To Expand the Convention Center or Not?

Illustration by Jason Stout

In March, City Council voted unanimously to move forward on a plan to expand and redesign the Neal W. Kocurek Austin Convention Center, along with additional investment in and redesign of the surrounding southeast quarter of Downtown, now dubbed the "Palm District." In its grand – although still very tentative – conception the Convention Center expansion would not only accommodate more and larger local, state, and national gatherings, but would also create new public spaces for Austinites within a more pedestrian-friendly and inviting urban landscape, and mark a major breakthrough in bridging the gap between Downtown and adjoining East Austin.

Beyond that, Mayor Steve Adler and the plan's supporters say, the project – funded primarily by a 2% increase in the city's share of the Hotel Occupancy Tax paid by visitors to Austin – would provide additional support for local music and the arts. It would also indirectly create a new funding stream to address Downtown problems like homelessness through a proposed Tourism Public Improvement District (PID) that's been agreed to in principle by the hotel industry in return for Convention Center expansion. Adler has called the plan a "win-win" for Austin and the centerpiece of his "Downtown puzzle" strategy to fund the interlocking needs of the city center without further raising property taxes.

But the plan's opponents – now aligned behind a political action committee called Unconventional Austin – denounce the project as a boondoggle benefiting only Down­town hotels and the "failing convention industry." On Friday, they submitted 30,000 signatures (10,000 more than required) to force a November referendum on a proposed ordinance that would not only block Convention Center expansion but, they insist, liberate Austin's HOT revenue – at present, nearly $100 million annually – for a wide variety of public purposes: "live music, the arts, culture, parks, environmental features, and our heritage," and even a specialized Downtown transit system. This, according to the city's lawyers and industry experts, flies in the face of state law that tightly regulates how local HOT revenue is used, a claim Unconventional Austin says is overstated if not complete nonsense. While the rhetoric is now heated and polarized, both sides profess to share the same goal of sustaining and enhancing Austin's cultural, natural, and economic fortunes – the energies that keep the city's heart beating.

The Palm District To-Do List

Some see Council's action on the Convention Center as a final, if abrupt, approval of a project that has been discussed on the dais for several years. In fact, the 27-page Palm District resolution, as adopted by Council on May 23, is both very broad and still quite exploratory. Bristling with dozens of prefatory and explanatory "whereas clauses," the resolution directs City Manager Spencer Cronk and city staff to (among several other actions):

• Negotiate with Travis County (the Palm School's current owners) over a jointly public future of the Palm School and the surrounding site (for the county's response, see "Palm School," July 19);

• Audit and provide a report on the Rainey Street District Fund, created to earmark city fees to underwrite public works around Rainey Street and the Mexican American Cultural Center;

• Explore using HOT funding for the designation, support, and wayfinding of a Fifth Street Mexican American Heritage Corridor;

• Initiate research into design, financing, risk assessment, and related matters for a major expansion and redesign of the Convention Center, to include "not only additional convention space but also removing existing elements to create and enhance public space, place-making, and connectivity within the Palm District, especially along Second Street, Waller Creek, and Palm Park";

• Prepare to create a Tourism PID in order to "generate revenue that would make available funding ... to help address homelessness in Austin";

• Undertake the construction projects necessary in an environmentally sound way and with high worker pay-and-protection standards (under the city's existing Green Build­ing/LEED and Better Builder programs);

• Initiate a process to create a Palm District Master Plan (boundaries undefined, but containing the Convention Center, Palm School, and Rainey Street), involving numerous stakeholders; and

• Update the existing Waller Creek District Master Plan, which overlaps the proposed Palm District.

That's an abbreviated summary of the resolution, which anticipates Cronk returning to Council with a potential "work program" by Aug. 1 in anticipation of the FY 2020 budget. As concerns the Convention Center itself, the resolution directs staff to focus on "Scenario 5" in the UT School of Architecture report on the subject, commissioned by Council and presented back in April. This is the most ambitious (and potentially most expensive) of all the scenarios, in which the current Convention Center is, in phases, demolished and replaced on a footprint that captures the blocks to the west, across Trinity Street, and frees up the eastern edge of the property. According to the resolution, Scenario 5 "best embodies the desired re-envisioning of what a convention center can be.

Council Member Kathie Tovo, who authored the Palm District resolution, told the Chronicle that Scenario 5 is "the only one that changes the conversation about the possibilities of a Convention Center, and provides a framework to improve that whole area of Downtown. It also allows flexibility, so that if the current model of a Convention Center changes, it can be adapted for various other public uses, other than conventions. ... If we do it well," Tovo said, "I think a Convention Center expansion could be beneficial."

The Austin Convention Center (Photo by Jana Birchum)

Don't Spend It All In One Place

So an expanded and redesigned Con­ven­tion Center is far from a done deal, and Council's settling on a path toward Scenario 5 has had the early consequence of giving opponents a 10-digit target to shoot at. Although no financing plan or even explicit cost estimate has been presented, the UTSOA study – "Frameworks for Place­making," prepared by the school's Center for Sustainable Development – reflects that a full buildout of Scenario 5, with its complete rebuilding and reorientation of the Con­vention Center, neighboring public spaces, mobility improvements, and other amenities, could cost as much as $1.2 billion.

The opponents quickly seized on that price tag as proof of a boondoggle and voters will repeatedly be hearing that number (or higher ones, up to $2 billion) as we approach a November referendum. Uncon­ven­tional Austin claims that cost represents a waste of public resources that would and can be better spent elsewhere.

According to Lucas Burdick, who managed the petition drive for Unconventional Austin, the group gathered "almost 30,000" signatures – duly submitted to the city clerk on July 12 for review, which is likely to validate at least the 20,000 required for a citizen initiative. The UA petition, as posted on the PAC's website, asked for signatures in support of this basic plea: "Prioritizing the use of Austin's Hotel Occupancy Tax revenue for the promotion and support of local cultural, heritage, and environmental tourism; requiring voter approval and public oversight for significant expansions of the Austin Convention Center; and establishing other local requirements for the use of Hotel Occupancy Tax revenue." (Accord­ing to numerous reports, the standard petitioner pitch was, "Do you support more money for local music and arts?")

Under the city's rules for enacting citizen initiatives, Council will either approve on its own or put to the voters in November a two-page ordinance that if enacted would, according to UA, accomplish the following:

• Mandate 15% of HOT revenue for cultural arts and 15% for historic preservation (already current law and practice);

• Cap HOT revenue spending for Conven­tion Center operations and debt service at five times the Center's own earned revenue, or 34% of HOT collections (whichever is greater – UA's numbers are factually disputed by the city);

• Allocate remaining HOT funds for the "Cultural Tourism Industry," including advertising and promotion (the function of Visit Austin, the city's HOT-funded tourism bureau), creating a Downtown transit system (elsewhere described as akin to Capital Metro's old Dillo trolley circulator), and constructing and operating other "cultural tourist venues";

• Require another public referendum for any expansion or redesign of the Convention Center greater than $20 million, and prohibit any removal of real property from the tax rolls (both subtractions and additions are contemplated in Scenario 5); and

• Ban "lobbying" by Visit Austin (or a similar agency) and require its practices to abide by the city's Equity Assessment tool.

As with the Palm District resolution, there's much more detail in the UA draft ordinance, which many petition signers have likely not read. As with other ordinances put on the ballot in recent petition drives (by some of the same people involved with UA), it has not been reviewed by city legal staff or Council-appointed boards and commissions.

Attorney Bobby Levinski, a petition supporter who was consulted on the drafting "to make sure whatever was put out there was legal," says the main intention of the ordinance is to require a public vote on any expansion, "as has been the standard in the past," and to increase "transparency" for the city's proposal.

"We were trying to make it as plain as possible," Levinski said. "And there are also fact sheets [several posted on the UA website] to go along with it."

On Monday, July 15, the PAC filed its first campaign finance reports, showing that it's spent $131,000, mostly on direct expenses for the petition drive. Unconventional Austin reported $126,000 in contributions and $35,000 in loans, with major funding sources including the Save Our Springs Alliance and its executive director Bill Bunch, Community Not Commodity leader Fred Lewis (a driving force behind the anti-CodeNEXT Proposition J effort in 2018), Planet K's Michael Kleinman and his nonprofit foundation, and activist investor Brian Rodgers, each of whom put $10,000 or more into the effort.

How would a Convention Center expansion produce the Downtown transformation its proponents seek? This graphic from the "Placemaking" study by UT School of Architecture's Center for Sustainable Development illustrates the potential buildout of Council's preferred Scenario 5. The existing Convention Center (A) would first be replaced by a new building on the "Western Parcels" across Trinity Street (C), then demolished and rebuilt as a mixed-use complex with both convention facilities and (privately developed) offices or hotel towers. This would open up space around Palm Park (B) and Palm School for public use along Waller Creek, leading down to Lady Bird Lake and likely a new bridge (F) across to the redeveloped Statesman site. To the north, Capital Metro is rebuilding its Downtown Station (D) in front of the Hilton block – which the city owns – and Brush Square (E). The green volumes in the graphic represent what could be built on nearby private land as the Convention Center reboot ripples southward to Rainey Street (G) and east to Saltillo (H) across a depressed and capped I-35 (I).

An "Outdated Business Model"?

Those on the other side are not convinced that holding an election is even viable, since (in Adler's words) "we would be adopting by ordinance things not allowed by state law." Jim Wick, the former mayoral aide who has organized a PAC to oppose any Unconventional referendum, described UA's intentions for reallocating HOT revenue as "built on a wing and a prayer," citing legal advice from city attorneys and the Texas Municipal League. (Wick's "PHAM" PAC – an acronym for Palm School, Home­lessness, Arts, and Music – also filed a campaign treasurer appointment on July 12.)

Since the UA ordinance would cap annual Convention Center funding at 34% of HOT revenue and maintain the city's current 15% each for cultural arts and historic preservation, that would leave (in theory) 36% of HOT revenue available for what the ordinance calls the "Cultural Tourism Industry": "Austin's unique and diverse culture, arts and music, historic preservation, parks, environmental resources, and locally owned businesses." It's not clear how these categories differ from "cultural arts" and "historic preservation" as defined by UA's ordinance or by state statute, or how they would be used to support the construction of additional performance venues or a Downtown transit system.

Unconventional Austin supporters insist Council has been much too timid in its legal approach to HOT spending, and that they could and should allocate much more HOT revenue to uses other than the Convention Center, as they claim is the case in other Texas cities. However, TML – the lobbying arm of those cities – agrees with Austin's leaders and lawyers that this would be illegal on its face. Wick says such a move would invite the state to step in and begin dictating the city's options. "There are people at the Legislature eager to abolish the HOT altogether," said Wick. "How long would they allow that to stand? There's a whole ecosystem of local organizations that [currently] depend on HOT money for cultural arts."

Other than Burdick, who says he's UA's only paid staffer, the PAC's most visible spokesperson has been John Riedie, a member of Austin's Tourism Commission. (Riedie is also the executive director of the Austin Creative Alliance, which is a beneficiary of the city's HOT cultural arts funding, but he says the ACA takes no position on the issue and that his advocacy is entirely as a tourism commissioner.)

In frequent emails and a video to UA supporters and observers, Riedie insists the proposed expansion is unnecessary, and no more than a giveaway to the "failing convention industry" and the "multinational hotels" that benefit directly from it. He cites UA's base claim that convention attendees account for only 4% of HOT income, while nearly 70% of HOT revenue is allocated to the Convention Center; both figures are hotly disputed by city and hotel sources (who say convention revenue and HOT spending are both more like 50% of each total). He says that earmarking HOT funding to Center expansion for another 10 years or more will threaten existing cultural arts and preservation programs, as well as drain resources from other city priorities.

"We're competing with other cities for conventions based on an outdated business model," Riedie says. "That means we're paying conventions to come here." He cites industry-standard financial incentives, or "buy-downs," granted by the Convention Center for major convention business. Riedie insists that the HOT revenue could be spread in more creative ways, including perhaps even direct payment of musicians and artists to produce the cultural content that really drives Austin tourism. (That's not explicit in the ordinance, but it's a common topic of public discussion; HOT revenue already funds the city's current cultural contracts with arts organizations.) "We're way behind the curve on this," Riedie said. "We could do massively more."

In that vein, Riedie said he believes the most common, stripped-down petitioner's pitch – "Do you want more money for music and the arts?" – is entirely legitimate. "That reflects what's in the ordinance," he said. "It's about balancing and diversifying our tourism ... to prioritize the promotion of live music and small business."

Perhaps surprisingly, Riedie says he actually supports the Palm District resolution and its re-visioning of the entire Convention Center area, provided the city devises a financing plan that doesn't rely so heavily on HOT revenues. He says he helped work on the resolution and would even support expansion "with a different financial plan." (The Council resolution contemplates possible public-private partnerships or other investment models, which would be thwarted by the provisions of the UA ordinance.)

That might explain Riedie's March vote as a member of the Tourism Commission to approve the Visitors Impact Task Force report that endorsed Convention Center expansion – a 9-0-1 vote that preceded unanimous Council approval of the Palm Dis­trict resolution. Riedie says now that he's somewhat regretful about what he calls his "trash vote." "Maybe that was a mistake," he says, "but it was clear it was going to pass. ... I knew my vote was of no consequence."

The Power of Other People's Money

City officials say Riedie and Uncon­ventional Austin are either simply mistaken or, to whatever degree, actively misleading the public about the laws governing HOT and the city's options for spending more on arts and culture. "We've maxed out that spending under state law," said Visit Austin president and CEO Tom Noonan. "The only way to increase the bucket of dollars available for cultural arts and heritage preservation is under the law allowing us to increase the HOT for expansion of the Convention Center, which the hotels are willing to do. ... Either we do it this way, or we don't do it."

John Riedie (Photo by David Brendan Hall)

"This way" means increasing the city's 7% HOT levy – the current rate – to 9% (or 17%* [correction below] total, including the revenues that the state keeps for its own tourism marketing). Whatever else it does, state statute explicitly allows this increase for only "construction of an expansion of an existing convention center facility." (Levinski insists that other provisions of state law allow much more flexible HOT spending; city officials respond, "Not so.")

Increasing the size of the city's HOT collections would also increase the dollars earmarked for cultural arts and preservation (that is, 15% of a larger total). Beyond that bonus, the hotels have agreed in principle to assess an additional 1-2% charge on room rates to fund the new Tourism PID; a 20-40% portion of those funds could go to the city for social programs – specifically, a badly needed new funding stream to address homelessness. Originally, the Tourism PID was expected to begin with Convention Center expansion, but Adler last week said the hotels have agreed on a sooner start date – with its continuation dependent on moving forward with expansion.

Scott Joslove, president and CEO of the Texas Hotel & Lodging Association, confirmed that the hotels are ready to initiate the PID, with the city's 40% share including both social services funding and the Convention Center's annual "buy-down" costs for conventions (estimated at $2 million). Joslove acknowledges his comments will inevitably be seen as reflecting a vested interest – but that as an attorney in various capacities for various organizations, he's worked with the HOT law for 25 years, and "the law is the law." He reiterates that Austin's spending on cultural arts and historic preservation is already at the maximum level allowed by statute, and that "environmental tourism is not an eligible category" for HOT spending. More particularly, he dismisses the notion of using HOT to underwrite a Downtown transit system – the only permissible such use, he says, is a dedicated hotel visitor shuttle to specific tourist attractions.

Unconventional Austin argues that the Convention Center is a money-losing business rather than a piece of public infrastructure, but both Joslove and Noonan argue that the Center provides a sustainable and consistent base for a tourism industry that the city wants to leverage to fund public services. Visit Austin's purpose, says Noonan, is "maximizing HOT revenue" through tourism, and expanding the Center is central to that goal. "We lose about 50% of our convention leads because the Center is either too small or sold out," Noonan said. "And one out of three Downtown hotel room nights is a convention room night ... and keeping Downtown full benefits the entire hotel market." He adds that the hotel and tourism industry is the city's third-largest employer, with approximately 129,000 employees. (Hospitality jobs are also seen as particularly valuable in the city's workforce strategies, since they allow advancement for workers without college degrees.)

Presumably, Austin's hoteliers, in supporting expansion and a HOT increase, agree that they can't rely solely on Barton Springs, Antone's, and BBQ to fill their rooms. Speaking of both the HOT and the Tourism PID, Adler noted, "As a rule, people don't like to tax their own products," but the hotels see this as an opportunity to build business and improve the city. While other pieces of Adler's "Downtown puzzle" – Waller Creek, affordable housing, bond funding for the MACC – are already moving forward, the mayor sees the Convention Center plan as a virtually painless, risk-free opportunity to reimagine a Downtown centerpiece and garner resources to address city priorities.

While financial estimates remain preliminary ("We'll get better numbers"), Adler believes the expansion should eventually mean "access to $350 million in tourist money that we can't otherwise access. People want that – they want a dedicated funding stream for homelessness, music, live music and musicians ... especially in a world where the Legislature has capped other sources [as with the new property tax revenue cap]. We can access those tourist dollars to fund the things we need and want."

Citing Council's unanimous vote for the Palm District resolution, Adler said he believes that Unconventional Austin and its allies represent the same "do nothing" voices that have opposed many major city efforts in recent years (soccer, CodeNEXT, etc.). "It's a small group of people that are 'status quo,' 'do-nothing' voices," Adler said. "My sense is that the city is moving past those people." While he's wary of an off-year election in which few people will vote, he believes that when the truth is presented, voters will reject the UA initiative, as they did Propositions J and K in 2018. "People are going to hear what is true and what is not true about the Convention Center, and know that repeating something false doesn't make it true. ... If they know what is actually true, people will vote to support this project."

Comin' In HOT

If you come to Austin and pay for a place to sleep – hotel, motel, hostel, short-term rental, whatever (but not a hospital or nursing home) – for less than 30 days, your bill will include a 15% charge for Hotel Occupancy Tax. Six percent of the 15% goes to the state's coffers via the Comptroller of Public Accounts; most of Texas' $550 million annual HOT collections go to general revenue, but some is earmarked for the state's tourism promotion ("It's like a whole other country!").

The rest is Austin's to keep, but Texas cities (and about 70 counties with HOT authority) cannot use HOT funds as general revenue, only to promote travel and tourism, including conventions. The Legislature has, over the decades, created different maximum HOT rates for cities and counties in response to the entreaties of local lawmakers and lobbyists; Austin's is 7%.

On top of that is 2% specifically earmarked to service debt from the first Convention Center expansion (and a little bit for the Waller Creek flood control tunnel) as a "venue project," a special local HOT levy originally crafted to fund a new stadium for the Houston Astros. "Venue projects" have to be approved directly by citizens, which we did in a referendum in 1998; the current expansion plan assumes we continue collecting that 2% once current bonds are paid off. (The city's 2018-19 budget indicates Austin is carrying $82.3 million in debt for the Center.)

There are some specific one-off ways in which cities around Texas have been allowed by the Lege to spend HOT revenue – for example, some coastal communities use it to clean the beaches – but none of those apply to Austin. So, of the 9 cents Austin receives of each hotel dollar, the city currently allocates 4.5 cents to the Convention Center (for both operations and debt service), plus 2 cents for the venue project (just debt service), plus 1.05 cents each for cultural arts and historic preservation, with the 0.4 cents remaining going to Visit Austin. Those are the numbers that the city says are fixed by state law and Unconventional Austin says are fungible.

With current HOT collections at almost exactly $100 million, it's easy to do the math in your head. That would change if Travis County gets into the game with its own HOT (see "Palm School," July 19); state law caps the total overlapping HOT in any one place at 17%. – Mike Clark-Madison

The SXSW Factor

As most Chronicle readers know, South by Southwest – operators of the SXSW festivals and conferences – is historically connected to the paper, although as a business it's owned and operated separately. SXSW is by far the largest event that takes place at the Austin Convention Center and is directly interested in what happens there. In response to reporting questions, SXSW Chief Logistics Officer Mike Shea said the company is "solidly in favor of the latest [expansion] proposal," adding that "city planners were thorough about soliciting stakeholder input," including that of SXSW.

Shea said expansion would also "significantly improve those blocks by opening up parkland to the east and creating a more user-friendly experience for the general public." While providing more room for SXSW and other conventions, an expansion would also "drive more hotel occupancy tax, which provides grants to local arts groups."

Shea added, "We're excited about the possibility of adding green spaces and walkways to the area. This plan and footprint improves the street­-level exterior as much as the interior." – M.K.