1. Cost Benefit Analysis on the David Lawrence Convention Center Presented by: Jie Hu, Dontai Johnson, Mike Niemeyer, Jin Wang

2. Major Sources of Data for the Project Contact Organization Information Contributed Kim Augustine Amey Pittsburgh Sports and Exhibition Authority Basic Cost Information Ralph Bangs, Ph.D. Center for Social and Urban Research University of Pittsburgh Feasibility Study on the Original Regional Renaissance Initiative Plan; Analyses of Benefits for the Convention Center itself Eric Montarti Allegheny Institute for Public Policy Study of the national convention market; Analysis of operating costs of current and former center Allegheny County Controller’s OfficeHotel tax, projected operating deficits, and bond debt service figures Greater Pittsburgh Convention and Visitor’s Bureau Data on bookings within next 10 years, but not much help

3. Assumptions Guiding Entire Analysis  Costs and benefits are different from that of the former Convention Center  Impact of new hotel not included  Estimating 19 year life span for new center (old center: 1981-2000)  Started analysis in 1999 when funding secured and ended in 2020  Debt service costs extended to 2035

4. Use of the Construction Funds  Construction: $318,809,298  Acquisition/Relocation/Demolition: $24,206,186  Consultant/Permitting/Legal: $2,894,608  Admin/Financing: $19,603,497 Source: Correspondence with Kim Amey, Sports and Exhibition Authority

5. Cost Markup History  1997: $262 million before design selected  2000: $330 million after Rafael Vinoly design selected  2002: $365 million after “bells and whistles” added Source: Franken, Stephanie. “Convention Center Costs Mounting” Pittsburgh Tribune Review. Jan. 10, 2003

6. “Bells and Whistles” Crank Up Costs AmenityCost Riverfront Park$8 million Waterfall and Pedestrian Walkway $4 million Glass Elevator$800,000 Fabric Ceiling$4.8 million Bridge to connect center to nonexistent hotel $500,000 Source: Franken, Stephanie. “Convention Center Costs Mounting” Pittsburgh Tribune Review. Jan. 10, 2003

7. Assumptions Guiding Cost Portion of Analysis AssumptionMethodology Social Cost of Tax Collection claimed as.25 of taxed amount by Noll and Zimbalist. BUT, assume full employment and collection cost.25 becomes.15 Controller’s office predicts a 3% increase in yearly convention center operating deficit New Operating Deficit = Predicted Operating deficit - $3,000,000 (old center’s average deficit) Hotel taxes are collected for all those liable. However, county has had delays in collecting revenues from this tax. N/A Debt service on bonds from a combination of 2% hotel tax increase and a portion of the original 5% tax increase Took the projected number for debt service at face value from the Controller’s office

8. Initial Cost Item19992000200120022003200420052006 State Contributions1493000000000000 Additional State Contribution250000000000000 Auction Proceeds1509950000000 Insurance Proceeds20757400000000 Pittsburgh Philanthropic Support52040000000000 Interest Earnings33510420000000 Social Costs of Taxation from State Contribution261450000000000 Bond-Related Costs Debt Service on Bonds for Construction0830055685500008864583918333395262501004083310401250 Principal Repaid on Bonds for Construction00000000 Excess Operating Deficit Costs Excess Convention Center Operating Deficit Beyond Old Center0-2930757 - 1888857 - 1237292-402298-25695154137204953 Social Costs of Taxes to Offset New Operating Deficit0000008120.5530742.95

9. Initial Cost (cont.) Item201920202021203320342035 State Contributions000000 Additional State Contribution000000 Auction Proceeds000000 Insurance Proceeds000000 Pittsburgh Philanthropic Support000000 Interest Earnings000000 Social Costs of Taxation from State Contribution000000 Bond-Related Costs Debt Service on Bonds for Construction13780000 12729167127500001062500 Principal Repaid on Bonds for Construction00000193400000 Excess Operating Deficit Costs Excess Convention Center Operating Deficit Beyond Old Center211996-1050430000 Social Costs of Taxes to Offset New Operating Deficit31799.400000

10. Sensitivity Analysis Parameters  Used the OMB discount rate of 7%  Used a Time Declining rate as follows: 1999-2004: 4% 2005-2023: 3% 2024-2035: 2%

11. Present Value of Costs Discounted 7% Item19992000200120022003200420052006 Column Totals2112267775369799666114376272918781035926929910103090.610636946 Divisor for 7% OMB discount rate01.071.14491.2250431.3107961.402551731.500730351.60578148 Present Value for Each Year2112267775018503.74581810062261416699009.66608882.086732115.826624155.34

12. Present Value of Costs Discounted 7% (cont) Item201920202021203320342035 Column Totals14023795.413674957137800001272916712750000194462500 Divisor for 7% OMB discount rate3.869684464.140562374.430401749.9781135410.676581511.42394219 Present Value for Each Year3624015.223302681.083110327.421275708.781194202.4717022363.8 Present Value of Costs => $372,926,556.10

13. Present Value of Costs By Time Declining Method Item19992000200120022003200420052006 Divisor for Time Declining Rate01.041.08161.1248641.16985861.21665291.19405231.22987387 Present Value for Each Year2112267775163268.27615860167806347506065.57618688.118461179.288648810.46

14. Present Value of Costs By Declining Method (cont.) Item201920202021203320342035 Divisor for Time Declining Rate1.806111231.860294571.916103411.960676031.999889552.039887344 Present Value for Each Year7764635.497350963.237191678.666492233.696375352.0795330019.38 Present Value of Costs => $577,401,589.9

15. Assumptions of Benefit Analysis 1. The elasticity of hotel demand to derive social cost of hotel tax is 0.9. Because of tax increase of 2% from 5% to 7%, there should be a 1.8% decrease in occupancy. So hotel spending is 98.2% of the original data. 2. Because nationwide convention market is not increasing, and there is a 31.16% total increase of available space in the top 50 convention centers nationwide, we assume that there will be 31.16% fewer conventions coming to Pittsburgh than in 1990s. So hotel spending is discounted by 68.84% then. 3.All items besides hotel spending are discounted by 68.84% too.

16. Construction Job Benefits Construction worker’s annual salary => $43,981.60 Number of workers from 2000 to 2003 => 200 Total benefits at 7% Rate => $24,761,991.31 Source: http://ci.ftlaud.fl.us/jobs/01_positions/67-559-07.pdf Total benefits at Time Declining Rate => $26,290,371.56

17. Convention Center Non-Construction Benefits YEAR1999200020012002200320042005 Hotel0051483756800054864922210300900 Restaurant0054903697254738925977211024106 Entertainment00822741.3108663913815841645483 Retail002767402365506046471475534805 Local transit00388932.2513684.1653112.6777864.5 Other003296772435801955825496643797 Total New Spending0017914591236681943017338735926955

18. Convention Center Non-Construction Benefits (cont.) YEAR2014201520162017201820192020 Hotel10300900 Restaurant11024106 Entertainment1645483 Retail5534805 Local transit777864.5 Other6643797 Total New Spending35926955

19. Benefits Using Net Present Value Methods Discounted to 1999 Using OMB Rate at 7% => $350,344,036.20 Using Time Decline Rate => $500,502,843.10

20. Grand Total with OMB Rate Discounting Benefits:350,344,036 Costs: 372,926,556 -22,582,520 -

21. Grand Total with Time Decline Rate Discounting Benefits: 500,502,843 Costs: 577,401,589 -76,898,746 -

22. How Does a City Save Face? “Often there’s additional public investment to try to save the convention center that was supposed to save downtown. The quest to redeem a non-functioning convention center often ends up putting the public sector into the hotel business.” -Heywood Sanders, Ph.D., University of Texas-San Antonio Source: Bromley, Hank. “Convention Center Follies: An Interview with Heywood Sanders.” ARTVoice. 03/23/00.

23. THANK YOU