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Ten Years After Completion, the Economic Projections for
 The Hawai'i Convention Center Fall Significantly Short


By Sean Hao, The Honolulu AdvertiserMcClatchy-Tribune Regional News

Sep. 20, 2009--In 1995, taxpayers in Hawai'i were told a planned $350 million convention center in Waikiki would attract up to 430,000 new visitors and as much as $1.9 billion in spending by the year 2008.

The projections, which were contained in the project's final environmental impact statement, helped fuel support for the convention center that would ultimately open for business in 1998.

The 2008 numbers are now in -- and the predictions weren't even close.

The Hawai'i Convention Center attracted 71,523 out-of-state exhibitors and delegates last year and generated $368 million in direct visitor expenditures, said center operator SMG.

"There obviously were very high hopes for this project -- remarkably high hopes," said local economist Paul Brewbaker of TZ Economics.

Other goals that remain unmet include increasing demand for hotel room nights by more than 2.7 million a year and the creation of 350 full-time jobs. Last year, the center generated demand for less than half a million hotel room nights and employed 112 people, according to SMG.

The massive difference between expectations and reality appear to be a result of over-optimism combined with dips in the economy caused by the Sept. 11 attacks, the bursting of the technology bubble and the current economic downturn. High costs resulting from Hawai'i's remote location and the so-called "boondoggle" effect also have hurt the center's ability to compete with major Mainland convention centers.

Convention center general manager Joe Davis said he couldn't explain the disparity in expectations and results. However, he said the economic activity generated by the center still more than offsets its costs.

"Whatever the methodology was at the time, it is what it is," Davis said. "If you look at the actual visitor expenditures that we have generated, I think I would say it's been a success."

money losers

Convention centers generally are money losers and Hawai'i's is no exception. The convention center generated $11.5 million in revenues last year and cost nearly $15 million to operate. That means the center lost about $3.5 million, not counting $26.4 million in debt service. About $4 million a year is spent marketing the facility.

The center is operated by the state and funded by revenues from conventions and a portion of hotel room taxes.

The state still owes $267 million on the convention center, which is scheduled to be paid off in 2025, according to SMG. When interest is included, the remaining debt is about $650 million in today's dollars.

In contrast, the center generated $368 million in visitor expenditures and $36 million in tax revenues last year, Davis said.

"I think it's a fairly healthy result," he said.

What's unclear is how many of those visitors would have come to Hawai'i even if there were no convention center. According to state visitor statistics, the percentage of visitors coming to Hawai'i because of corporate meetings, conventions and incentives dipped slightly from 6.8 percent in 1998 to 6.5 percent last year.

Construction of the glass-paneled convention center was completed in late 1997, after more than a decade of debate on where to build the facility and who would pay for it. At one point, the city and state had competing proposals with one center planned for the current location and another planned for the International Market Place. Other locations that were considered included the Aloha Tower area, Fort DeRussy and the Ala Wai Golf Course.

Since opening, the center's statistics show ups and downs. During the past decade, the center has averaged 31 offshore events a year with 79 percent of those groups containing less than 3,500 people, Davis said. The center was projected to attract 60 events a year with an average attendance of 6,200 to 7,500 out-of-state exhibitors and delegates, according to the 1995 forecast.

fingers pointed

State Sen. Donna Mercado Kim, D-14th (Halawa, Moanalua, Kamehameha Heights), who was a member of the Honolulu City Council from 1985 to 2000, said state forecasts for the convention center were viewed with skepticism in the 1990s.

"On the council level, we didn't believe those numbers because they did it to justify the $350 million that they spent for the land and to build the convention center," she said. "We knew all along that it wasn't going to make money. It was going to lose money. But still we needed the facility."

Kim laid some of the blame for the center's less than anticipated activity on Waikiki hotels, which she said could provide lower room rates to attract more convention business.

Keith Vieira, senior vice president and director of operations for Starwood Hotels and Resorts in Hawai'i and French Polynesia, said hotels weren't to blame. Vieira blamed the state Legislature for moving the center's marketing responsibilities from the Hawai'i Visitors & Convention Bureau to Philadelphia-based SMG. Convention center operator SMG was given that responsibility in 2002.

Vieira also acknowledged that forecasts made in the 1990s were likely inflated.

"There's no question that the goals were lofty, but when you put together an EIS you have to put together the best-case scenario of what you think might happen," he said.

Economist Brewbaker said there's no excuse for the over-optimistic forecasts for convention center business made during the 1990s.

"The way things turn out, of course, is it's always different from the way we think it's going to be if it's not really conceived of originally in a format that's viable," he said.

"If you do public projects correctly, you are supposed to take risk factors into account, so to me there's no excuse. I don't think we really dealt with risk assessment carefully."

Reach Sean Hao at shao@honoluluadvertiser.com.

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Copyright (c) 2009, The Honolulu Advertiser

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