the new convention center alone. As city and state officials mulled the proposed convention center, key differences focused around funding; Beacon Hill lawmakers insisted Boston and the private sector pick up a bigger share of the cost. Governor William Weld (and later, Acting-Governor Paul Cellucci) reversed their initial objections when the plan encompassed no new taxes. Fiscally conservative House Speaker Tom Finneran agreed to the project when the prime beneficiaries (hotels, rental car agencies, restaurateurs, etc.) agreed to pick up a greater burden by additional taxes levied on their customers and earmarked for the BCEC. As John Simon recalled, the hospitality industries that stood to benefit the most from convention industry revenues emphatically said ‘Tax us.’

At the same time as the Massachusetts State House was debating the new convention center, the Pioneer Institute distributed several white papers, examining the market demand for a new convention facility and the financing structure of similar convention facilities around the United States. In "If We Build It, Will they Come?," the Pioneer Institute examined a series of Coopers & Lybrand, PriceWaterhouseCoopers, and other convention center feasibility studies, all of which loudly proclaimed to states’ convention authorities "a major well-located expansion [of convention facilities] is virtually assured of attracting large numbers of out-of-town delegates." These reports concluded "Failing to undertake a major expansion of convention space. . . would result in large and growing losses. . . resulting from lost convention business." In light of consulting studies promising rosy futures, convention center facilities began sprouting up in Providence, Charlotte, San Jose, Honolulu, and Columbus. Similar studies precipitated multi hundred-thousand square foot expansions at convention centers in Anaheim, New Orleans, Orlando, and other cities. Demand, the Pioneer Institute warned, would not necessarily outstrip supply in these conditions.

The Pioneer Institute was not shouting the results of their studies from the roof-tops, but the cognoscenti were taking notice, including the Boston Globe, the Boston Herald, and State House legislators. Former Secretary of Administration and Finance Charles Baker recalled the effect of these Pioneer Institute studies was to force policy-makers to bear in mind the lessons learned from other convention centers. To head off legislative criticism of the costly project as well as to keep a realistic vision of the economic cycle in mind, Baker based Administration and Finance projections on overly cautious estimates and assumptions, crafting legislation that would protect the Commonwealth even under fiscally hard times. As will be shown, the revenue generated by the 1997 legislation was intentionally over-reaching in terms of claiming the "rights" to these new revenues; this was specifically done to protect taxpayers from having to bail out the new BCEC and to give the MCCA’s Operating Fund enough revenue to cover operating and capital expenses.

With the Governor, the Mayor of Boston, and the Speaker behind the proposed new facility, and with an innovative plan to finance and build the Boston Convention and Exhibition Center in hand which would create a broad enough revenue base to protect taxpayers, the Massachusetts General Court enacted in November, 1997, Chapter 152, "An act relative to the construction and financing of convention and exhibition centers in the Commonwealth." Besides authorizing the Massachusetts Convention Center Authority to create a Boston Convention & Exhibition Center Buffer Zone (the 31 acres encompassing the new facility) and granting the City of Boston’s Redevelopment Authority rights to acquire those lands by eminent domain and convey them to the MCCA, this act spelled out the means by which the new Convention Center would be financed. Because revenues realized from convention center are indirect, collected in sales taxes from restaurants and room taxes at hotels, nearly all convention centers have been built with public funds rather than through private development. Thus, the Commonwealth would make $537 million available for construction of the Boston Convention and Exhibition Center, and Boston would make $157 million available to acquire and prepare the land for development. Chapter 152 authorizes finance of the BCEC as follows:

	Chapter 152 Legislation
	Section 1
	The Commonwealth's share shall not exceed:	$537,200,000
	Additional funds may be made available to meet the requirements of Section 6:
		$47,200,000
	The costs of site acquisition, remediation, gravel removal, and demolition, should these costs exceed $205 million
		$25,000,000
	Total Commonwealth share:	$609,400,000
	Section 6
	Boston shall "raise and appropriate not less than (in section 7(a), the city is "authorized to borrow a sum in the aggregate not exceeding $157,800,000")	$157,800,000
	Section 7
	Boston may raise additional funds to pay excess costs pursuant to Section 6	$25,000,000
	Total share for the City of Boston:	$182,800,000
	Grand Total:	$792,200,000
	Chapter 152, Massachusetts General Court, 1997

Section 11 of Chapter 152 authorized the Commonwealth to sell bonds as special obligations payable from the special receipts described in section 10 of Chapter 152. The legislation designed repayment of these bonds to be as exportable as possible, drawing on

"a source of new revenue, provided in large part by non-resident visitors to the Commonwealth, provid[ing] a means to assure that the costs of construction of  new convention and exhibition centers will be financed and paid to the fullest extent possible without substantial resort to the existing general revenues of the Commonwealth."

Because the prime beneficiary of the BCEC would be Boston (and Springfield and Worcester because Chapter 152 authorized new convention facilities there, as well), the burden of the new surcharges applied largely to Boston. Thus, Chapter 152 authorized revenue from the following sources be earmarked to repay the debt:

· 2.75% of the total fee of hotel rooms in Boston, Cambridge, Springfield, and Worcester. This tax is levied directly upon the hotel owner/operator, based on the price of the room.
· $10 surcharge on car rentals within Boston, of which $1 shall be paid to the Room Occupancy Excise Fund, used to repay Boston’s debt issue
· $2 per day surcharge on parking at facilities built in conjunction with any of the projects authorized by this act in Boston, Springfield, and Worcester
· 5% of the purchase price on water and land-based sight-seeing tours, tourist venues, entertainment cruises, or tours located within or originating within the Commonwealth of Massachusetts
· All receipts by meal and beverage taxes within the CCFD at establishments opened on or after July 1, 1997
· All excise tax receipts imposed on hotel/motel rooms in the Convention Center Finance District (CCFD)
· All excise taxes imposed on hotel rooms inside Boston, but outside the CCFD, and in Cambridge opened on or after July 1, 1997. Like the excise tax, this one is levied upon the user of the hotel room, rather than on the hotel owner. The owner/operator, however, collects the tax and sends it to the Massachusetts Department of Revenue.

The Massachusetts Department of the Treasury would oversee and supervise a Boston Convention and Exhibition Center Fund to pay the principal and interest on the special obligation bonds. While these new surcharges were specifically earmarked to repay the principal and interest on the Commonwealth’s bond issue, the City of Boston was enjoined in Section 8 of Chapter 152 to apply funds from the sale of hackney licenses and surcharges realized from car rentals to the Room Occupancy Excise Fund, created to repay Boston’s notes or bonds issued to finance the repossession by eminent domain of the convention center parcels in South Boston. Chapter 152 offers no other guidelines to Boston, requiring or authorizing additional surcharges to meet its obligation on the $157.8 million in bonds it could issue. Indeed, Chapter 152 only states "the City of Boston shall solely bear the financial burden associated with any incentives necessary. . . to achieve an adequate number of hotel rooms to support the specified projects." In short, barring additional appropriations from the Commonwealth, the City of Boston is on its own to raise and repay the principal and interest on its Convention Center obligations. From these revenues, Boston forecasted spending $68 million on the BCEC Project site acquisition and preparation during 1999, an additional $40 million during fiscal 2000, and the balance to be paid throughout 2001 and 2002. As late as March, 2001, however, the City was still facing litigation over the parcels, settling one case out-of-court for $28.5 million, $12 million over the initial offer for the ten-acre parcel. With 11 of 25 former owners challenging the BRA’s offers in court, it is too early to say whether Boston will remain within its targeted $157.8 million. With the Commonwealth obligated to pick up expenses over this $157 million (up to $205 million, after which both state and city split costs), both the state and city are anxious to remain within the budgeted targets. With a rising real estate market in Boston, the $205 million might not be enough.

With such a wide revenue base, the legislation was designed to prevent the MCCA from having to come before the Commonwealth for help in repaying its obligations. Because of the conservative assumptions made by the Office of Administration and Finance when casting the original legislation, it was foreseen that a wider and broader tax base would permit the repaying of the bonds even if the convention center proved to be untenable. This revenue base, largely exported to out-of-town visitors, was viewed as creating fiscal stability for the entire convention center program. Debt repayment would not be hinged upon BCEC revenues. Indeed, so successful has this wide base of revenue proven, the MCCA has vastly exceeded its projections in terms of revenues and its coffers have more than enough at present to meet its obligations.

Economic Consequences: Cost Overruns and Long Term Development

After years of studies, politics, reports, and preparation, the Boston Convention and Exhibition Center was nearly entirely derailed in January, 2001. Bostonians woke up to find the entire project on hold as reports surfaced regarding a possible $100 million cost overrun. In the face of multi-billion dollar cost overruns and local and national scandal regarding who-knew-what-and-when-did-they-know-it over the Central Artery ‘Big Dig’ overruns, lawmakers were not in the mood to tolerate a costly bail out for the BCEC. House Speaker Thomas M. Finneran threatened the BCEC would face "very tough sledding" if the MCCA turned to lawmakers to cover the overrun. "If this is driven by that mentality of a big feed at the public trough, there will be no appetite whatever for adjusting the bottom line," Finneran declared. The old issue arose over the role between private developers and government on public projects when Finneran proposed "Call[ing] in a private sector developer, someone like a Tom Flatley, literally right now, and say, ‘Can you come in as a public service and look at what we’ve done.’" Secretary of Administration and Finance Stephen Crosby attributed the overruns to "this inflation bubble in the middle of Boston that’s put such extraordinary demands on construction resources," and recommended that aside from cutting costs at the MCCA to increase revenues, advertising, naming rights, and various joint ventures ought to be considered.

With her promise of a convention center delivered "on time and on budget" at risk, MCCA Chairwoman Gloria Larson halted development to review the options with development chairman Dean Stratouly, project chief Walter "Budge" Upton, and Linda Snyder, chief of the State College Building Authority (who volunteered to find hitherto overlooked savings opportunities). This meeting resisted asking the State House for another $100 million. The MCCA was left with two viable options: halt the project altogether or scale back the scope of the project to conform to existing revenue streams. Despite the Boston Globe's suggestion that the window for development in Boston had passed, halting BCEC development would send the message to Fan Pier/Waterfront developers that Boston was not serious about developing this area. A more realistic approach was to scale back the design, though the idea of dropping architect Rafael Vinoly’s futuristic design for a ‘vanilla box’ was rejected. Ultimately, the design team rescued the project and its sleek design by reducing the building’s 600,000 square feet by "less than ten percent," moving some parking from an indoor garage to outside, using a rubber roofing for the facility rather than the steel roofing originally envisioned, and raising $50 million through selling and then leasing back the facility’s central heating and cooling plant. The final plan would increase the total project from $750 million to $800 million, but with the $50 million recouped from the sale of the heating-cooling plant, the upfront capital cost to the state would not increase. The state would make annual payments to the energy company that buys and runs the plant, probably raising the eventual cost above what the authority would have spent to operate the plant itself. The opening date would be pushed back to May, 2004. Francis Joyce said the BCEC would make all attempts to maintain the size and facilities as originally planned, and where possible facilities would be built but not finished; for example, the framework of a breakout conference room might be built, but acoustical tiles, carpeting, and electrical work completed at a future date when the funds were available.

Fallout from the Overruns

For the dramatis personae of the Massachusetts Convention Center Authority, January and February, 2001 were full of maalox moments as the Boston Globe loudly damned the expensive project and Speaker Finneran voiced his disapprobation over the cost overruns. The issues that the overruns raised, however, have wider implications than simply the money.

On the one hand, it raised warning flags to developers Nicholas Pritzker and Frank McCourt, major land-holders along the South Boston Waterfront. If the BCEC project had been cancelled, it would have sent out undeniable signals that the development window had closed in Boston, and the Commonwealth was no longer ready to accommodate developers. Whatever avenues may have been opened up for using the 31-acre parcel where the convention center would have been built, development would have been in a sterile environment without the mixed-use commercial/residential plans to create a dynamic Waterfront district. Bostonians would find their multi-billion dollar Ted Williams Tunnel and Central Artery were spilling out into the middle of an undeveloped wasteland in South Boston; after a decade of overruns and delays on that project, it is safe to assume Boston commuters/taxpayers would expect there to be something at the other end of the Central Artery. In short, Boston, the Commonwealth, developers, politicians, and residents had too much at stake to afford losing the BCEC project.

Facing the cost overruns, MCCA planners cut the building to 500,000 square feet from 600,000. Boston Globe columnist Steve Bailey put a positive spin on the new design, writing, "The reduced size should cost Boston one or two conventions a year, and is a prudent hedge in case the convention forecast turns out to be overly rosy, as is often the case." (Conversely, it can be argued that 500,000 square feet of empty floor space costs taxpayers as much as 600,000 empty square feet, but the original 600,000 at least offer the possibility of attracting more shows.)

The real issue, however, is in the kinds of venues the new center can host. Convention planners are a savvy group, planning major exhibitions five to ten years out (with the Greater Boston Convention and Visitors Bureau and the MCCA sales force back-filling dates in between the big shows). With every city in fierce competition for the convention industry, convention planners would be wary of a center running behind schedule and not boasting its full compliment of amenities. According to Darrell Baker, Vice President of Sales and Conventions for the Greater Boston Convention and Visitor’s Bureau (GBCVB), the sales force’s job becomes all the harder, selling conventions in an unfinished building in an unfinished part of town. They have to convince prospective convention planners that five or ten years out, the facilities will be there. In a study to be released by September 2001, the GBCVB is examining the kind of base market the new facility should attract in the face of the BCEC’s design alterations.

The cost overrun was the tip of the iceberg facing the HMS Convention Center. Developers were already wary of investing in projects in a city where costly "impact fees" can be imposed at the whim of community leaders. If tangential issues like linkage payments devolve from bargaining to badgering, developing a business campus along the Massachusetts turnpike in Framingham will become more attractive than an office complex in South Boston. Second, alongside an uncertain national economy, developers are wary of investing millions of dollars into Waterfront projects until a finished BCEC can produce tourists who make purchases in new stores and galleries. At the same time, convention planners hosting large venues are wary of the BCEC, situated in an empty part of Boston. They want to see the shops, restaurants, stores, and hotels in the BCEC’s proximity before committing their organizations to the new facility. They are not interested in having to bus delegates from South Boston to the Back Bay and back.

According to Darrell Baker, however, these larger issues in South Boston are not without precedent: the original Moscone Convention Center in San Francisco was built far from the center of town in the 1960s. As the city grew toward the Moscone, the Moscone’s drawing power as a major convention market grew with it. The yet-unanswered question will be whether Boston will have a thirty year waiting period for South Boston development, or can development begin quickly enough to ensure a market for the BCEC?

Impacts of Urban Development

Convention centers are often developed to enhance the urban images. In Pittsburgh, Three River Stadium was destroyed to make way for waterfront development; a new sports/convention facility was proposed as the centerpiece for a shiny new image for the city. The convention center as the focal point of revitalization creates an image of a vibrant economy providing jobs and services twenty-four hours a day. City planners expect this impression to extend to the rest of the city, repositioning a town’s image as fighting urban blight and creating economic opportunity.

Development of South Boston today did not occur in a vacuum, but has been the latest turn of events in a long-developed area that was once tidal flats between the Boston Neck and Shawmut Peninsula. In the 1890s, the Boston, Hartford, and Erie Railroad purchased over 2.6 million acres of these mudflats and solid land and spent more than a million dollars improving the area and building new warehouses and elevators and piers to service its growing rail market. From the Gilded Age until the 1920s, the waterfront was filled-in and developed through a series of joint public-private ventures to enhance Boston’s economic strength. The land fell into general disrepair by the end of the rail era, and again gained prominence in the late 1980s when Congressman Joseph Moakley led the effort to have the new Courthouse built on the Fan Pier. With the current debate in Boston about the future development of the land directly adjacent to the Fan Pier Courthouse, the role of the BCEC as a catalyst for development is of great importance for Boston.

The Waterfront district, however was neither an urban slum nor an undesirable area. The parcel of land on which the BCEC is to be built was a parking lot, and there are numerous businesses in the area. Because this land is neither a slum nor unattractive to development, one of the critics’ principal arguments is that since the land is so valuable, there are a host of developers lined up at the gates to develop it. It is a series of circular arguments. If the land is developed for purely business purposes, its taxable value to the Commonwealth is limited because no one wants to shop, browse, visit, or live there. The quality of life is not enhanced for Bostonians, and like the Financial District, no one would want to visit a purely commercial area after the workday. Few shops would be located there attracting few visitors, leaving the waterfront all-but-abandoned after dark.

If the land is developed as housing, presumably as mostly luxury condominiums, the city would gain in property tax but would not gain in profitable business investment other than restaurants, cafes, and coffee shops. Even developed as mixed business/residential use, luxury housing developers would wait until business had moved in (so residents had facilities to go to) and businesses would be loathe to develop until other development had already proven successful. Whether business or upscale housing, however, the revenues realized from linkage payments from developers would add millions of dollars to the Neighborhood Housing Trust for affordable housing.

Irrespective of potential linkage payments, affordable housing advocates would argue the BCEC development is a lost opportunity to address housing in the only part of Boston where undeveloped land is abundant. A housing plan that brings thousands of mixed-income residents would have the effect of stimulating the same mix of commercial and civic development on and near the Fan Pier to cater to these consumers as would purely luxury housing development. Ultimately, the question revolves around how the Mayor defines his vision of Boston as a first-class city: will Boston use its existing resources to fulfill the current needs of its citizens, or will Boston lay its foundation on the convention industry as the vehicle to attract outside capital, and via this indirect means, serve the common weal?

As the BCEC is currently viewed, a fully-operational convention facility would stimulate the development of hotels, in turn bringing in restaurants, shops, and other facilities designed to capitalize on the hotel residents and convention delegates. Business in turn would swiftly follow the restaurants and stores. Expensive waterfront condominium developers would have the impetus to build expensive housing along the waterfront, with homeowners eager to live in an area with a judicious mixture of commercial and recreation facilities. In short, the BCEC would best stimulate collateral development which otherwise might follow less lucrative or civic-minded directions. More concretely, the MCCA foresees the BCEC completing the southern portion of the waterfront district, including:

· Providing a transition between the waterfront commercial district and the residential community to the south
· Related development of hotel, retail and entertainment uses north of the site
· Supporting 18-hour activity beyond a 9-5 workday
· Strengthening the connection across Fort Point Channel to the Downtown area

Boston Globe columnist Joan Vennochi editorialized, "If we the public stop digging the hole for a new convention center, it won’t remain empty for long. Something will be built there by someone who doesn’t need our money to build it." Development would go forward in South Boston without the convention center, but the unanswered question is whether or not it would prove as potentially lucrative for the Commonwealth and for Boston; would it create a playground for millionaires in waterfront condominiums or a new skyline of high-rise office towers? The City of Boston is betting the BCEC will spur a more judicious growth pattern, creating a new Newbury Street, where an influx of tourists drives the relocation of consumer-oriented shops to South Boston, bringing in apartments and condos, followed by new business development. The Commonwealth is gambling that this development will increase the size of the revenue pie, concomitantly increasing the slices earmarked and allocated for other social programs.

Development Issues and the City of Boston

With Boston investing $157.8 million in the project and anticipating $362 million in spending and another $7.8 million in tax revenue to be generated by the BCEC, another question that arises is how Boston remains involved in the process by which the BCEC will maximize returns on the city’s investment.

Mayor Menino has no special phone tied directly to Francis Joyce at the MCCA. The Mayor does not require constant contact and planning with the MCCA because the MCCA already knows what’s good for Boston is good for the MCCA, and what is good for the MCCA is good for Boston. The recent Clean Harbors Act, development on Fan Pier, the Seaport Master Plan are all designed to create an environment that enhances the quality of life for residents but creates the inviting qualities for travel and tourism. The MCCA and the GBCVB maintain close ties to the city, asking the Boston Department of Special Events or Office of Community Affairs to sponsor local events to encourage convention planners to come to Boston. For particularly large shows, it is not uncommon for Mayor Menino to write a letter inviting trade shows to Boston or welcoming them to the city. State Agencies share a symbiotic relationship with the City of Boston, and these agencies’ strategic plans incorporate a close tie between themselves and Boston. For example, Massport’s Waterfront master plan incorporates a balance between the needs of a working port with those of commercial mixed-use district, a coordination between Massport’s planning goals and the City of Boston, and identifying infrastructure investments that enhance community benefits.

Sidebar in Boston: Linkage Payments

At the state level, there was little disagreement over whether there would be a convention center or not. In Boston, however, the convention center issue became muddied by the issue over linkage payments, the system devised in the 1980s to require developers to inject money from prosperous downtown projects into city neighborhoods in return for zoning approval. In March, 1998, the City Council signed on to the legislation committing Boston to its $157.8 million share in the convention center. In defense of the middle-class whose waterfront district property values would soar in the face of development and gentrification, City Council President James M. Kelly negotiated a side agreement to the council’s approval, maintaining City Council oversight and ensuring benefits and jobs flow to South Boston. This ‘memorandum of understanding’ between the Boston Redevelopment Authority, Kelly, and State Senators Stephen F. Lynch and John A. Hart, Jr. called for:

· Regular updates to the City Council on the progress of land acquisition and construction, plus regular hearings in South Boston to update residents,
· Establishment of job-information centers in South Boston and Roxbury to recruit people for convention-center related jobs,
· Public safety jurisdiction in the area by Boston police and fire departments,
· Assurance that 50% of all linkage payments – funds developers pay for low-cost housing in city neighborhoods – from all waterfront-area development go to South Boston, and
· Assurance that 100% of linkage money from the convention center’s headquarter hotel would go to South Boston, wherever the hotel was built.

The "South Boston Betterment Trust" was immediately created to distribute the funds to South Boston, the same role the city’s Neighborhood Trust was legally designed to perform. However, the South Boston Betterment Trust and the ‘memorandum of understanding’ came under immediate attack from activists and councilors, who charged that it pitted all other Boston neighborhoods against South Boston and undermined the very intent of linkage payments. City Councilor Thomas Keane said the deal did not fit the city’s overall affordable housing needs. "There is more development going on in my district than anywhere else, but I believe that such a policy would be selfish," he said. City Councilor Yancey of Dorchester said, "This is a problematic precedent. The development of the Seaport District is a development of the City of Boston; it is not a development of the city of South Boston – there is no city of South Boston."

In August 2000, civil rights and housing groups announced plans to sue Mayor Menino’s administration over the 1998 memorandum of understanding, charging that a disproportionate share of the city housing funds would go to South Boston, violating the Fair Housing Act and ignoring the needs of minority neighborhoods. The Mayor, however, said he was already working to correct the excesses in the deal and circulating a proposed new policy that would standardize the process for awarding community benefits in conjunction with community advisory committees. The plaintiffs insisted the money must be shared by all neighborhoods and despite the Mayor’s promise to modify the memorandum, the courts must step in to negate the 1998 agreement. Aiming to bring the political rancor to an end, the Mayor scrapped the deal promising all the linkage money generated by the BCEC hotel and waterfront development would go to all Boston neighborhoods equitably. While the linkage donnybrook did not slow the process of designing and building the convention center, it did expose a political process that distributed benefits based on parochialism and favoritism. The ugly episode exposed the increasingly fractious relationship between James Kelly and Mayor Menino, resulting in a decision-making lethargy in City Hall. In turn, many major issues regarding Waterfront development remain undecided; as will be discussed, this critical lack of movement on development could have a profoundly negative impact on selling convention space to prospective trade show organizers.

The Boston Convention & Exhibition Center: Maximizing Success

Flexibility in the Convention Industry: Move 'em in and move 'em out

One word sums up the Boston Convention and Exhibition Center’s strengths as it reaches its projected demand: flexibility. Despite its massive size, the BCEC is designed to be a book-end, encompassing a convention/exhibition/tradeshow/meeting universe ranging from the 100 attendees of the Disaster Recovery Institute International to the 9,000 attendees of the North American Society of Pacing and Electrophysiology Scientific Sessions all the way to the 20,000 delegates at the Database & Client/Server World meeting in June 2001.

One of the BCEC’s strengths is that it does not compete for the biggest conventions. Because of the extensive preparations large trade shows require, a 50,000+ delegate show like COMDEX might require a week of moving equipment and kiosks in, 4 or 5 hotel days for the trade show, and a week of moving equipment out. In terms of the greater convention industry and maximizing the economic impact of delegates’ per diem spending, this sort of large show uses three weeks of convention floor space for four real nights of hotel stay. While that is good for the convention center’s bottom line, in the long run it ties up the convention center without moving the greatest number of people in and out. According to Darrell Baker of the Greater Boston Convention and Visitor’s Bureau, "Its not what you book, its what you move." As originally planned, the three 200,000 square foot meeting halls of the BCEC offer the most flexibility to move one convention in as another is underway. A smoother system of rolling events – one moving in as another is underway – best levels the peaks and valleys in hotel room bookings. As will be discussed, the greatest tangible benefit the convention center offers is the per diem expenditures of convention delegates on hotel rooms, restaurants, taxis, etc. The new BCEC will not only attract new hotel development, but the smooth process of events rolling in and out will prevent great peaks and valleys, shortages and overbookings in local hotel rooms. A smooth flow of conventions and delegates in and out of the BCEC and hotels is the single most important key to maximizing revenues.

Competing for Diverse Shows

Because of its size, the BCEC can accommodate swiftly growing groups like the Yankee Dental Congress whose 20,000 delegates are becoming more than the Hynes can conveniently serve. The Yankee Dental Congress may graduate from the Hynes as a smaller market moves from a hotel ballroom to the Hynes. Able to handle the growth of existing convention markets, the BCEC will also allow the Boston convention industry to expand its base, accommodating both current shows and attracting new shows. Regional cities and smaller markets must chase the middle-market of "teachers and preachers," but Boston will be able to increase its market share to include educational, medical, and technology tradeshow markets. Boston will be able to diversify events with the capability of handling multi-sized shows simultaneously.

With the market expected to be tight in ten years, would the Hynes and the BCEC be in competition with each other? The yes-and-no answer reflects both the nature of the convention center industry and the end results the Hynes and BCEC are designed to achieve. It should be pointed out at the outset, however, that neither the Hynes and BCEC are in competition with the Bayside Exposition Center. The Bayside hosts only gate shows, shows where participants pay only parking and a gate fee. Despite an adjacent hotel, it has neither the facilities nor the space to host more than gate shows. Though lucrative to the Bayside operators, gate shows contribute little to the overall economy (representing a transfer from one sector of the local economy to another, since participants are usually local and rarely elect to remain overnight in hotels). The State House decided to forbid MCCA facilities from competing with the private sector in gate shows, both to encourage private industry and to keep the BCEC and Hynes Auditorium focused on its mission of bringing out-of-town delegates to the Greater Boston area.

Insofar as both the Hynes and the BCEC can accommodate 200,000 square foot shows the two facilities might be said to be in competition. ‘Competition’ may not be the mot juste, however, since the two centers are in different parts of town and will ultimately be serviced by their own cluster of hotels and hospitality-related businesses. In the lingo of the hospitality industry, the convention center’s raison d’ętre is to get ‘heads in bed’ and ‘elbows on tables.’ While a source of pride and prestige to the city, the convention's core job is to get as many paying out-of-towners into the hotels and restaurants. As will be discussed, the convention center’s great cost is justified by its ability to attract delegates whose expenditures on hotels, restaurants, and taxis, contribute millions to the economy. Serving the need to smooth the flow of convention delegates in Boston and level the peaks and valleys of the hotel industry, the Hynes and the BCEC work in tandem to increase the overall revenues realized by the tourist economy.

The idea that the BCEC and Hynes will compliment each other and work toward smoothing the flow of ‘heads in bed’ depends a great deal on each facility being an independent convention center serviced by its own cluster of hotels, restaurants, attractions, and industries. As of yet, the BCEC does not meet that requirement since the Waterfront District has not yet been developed. Until then, the GBCVB and MCCA sales force must work in an environment where their assurances to convention planners are not based on strict development timetables; they must sell BCEC convention space ten years out, banking on the plans that Waterfront hotels, restaurants, and businesses will be ready to receive thousands of out-of-town delegates.

This highlights another of the issues the Boston convention industry must contend with: accessibility. Because of the current shortage of hotels, Boston loses conventions to other cities that boast meeting centers, hotels, stores all within walking distance of one another (if not connected). Convention delegates do not want to travel from their hotel in the Financial District to the BCEC. Until the BCEC exists within a cluster of convention-related hotels and businesses, the Hynes will be the principal convention center boasting a five-city block complex of climate-controlled skywalks connecting the Hynes to the Boston Marriott Copley Place Hotel, the Sheraton Boston Hotel, the Westin Hotel at Copley Place, the shops at the Prudential Center, all in the heart of a town that boasts of itself as "the walking city."

Economic Benefits of the Boston Convention and Exhibition Center

The convention center may be, as critics maintain, a losing proposition. Proponents counter that the greater loss is not participating in the convention and tradeshow market. The economic benefits realized directly or indirectly from the convention center will eventually meet expectations for the BCEC’s performance once it has gone through its initial construction period, worked the bugs out of its system, and proved to consumers that it is an attractive place to be.

Three broad categories of economic benefit will be derived from the convention center, allaying critics’ fears about its necessity and success:

· Visitors, exhibitors, and sponsoring associations/corporate industries pump millions into Greater Boston for restaurants, hotels, taxis, equipment rentals, etc.
· Thousands of jobs are expected to be generated in the hospitality industry and many more thousands in construction jobs.
· The BCEC will spur collateral development of the Boston waterfront, including hotels and restaurants which otherwise might not occur.

Each of these economic benefits argue for the creation of the BCEC, illustrating to critics that its benefits are measured in its overall impact rather than its bottom line.

Out-of-Town Visitors, Exhibitors, and Sponsors

The revenue potential of larger conventions and exhibitions is the primary reason for increasing convention facility space in Boston. Significant revenue is generated by visitors from outside Massachusetts at restaurants, hotels, stores, taxis, airplane and train travel, entertainment, and other local industries. A 1989 MCCA study estimated that for every consumer dollar spent, an additional impact of $1.07 is generated, creating a ‘multiplier’ effect of 107%, or $2.07. In other words, the multiplier indicates the amount of additional income that is generated for each dollars pent in the local region. A higher multiplier effect results in greater benefit to the community. As the dollar spent by the convention delegate goes to the restaurateur, who pays for additional food or rent, the multiplier’s effect (or successive round of spending generated by the delegate’s original dollar spent) only ends when the spending leaks out of the local economy.

George Girard Fenich’s recent doctoral thesis on convention centers reports "While economists do not agree on the exact value of the tourism expenditure multiplier, empirical research indicates it is significant, with effects ranging from 1.33 to 2.96." Table 1 lists convention center multipliers, as reported by various cities and consultants. If one dismisses 4.0 and higher as statistical outliers, the mean of the remaining estimates would yield roughly 2.01. 

Table 1: Multiplier Effects for Convention Centers

	Multiplier Effects for Convention Centers
	Multiplier Effect
		Source Citing the Multiplier Effect
	1.5 - 2.5	Convention Center Annual Report (1989)
	2.20	Pannell Kerr, Foster for City of Madison, WI (1987)
	2.11	Arthur D. Little for City of Tucson, AZ (1983)
	1.75	City of Philadelphia (1985)
	2.00	Laventhol and Horwath for City of Denver, CO (1983)
	10.00	International Assoc. of Convention & Visitors Bureaus (no date)
	4.00 - 12.00	City of Denver Convention & Visitors Bureau (1987)
	George Gerard Fenich, "Dollars & Sense of Convention Centers," (1992), p. 51.

Although recent BCEC feasibility studies do not provide a multiplier, if one reaches to the 1989 Hynes Auditorium study by Bell Associates, the 1.07 multiplier is reasonable, meaning an additional $1.07 in spending is generated based on every dollar spent by an out-of-town delegate.

In a Pioneer Institute-hosted dialogue on the proposed combined sports/convention megaplex, Professor Edwin Mills criticized the multiplier effect in relation to convention center studies. As the money flows through the local economy,

"consulting reports exaggerate the multiplier effect. The reason is that they cannot accurately quantify the leakages [of dollars spent outside the local economy]. . . .There is nothing unique to publicly owned convention centers or stadiums that causes them alone to generate the multiplier effect."

Professor Mills goes on to turn the multiplier effect on its head, stating

"The essential truth is that if people have more money taken out of their pockets for taxes [to pay for convention centers] they spend less. It is perfectly symmetrical with a positive multiplier effect, but in this case, it is a negative effect. Everybody who pays a dollar in taxes to support the facility must reduce his or her spending. This reduction sets off a chain reaction. The diminished spending goes round and round, just like the aforementioned positive multiplier effect."

Future research on both industry averages and the BCEC will be necessary to properly gauge this important measure of the convention center’s effect on the local economy. Equally interesting is whether consumer spending increases or decreases significantly based on aggregate spending on civic projects like the BCEC, or whether consumer spending is affected by larger economic issues. What is significant, however, are the actual overall dollars brought to the local economy by out-of-town convention and tradeshow delegates. While such private facilities like the Bayside Expo Center bring in vast revenue in parking and gate fees, their multiplier effect is nominal, since their visitors are local participants in town for a single day’s floor show. Out-of-town delegates make a significant economic impact since they constitute the majority of people who remain overnight to spend money at the hotels and restaurants.

Figure 1: Delegate Spending (1997 Dollars)

Delegate Spending - $341.66 per diem

Boston Convention & Exhibition Center Final Report, November 1997, p. 19.

Once the BCEC is operating at peak efficiency, the BCEC expects to generate a $436.2 million direct economic impact. Of this, 100% is expected to occur in the Greater Boston Metropolitan area, of which 62% will occur within Boston based on its share of total hotel rooms. In-town delegates are not considered in the BCEC’s revenue forecasts since their spending is a transfer of income from one sector of the local economy to another. The BCEC also includes in its forecasts the indirect and induced impact of the out-of-town delegate. Indirect benefits result from the initial direct spending of the delegates. For example, a delegate purchases food at a restaurant, causing the restaurant to purchase more food from suppliers. The induced impact would be the increased personal income the waitstaff may receive as a result of the delegates’ spending.

The exhibitors at trade shows will also make a large impact on local revenues, hosting dinners at restaurants, renting hospitality suites, renting cars, trucks, equipment, and other services. Equally important, trade associations, corporations, and sponsors bring outside revenue to the Commonwealth with similar expenditures. The estimate of exhibitor expenditures per delegate day is $74.51 in Boston while sponsoring associations are estimated to have spent $19.24 per delegate day.

Table 2 depicts the projected economic impact the City of Boston and Commonwealth expect to realize from the investment in the Boston Convention and Exhibition Center. What is unclear, however, is how much of the indirect and induced expenditures will actually remain within the economy. If a restaurant purchases more food, will the supplier be from Massachusetts or will the supplier ship goods from a distribution center in Charlotte, North Carolina? Will the hotel purchase its sheets and linen locally or from an out-of-state supplier? As impressive as $764.6 million in annual economic impact sounds, if one calculates the indirect and induced revenue as a percentage of the direct revenue, every dollar spent by a delegate generates $0.1155 in additional indirect revenue and $0.6373 in additional induced expenditures, totaling a multiplier of $1.7528 (1 + .1155 + .6373 = 1.7528). If the 2.01 multiplier estimated from Table 1 is used as a standard, the $1.7528 calculated from Table 2 is smaller than the rough average, but consistent with the range for the convention center/tradeshow industry. It must be noted, however, that economists have no exact science in the calculation of multipliers, and that a multiplier of 1.7528 must face a reasonableness test based on the range calculated in Table 1.

Table 2: Net New Economic Impact by Type and Region

	Net New Economic Impact by Type and Region
	(annual amount in millions of 1997 dollars)
	Geographic Area	Direct**	Indirect	Induced	Total
	Boston*	$271.40	$26.30	$65.20	$362.90
	Additional spending in the Greater Boston Metro Area	$164.80	$24.10	$179.40	$368.30
	Sub-Total Greater Boston	$436.20	$50.40	$244.60	$731.20
	Additional spending in the Commonwealth			$33.40	$33.40
	Total Commonwealth	$436.20	$ 50.40	$278.00	$764.60
	*Boston includes Suffolk County and Greater Metro Area includes Suffolk, Essex, Middlesex and Plymouth.
	**Direct costs are allocated based on the proportionate share of hotel rooms within the geographic area.
Boston Convention & Exhibition Center Final Report, November 1997, p. 20.

Job Creation

The second key benefit of the BCEC is the creation of new jobs, including new BCEC staff, construction jobs, and direct and induced jobs created within the hotel and hospitality, food and beverage, amusement and recreation, and retail industries. While the BCEC projects its staff to double from 84 to 162 employees, the larger impact will be felt by the contractors who will provide approximately 80% of all labor, including catering, cleaning, parking, security, and retail services when the BCEC is fully operational. These contracted positions are expected to increase from 200 to 585 full-time positions. Statewide, the hotel industry is estimated to increase employment by approximately 2,800 jobs due to new trade-show demand at the BCEC. Projections are that each new hotel room requires .74 full and part-time jobs. In addition to hotel-related jobs, catering companies, freight handlers, cleaning services, and other firms providing services to the BCEC and its clients will require additional labor. Though numerically impressive, the majority of the 2,800 jobs tend to be lower paying jobs. While the Commonwealth and the City of Boston have prevailing minimum living wages, the BCEC is able to evade paying minim living wages to certain employees by hiring subcontractors who are exempt from paying a living wage above the Commonwealth-mandated minimum wage.

Table 3: Annual Employment Effects

	Annual Employment Effects
	Type of Jobs/ Industry Classification			Within Boston	Greater Boston Metro Area	Commonwealth
	DIRECT JOBS
	Hotel & Hospitality			1,364	2,592	2,832
	Food & Beverage			1,378	2,551	2,702
	Amusement & Recreation			214	405	434
	Retail			141	303	361
	Local Transportation & Other			16	91	152
	TOTAL DIRECT JOBS			3,113	5,942	6,481
	INDIRECT & INDUCED JOBS			1,183	3,701	4,253
	TOTAL			4,296	9,643	10,734
Boston Convention & Exhibition Center Final Report, November 1997, p. 21.

It is the one-time design and construction of the BCEC that will create the most jobs over the next several years. The proposed construction will account for nearly 3,140 direct jobs in Boston and 3,570 statewide. Adding indirect and induced jobs, the total number of construction and design jobs is estimated to be 7,875 in Boston and 8,777 in the Commonwealth over the entire construction period. Despite the large number of jobs created, they cannot be considered permanent or new to the local economy, since construction spending is drawn from existing local resources. Indeed, the total economic impact of construction expenses may be negative for the Commonwealth overall, since the workers are all part of the local economy, many direct, indirect, and induced construction-related expenses will be transfers from one sector of the economy to another (i.e., Boston Construction Co. pays Boston employee who purchases lunch from a Boston restaurant), and a fair share of construction expenditures may leave the local economy if material is purchased from out of state.

Fiscal Impacts: Tax Revenues

Once the BCEC is working at peak capacity, the adjacent hotel completed, and the jobs and restaurants open for business on the Waterfront, all are projected to produce sizeable economic revenue for the Commonwealth. This fiscal impact consists of state and local tax revenues resulting from the net new spending and income related to the BCEC. Table 4 illustrates the tax rates the Commonwealth and Boston will levy on income and property, and Table 5 represents the fiscal impact these jurisdictions will realize based on these taxes.

Table 4: Summary of Tax Rates

	Summary of Tax Rates
	Tax	Rate	Tax Bases
	State Personal Income Taxes	5.02%	effective rate (nominal rate is 5.95%)
	State Corporate Income Taxes	1.13%	percent of earned income
	State Sales Taxes	5.00%	of sales of tangible property
	Property
	Boston	$1,800	per hotel room
	Other Local	$1,300	per hotel room
	Boston	1.40%	of gross retail sales volume
	Other Local	1.40%	of gross retail sales volume
	Hotel Taxes
	Boston	4.00%	gross revenue from rental of hotel rooms
	Other Local	4.00%	gross revenue from rental of hotel rooms
	Commonwealth	5.70%	gross revenue from rental of hotel rooms
Boston Convention and Exhibition Center Final Report, November 1997, p. 26.

Table 5: Estimates of Incremental Fiscal Impact ($ millions)

	Estimates of Incremental Fiscal Impact ($ millions)
		Jurisdiction Collecting the Tax
	Type of Tax	Boston	Other Local	Mass.	Total
	Personal Income Tax	-	-	13.70	13.70
	Corporate Income Tax	-	-	3.10	3.10
	Sales & Meals Taxes	-	-	8.80	8.80
	Property Tax	5.60	4.70	-	10.30
	Hotel Tax	2.20	1.80	5.70	9.70
	Total	7.80	6.50	31.30	45.60
	Percent of Total	17%	14%	69%	100%
Boston Convention & Exhibition Center Final Report, November 1997, p. 27.

The fiscal impacts of these five taxes will not pay for the BCEC in full, but they are significant because they improve local and state government’s ability to pay for the project.

Personal and Corporate Income Tax

Based on 1992 returns the BCEC estimates that an effective tax rate of 5.02%, applied to BCEC activities (which include salaries and wages of all employees, temporary employees, indirect and induced employment income will generate $13.7 million in revenue for the Commonwealth. With the incremental tax reduction approved by voters in 2000, this impact may be reduced. Corporate income tax will also contribute a fiscal impact on the Commonwealth’s revenues. The Boston Redevelopment Authority analysis shows that corporate income taxes are 1.13% of their employee earned income. Corporate income tax estimated at 1.13% of direct, indirect, and induced employee earnings will add an additional $3.10 million in state revenue.

Property Taxes: Hotel and Retail

In a stabilized year of demand, the BCEC estimates approximately 795,000 additional room nights will be generated by the new facility’s visitors, supported by 3,800 hotel rooms. Based on 1997 hotel valuations, Boston hotels are projected to pay $1,800 per room in property taxes for Metro Boston and $1,300 for Metro West hotels, taking into account possible property tax exemptions for new hotel developments. In addition to hotels, retail spending supports commercial development. In Boston, an estimated $500 of merchandise is sold per square foot per year at retail establishments. Property taxes on retail space average $7/square foot, resulting in a tax on 1.4% of gross retail sales volume ($7/$500). Property taxes on newly developed commercial space on the Waterfront will add to this revenue.

Hotel Taxes

Currently, the City of Boston levies 4% hotel tax, and the Commonwealth levies a hotel tax of 5.7% on hotel rooms. This tax is based on the number of room nights generated times an average daily room rate of $122.50 (1997 rate) multiplied by the local or state tax rate. Therefore, the delegate would pay $47.53 in combined city, state hotel taxes based on four nights stay. The fiscal impact does not represent the amount of hotel taxes available to pay debt service on BCEC construction since only an 23% of guests are estimated to be associated with conventions, exhibitions or tradeshows. The total annual fiscal impact is $45.4 million, of which the Commonwealth receives $31.2 million or 69% of the fiscal benefit.

Sales and Meals Tax

The BCEC estimates that 100% of eating and drinking expenditures and 50% of retail expenditures (unprepared food, drugs, and clothing purchases under $175 are excluded from taxation) are taxed at 5%. While the BCEC estimates sales and meals taxes to add $8.8 million in economic impact, this number seems extremely low, considering the overall number of out-of-town delegates expected to come to Boston and spend an average of $341.66/day (see Figure 1). Of this $341.66, roughly $56 is taxable (entertainment, restaurants, food, beverage, and retail expenses), resulting in $2.80 ($56 x 5%) in taxes generated per day. According to the Greater Boston Convention and Visitors Bureau, an estimated 2.79 million convention and meeting visitors will arrive in Boston in 2001. At $2.80/day, they would pay a total of $7.812 million annually in sales and meals taxes for each day of their visit. With an average stay of four days, out-of-town delegates would pay $31.248 million in annual sales taxes .

These fiscal impacts are the government’s share of total economic benefit. The majority of the economic benefits do not accrue to the MCCA coffers; rather, they go directly to the hotels, airlines, bars, theaters, cab companies, stores, or restaurants who do business as a result of the BCEC. Since these industries are vulnerable to the transient demand, the convention center is designed to enable these industries to diversify their business base by increasing overall demand for delegate accommodations. An expanded base would better insulate these markets from the vagaries of the economic cycle. Because these benefits are spread throughout the economy rather than accrued directly by the convention center, nearly all major convention centers are financed through public funds rather than by private developers.

The fiscal impact provide a large degree of revenue required to offset the capital and operating expenses of the BCEC. Though these revenues do not pay for the project in full, the impacts are large enough in other sectors to allow local and state governments to fund the project with (theoretically) plenty of additional revenue for other government projects. It is this core rationale – the convention center may run at an annual loss but the state pays for it with the massive economic impact realized from convention-related revenues – that argues for the convention center in the first place.

The BCEC Final Report, however, does not take into consideration additional expenses the City of Boston will incur as a result of the new Boston Convention & Exhibition Center, thereby lowering their $7.8 million tax revenues. For example, the report does not include additional police details, fire protection, emergency medical expenses, expansion of sewage and electrical facilities, street cleaning and maintenance, and on-going operating expenses to maintain this newly developed section of town. Boston will have to find additional revenue streams to fund these new expenses, even as the Commonwealth must find new sources to pay for the expansion and maintenance of the MBTA Silver Line and Ted Williams Tunnel access into South Boston.

On the other hand, since the Commonwealth incurs 77% of the cost of building the new center, it is only equitable that it receives the majority of revenues derived in taxes. As the pie grows larger, the state takes a larger slice. As taxpayers, the residents of North Adams or Wellfleet are exposed to the same risk of failure as the people of Boston if the BCEC does not meet expectations, yet they benefit considerably less from the BCEC. Therefore, the Commonwealth appropriates a larger slice of the pie to protect smaller towns from financial loss should the convention center prove unsuccessful. If the BCEC meets expectations, the Commonwealth’s larger slice means more largesse to distribute to other localities.

Criticism of the Boston Convention & Exhibition Center

That Chapter 152 and the BCEC survived a decade-long gestation period owes as much the MCCA staff, the GBCVB, and other supporters as it does to the cumbersome legislative process. Even as the process wended its way through City Hall and State House offices, the convention center proposal continued to face its share of tough criticism. After all, over $800 million dollars were being spent on a single building on a 31-acre lot in Boston. Tax abatements were going to be granted depriving Boston of millions of dollars in revenue, and with activists on all sides pressing for more affordable housing in increasingly expensive Boston, the plan would deprive the city of potential linkage payments for an affordable housing fund as well as the physical land on which to build affordable housing. State legislators made a valid point, criticizing the state budget as too eastern-Massachusetts oriented.

If They Build It, Will they Come?

In February 1997, the Pioneer Institute released a White Paper by Dr. Heywood Sanders entitled "If They Build It, Will They Come?" This White Paper, written by a researcher on the convention center industry, questioned the underlying need to spend hundreds of millions on a convention center in a race where Boston would continue to be dwarfed by mega-convention centers in Chicago (2.2 million square feet), New Orleans (1.1 million square feet), Atlanta (950,000 square feet), and many other existing, expanding, and new convention facilities around America. This amazing growth in convention hall space was due to shift in revenue bonds backed by taxes, largely paid by out-of-town visitors, on car rentals, hote