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NTF Issue Paper: ccwatch20.doc. 4-04.
OMAHA CONVENTION CENTER IS A DRAIN ON TAXPAYERS.
Roger Dixon, president = $85,000 in addition to his $148,753 2003 salary, up from $130,000 in 2000. (Dixon wanted to give Councilman Frank Brown the bonus numbers confidentially). Christy Harris = $50,000 in addition to her $67,323 2003 salary. Tom Folk = $17,000 in addition to his $89,894 2003 salary. Lea Solis = $16,000 in addition to her $72,774 2003 salary. All seven Omaha city councilmen and Mayor Fahey insisted on full disclosure. MECA is a public body, not a private business in which corporate managers receive bonuses for excellent performance. Top managers in private businesses, with the exception of companies like Enron, normally do not get bonuses if their companies run a deficit. As the bonuses were distributed, the city laid off employees and cut library hours and staff. MECA board member Brad Ashford declared that he did not favor publicizing salaries and bonuses of MECA employees for fear of demoralizing other workers. Board member Hal Daub commented that the bonuses were not overly generous. Board member Dave Sokol refused to identify seven facilities that he claimed MECA surveyed to establish salaries. Though Sokol contends that Dixon richly earned his $45,000 performance bonus because the convention center/arena operated well, problems still exist with limited and expensive parking, acoustical deficiencies, and faulty wiring. Top managers at 42 publicly-owned convention centers earned an average of $103,385, including bonuses, in 2003.1 The director of the St. Louis America Center, with twice the floor space as our facility, earns $170,000 annually without bonuses. The Wichita Convention Center, having about the same square feet as ours, paid its director $87,300 in 2003.
TAXPAYER DRAIN. Omaha taxpayers, by their 2000 vote, must provide $2 million annually to MECA for twelve years following the opening of the convention center, which MECA operates and manages. The Qwest Convention Center is not very busy because of few convention bookings. A 2000 KPMG financial analysis estimated 28 conventions and trade shows in the first year of operation and 35 within two years. MECA has booked only fourteen such shows in 2004 that qualify for state throwback funding. 2005 revenues originally projected at $2.2 million actually will total only $500,000. In November, 2001, the Omaha Convention Hotel Association viewed the lack of bookings with alarm, its president stating that the magnitude of the problem loomed huge. Convention center business has become increasingly competitive. Increased Omaha taxpayer subsidies to cover deficit operating costs will mean issuance of fewer infrastructure bonds to update sewers, roads, etc. and their delay for two years. A large part of the estimated cost for the convention center was based on assumptions that the city sales and hotel/motel tax revenues would grow, but both have declined. City financing sapped the general fund budget $2.9 million in 2002. Studies by major think tanks like the Heritage Foundation conclude that such facilities, constructed and operated in metropolitan cities like Omaha, all amass millions in deficits for decades. Every national survey reveals that most similar convention centers lose money. Many government-owned and managed complexes do not generate sufficient revenue from sales of services to cover annual operating costs, debt service, or capital outlays. One accounting firm projected a first year $2 million operating loss, increasing to $2.4 million in the 31st year, a permanent tax soaker. If the original funding mechanisms do not accrue sufficient funds to offset these deficits, which is happening in Omaha, the only source to fill the funding gaps is local property taxpayers, who suffer higher taxes because of the legal obligation of the city to pay off bonds. It is unlikely that the convention center will generate enough revenue to cover daily costs. Omaha taxpayers will have to shovel tax money into the gaping hole left by lower sales tax receipts than expected and an insufficiency of throwback financing from Lincoln. The city will spend about $435 million over thirty years to retire the $198 million in bonds. Some city leaders and the original ballot language on May 9, 2000 stated that passage of the bond issue would not increase the property tax rate. The ballot read, “The approval of this bond issue will not incur any increase in the property tax levy.” Then-Mayor Daub promised that convention center daily operating costs would require city taxpayer subsidy for only the first five years, but he failed to state the amount of yearly subsidies except to say in Sept. 1999 that they would be “manageable.” His no-tax increase pledge applied to city sales and property taxes.2 Faced with huge deficits, the MECA board may petition the legislature to become a taxing authority, burdening overtaxed Omaha homeowners with another line of property taxes on their annual statements. The center will lock a tax ball-and-chain around property taxpayer ankles. The city also must subsidize the convention center hotel, if business is inadequate. In Jan. 2002, Mayor Fahey noted that a tax hike might arise to handle the total city bond package if other anticipated revenues declined. Present and future city administrations are not bound by no-tax hike language. Recall that, when proponents first proposed a convention center in 1998, a citizens committee pushed for a “temporary” 1/2¢ sales tax hike. Sales tax revenues began falling in 2001 and still have not met expectations because of the continued recession. Continued state throwback financing (returned monies generated by Omaha sales and income tax revenues) has no guarantee, if tax revenue generated by the center falls short of expectations, admitted Brad Ashford. Qwest Center never will be profitable and always will rely on local property taxpayer subsidies. The convention center will not bring in sufficient revenues from the volume, variety, and quality of events to cover or justify the expenditures, because the Daub administration was too optimistic in projecting convention business. PRESENT TROUBLE. The Qwest Center electrical inspection failed, and an inspector refused to certify it though pressured to sign. The facility holds only a temporary certificate of occupancy. Estimates range up to $1 million to revamp wiring, because the original contractor used the wrong kind of cable, which, if burning, emits toxic gases. FUTURE TROUBLE. Sales tax revenues, parking fees ($1.3 million instead of $1.6 million), and state funding ($0.5 million instead of $2.3 million) all have fallen much short of original projections. Non-property tax revenue estimates from the site now stand at $2.9 million instead of $8.6 million. In April 2004 Mayor Fahey declared a city property tax hike inevitable for 2007, probably $20-$30 annually on a $100,000 house, to pay off convention center bonds. Property tax needs have risen from $5.3 million to $7.9 million. WHAT TO DO. Urge your city councilman to pressure MECA to stop giving bonuses to managers. If MECA cannot operate the Qwest Center at a profit, managers deserve no performance bonuses. If the MECA board refuses to oblige, then urge councilmen to deduct the amount of the bonuses from the annual city subsidy given MECA. Tell councilmen to appoint new members to the MECA board as present terms expire, people who will pledge to do a better job managing the facility towards profitability. If a reconstituted board cannot provide profitability, urge councilmen to draft an ordinance to direct management to a private company. For city council contact information, email us. You may wish to contact former Mayor Daub at his Blackwell Sanders law firm in Omaha to inquire if he would like to make a small donation to cover the huge deficit that his debacle has caused. Research, analysis, and documentation for this issue paper done by Doug Kagan and Steve Sfiers. This material copyrighted and notarized by Nebraska Taxpayers for Freedom, with express prior permission granted for its use by Taxwatchers, Inc., Citizens for Local Control, Cherry County Taxpayers, Dawes County Taxpayers, and other groups in the Tax Freedom Network. 4-04 C
1 International Association of Assembly Managers. 2 Feb. 10, 2000, KKAR “Talk of the Town.” |