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San Jose's Convention Center Subsidy Grows to $4.4 million;
Stiff Competition Forces Discounting Rents

By Tracey Kaplan, San Jose Mercury News, Calif.
Knight Ridder/Tribune Business News

Feb. 9, 2005 - San Jose's money-losing convention center and cultural facilities will require a bigger subsidy than expected this year and probably won't perform as well as hoped next year, either -- an outlook that contradicts the rosy picture painted by the management team brought in recently to reduce operating losses.

When Team San Jose took over six months ago, the non-profit group of business and labor interests promised to limit operating losses to about $3.7 million this fiscal year and to about $2 million next year. The group was hired after a study showed that the convention center, hard hit by the economic slump, had been losing money under city management at six times the rate of comparable facilities nationwide.

But Team San Jose now says it will need an extra $760,000 for a total subsidy this year of $4.4 million, largely because it has had to discount rents in the face of stiff competition from other convention centers and concert venues. To meet next year's goals, the group would have to pare losses by 55 percent, an unlikely scenario in a still-ailing economy, according to a midyear progress report presented to the San Jose City Council on Tuesday.

The news is not all grim. The team has reduced expenses this year by 18 percent, increased revenues by 24 percent, brought more people downtown by staging about 85 more events and booked more hotel rooms. Hotel taxes are the primary source of funding for the facilities.

Team San Jose manages the convention center, Parkside Hall, Civic Auditorium, California Theatre, Center for the Performing Arts and the Montgomery Theater.

CEO Dan Fenton said several initiatives are in the works to drive up revenue, including the creation of a central box office to make it easier to book tickets at venues such as the new California Theatre.

Tuesday, city council members expressed concern about the extra subsidy, but said it was too early to tell whether it was a sign that the city's aging convention center and cultural facilities will remain a drain under Team San Jose. The city faces a $60 million to $80 million deficit in fiscal year 2005-06, which begins July 1.

"Six months is too early for a report card," said Councilman Chuck Reed, a mayoral candidate. "One of the pluses of this model is they respond well when things aren't going well."

The council selected Team San Jose over three other bidders, including second-place Global Spectrum, a division of Philadelphia Comcast Spectator, which promised similar rosy results.

The city pinned its hopes on Team San Jose because all of its members -- including hotel owners, organized labor, arts groups and the city's Convention and Visitors Bureau -- have a stake in the facilities' success.

"This is an experiment for all of us," Vice Mayor Cindy Chavez said Tuesday.

But several major challenges lie ahead for Team San Jose, Deputy City Manager Kay Winer warned in her midyear report. Among them is whether a $6 million tent that will be erected this summer to temporarily expand the convention center will generate enough revenue to cover the cost of operating it.

Councilwoman Linda LeZotte expressed surprise that the tent could cost more money to operate than it would bring in, saying she thought projections last year showed it would at least break even.

But Winer said it's unclear how much utilities for the tent will cost, adding that she will report back to the council in April with a revised outlook for all of the city's cultural facilities.

"I think the council needs a realistic picture," Winer said.

-----To see more of the San Jose Mercury News, or to subscribe to the newspaper, go to http://www.mercurynews.com.

(c) 2005, San Jose Mercury News, Calif. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

 
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