story in the Jan. 14 Oakland Press broke the electrifying news that "it
appears a deal to privatize the expansion of Detroit's Cobo Center is almost a
done deal and no local tax dollars will be used." While the details — and the
outcome — are still uncertain, the powerful potential role of the private sector in financing Cobo Center was recently discussed in "Cobo Hall: It’s Time To Sell," an article by Mackinac Center
Director of Fiscal Policy Michael D. LaFaive in the
Winter 2005 issue of
Michigan Privatization Report. The article is reprinted
Among other items, LaFaive's article discussed the findings
Mackinac Center Adjunct Scholar Robert Daddow, who is Assistant Deputy
County Executive for Special Projects in Oakland County. The developments
described by The Oakland Press suggest that Daddow’s work is bearing fruit.
Cobo Hall: It’s Time To Sell
Motown officials love big, high-profile projects and the potential for good public relations that often comes with them. New buildings suggest “comeback” and “renaissance.”
Cobo’s loss in revenue comes despite the high
prices it charges convention groups. Indeed,
Cobo loses many potential customers, including
one division of the AFL-CIO, due to the high
labor costs and elaborate rules imposed by its
unions. (Source: Detroit News, “Interim leader
blames high cost of labor for lost business,”
May 7, 2004.)
They can also become “expensive” and “controversial.” Such is the case with Mayor Kwame Kilpatrick’s original desire to build a new Detroit convention center. Mayor Kilpatrick and his allies decided in June that the
proposed $1.3 billion project would be too expensive, even if they charged a percentage of the costs to county and suburban governments under the rubric of “regionalization.”
Now they are focusing on expanding the existing Cobo Conference Exhibition Center at a cost of between $650 million and $665 million. This project would most likely require an additional sales tax on food and beverages
or some other tax in addition to the one already imposed on hotels in Wayne, Macomb and Oakland counties to finance the debt on Cobo. The tax might also include a broader base of counties, such as Livingston, St. Clair,
Washtenaw and Macomb. Reports indicate, however, that Oakland County Executive L. Brooks Patterson won’t sign on to any deal that involves increasing sales or property taxes.
But neither Detroit nor the region needs new taxes, especially when most of the people being taxed would pay for a center that they would not directly benefit from. The city would be better off scrapping plans for an expanded government-owned facility and selling the Cobo Conference/Exhibition Center to the highest bidder.
Cobo was built in 1960 and expanded to 700,000 square feet in 1989. It hosts scores of events each
year, including the North American Auto Show. The current proposal to expand the facility to 1 million square feet of contiguous exhibition space is an attempt to entice up to five additional groups to schedule events at Cobo each year.
There are several problems with this approach. To begin with, the city’s treasury is already straining to meet its commitments, and convention centers are not known for producing profits. Even among money-losing facilities, Cobo stands out for its large annual losses. According to C.H. Johnson Consulting Inc., a professional convention consulting company, Cobo’s scheduled fiscal 2004 deficit was $19.7 million, and this figure is likely underestimated because the report does not account for administrative costs. Expanding the center to attract new business is to gamble in a very risky game after a run of losses.
Nothing says a convention center must be government-owned. In contrast to Cobo stands the Novi Expo Center, a privately built and operated convention center in metro Detroit.
The Novi Center has been in the news this year, because it has announced that it will build a new $18 million, 320,000 square-foot expo center with 2,500 parking spaces. In a June 29 Detroit News article, Blair
Bowman, executive director of the Expo, said that one of the biggest challenges in preparing for the new Expo was fighting off rumors that it would be government-funded. “We’re doing it privately,” he insisted. “What
we’re doing is something that would normally have to be subsidized by the taxpayers.”
Mayor Kilpatrick should take note. There may be private-sector entrepreneurs willing to build a Detroit convention center at no cost to citizens.
Robert Daddow, Oakland County assistant deputy county executive and an adjunct scholar with the Mackinac Center for Public Policy, has studied Cobo and the mayor’s original proposal to build a new convention center. He reports, “(the) preferred solution is to secure a facility owned and operated by the private sector.” Indeed, Daddow asserts that 39 percent of convention centers nationwide are privately owned. The private facilities exist across the country, from the 1 million square-foot International Exposition Center in Cleveland, Ohio, to the 1.2 million square-foot Sands Expo and Convention Center in Las Vegas, Nev.
During his research, Daddow also encountered entrepreneurs interested in building and operating a new convention center in Detroit. Daddow’s study recommended that by coupling a private-sector convention center with hotel and casino facilities, the city might not only entice private investors to purchase Cobo, but also allow for the development of the additional hotel space.
The city of Detroit has numerous fiscal troubles already and should not add another high-profile, high-cost project. Selling Cobo will allow Motown’s leadership to focus on the proper knitting of government: safe
streets, good schools and an efficient use of scarce resources. Involving the city in a proven money loser is no way to improve Detroit’s bottom line, especially at a time when the city needs private investment and owns a convention center in which entrepreneurs already may be interested.
Michael D. LaFaive is director of fiscal policy for the Mackinac Center for Public Policy.