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The newly expanded Pennsylvania Convention Center is turning out to be a dud. With a capital D-U-D.
The $1.3 billion facility has failed to attract the convention business promised by those who lobbied for the expansion that nearly doubled the size of the facility to 974,000 square feet.
The $780 million expansion — paid entirely with taxpayer dollars — was billed as the key to growing the hotel, restaurant and hospitality sector of the local economy. A larger convention center, it was argued, would allow the city to attract bigger conventions and run two smaller ones simultaneously.
Two years after the expansion opened, amid much hoopla, it has yet to live up to expectations. Worse still, the future looks grim.
Interviews with convention center insiders, along with documents obtained by AxisPhilly, tell this story.
The center was supposed to attract several dozen major conventions each year — “citywides” as they are called — multi-day gatherings that draw thousands of attendees.
This year, the center will come close to that goal. It has 20 major conventions scheduled.
After 2013, though, the numbers drop off until 2016, when only eight are booked. This is fewer than what the center had before it expanded.
This drop in “citywides” will have an immediate and dramatic impact on the hotel and hospitality industry.
While conventioneers will pump $510 million into the local economy this year, the number will decline to $230 million three years from now, according to estimates from the Philadelphia Convention and Visitors Bureau, which books conventions into the center. While hotels will get 340,000 convention hotel nights this year, the number is projected to decline to 237,000 nights in 2016.
The problem goes deeper than declining sales.
Sources said a number of large groups that did use the center since it expanded had such a bad experience that they have either canceled or postponed plans to return. Those groups include True Value Hardware, which drew 15,000 attendees in 2012, and AORN, a national nurses group that had 14,000 members at a convention this year. One group, the International Association of Fire Chiefs, never even showed up for its event in 2012. It canceled at the last minute based on bad reports about the center from its meeting planner. Combined, these groups would have brought 140,000 conventioneers into the city.
Last week, members of the region’s hotel association went to Harrisburg to sound the alarm with legislators. Their message: bookings are behind even pre-expansion levels, and declining use of their hotels will mean fewer industry jobs. It will also mean that revenue from the 15.2 percent tax levied on hotel rooms will decline — revenue that is used to underwrite the center’s losses and pay off the bonds that were floated to build it.
“The state owns the building and we wanted to make sure the legislators from the Philadelphia area were aware of the situation and that we need to turn things around — or its going to be an abysmal next couple of years,” said Ed Grose, executive director of Greater Philadelphia Hotel Association.
What’s the main reason the convention center is failing to draw business?
Read the post-convention reports and the mantra is the same: the groups like the new convention facility; their attendees love the city, but the same complaint echoes again and again in these reports: Labor hassles, labor costs, labor overtime.
Here is an excerpt from a report on the convention center compiled by its consultant, the PFM Group, after interviewing meeting planners and others who used the center:
“It is clear that the primary issue facing the PCC — past, current, and future — is its labor supply and their ability/inability to satisfy customer expectations,” said the draft report, a copy of which was obtained by AxisPhilly. “The issue was highlighted in nearly every interview PFM conducted with internal and external stakeholders.”
It’s hard to read those words without a strong sense of deja vu. Labor problems have hurt the center since it first opened in the early 1990s. Consider this excerpt from the 2002 report done by the Econsult group for the center’s authority:
“Virtually every customer reported that PCC show labor was inefficient, hostile or both. The PCC labor situation is perceived as the worst encountered anywhere in the country at this time … and the customer can avoid it simply by choosing another venue.”
Improvements have been made since that damning 2002 report. A Customer Satisfaction Agreement was negotiated with the unions in 2003 to address some issues; an outside labor manager (the Elliott-Lewis Co.) was brought in to enforce the CSA; the center began hospitality training for workers, who were more used to the rough-and-tumble environment of construction sites.
Yet serious problems remain.
To summarize conversations with people in the convention business, the Philadelphia facility is considered too costly, presents too many hassles and cannot deliver services at a reliable and predictable cost. Convention organizers tell tales of getting bills after the fact that far exceed their estimated costs — mostly due to unforeseen overtime costs.
Since it charges union wages (carpenters cost $65.01 an hour, electricians $71.62), Philadelphia already is one of the most expensive venues for a convention — on a level with Chicago and New York and higher than competitors such as Boston, Washington, D.C., and Orlando.
Insiders say they expect to pay a premium when they come to this city — but are willing to do it because the site is so popular with exhibitors and attendees. But, the add-ons and unexpected costs are difficult to swallow and plan for.
“You have to remember that a convention provides most of the operating money for an association,” said one industry insider. “If you are a meeting planner and you come back with a bill that is 10 or 20 percent higher than estimated, you will be in trouble with your client. Very big trouble,”
On paper, this should not happen. The 2003 Customer Satisfaction Agreement is designed to prevent unpleasant surprises. In reality, it does not, critics say, because it is not enforced.
As a result, meeting planners complain, some unions load up on foremen or provide too few workers — so those who do show up can get overtime — and appear to work at a deliberately slow pace so as to assure the clock will run into the overtime zone.
One study, which compared the costs of running a similar convention in New York and Philadelphia found that on average it took longer to set up and take down a convention in Philadelphia, that crews include many more (costly) foremen, and that overall overtime costs were significantly higher. In short, it was not the basic hourly rates that made a difference. It was the add-ons.
Six unions work at the center: the riggers, the stagehands, the laborers, the teamsters, the electricians and the carpenters. While all get the blame for any hassles or inefficiencies — perceived or real — people familiar with operations at the center said five of the six unions do perform up to expectations. “We don’t have a labor problem,” this source said. “We have a Carpenters Union problem.”
The head of carpenters at the center is Ed Coryell Jr., son of the president of the Carpenter’s District Council. He failed to return phone calls seeking comment.
Pat Gillespie, head of the Building and Trades Council, which is the umbrella group for area trade unions, said the charges leveled were inaccurate and unfair.
“Do we have warts? Yes,” Gillespie said. “There are some things we could do better. There are efficiencies we could advance.”
But, he added, labor had already made numerous concessions. He said that it’s the “outsiders” (the out-of-town events contractors) and the “insiders” (the publicly paid center management) who are mostly to blame.
The problem, Gillespie said, lies not with labor but with meeting planners and other contractors who want to inflate their bills to increase their profits and resent paying union rates.
He also said the center was being used as a “political trough” and not run as a business. He was referring to the existing management of the center. Gillespie also serves on the 15-member Convention Center authority board.
The board currently is considering handing over management of the center to a private firm that specializes in running such venues. Two local firms are in the running: SMG, which is based in Conshohocken, and Global Spectacor, which is a division of Comcast.
In the past, center consultants have been skeptical that just a change in management would solve the center’s problem, and that more fundamental changes were needed. Some have called for a “unified workforce” without so many unions and the jurisdictional disputes they bring. Others have called for the center to create an in-house staff to set up and take down conventions.
The center’s board will have the opportunity to make changes this summer because the 2003 Customer Satisfaction Agreement expires in mid-July.
Gregory Fox, chairman of the center’s board, said the situation at the center was “unacceptable” and that the board was taking a number of steps to rebuild customer confidence. One is the issue of management. The other is the issue of the soon-to-expire Customer Satisfaction Agreement. He said the board also wants a policy of “billing transparency” to address Gillespie’s claim that meeting planners will keep whatever savings they will get and not pass them on to clients.
Fox declined to say what changes the board would seek in the CSA, saying it was premature to discuss it.
The problem is that while the unions may have a monopoly on the work at the center — and the political clout to keep it — the convention market is a national one. Meeting planners have a wide array of choices for venues and can vote with their feet if they are unhappy with any one locale. And right now, they are unhappy with the Philadelphia experience.
To compensate, current convention center management has had to offer subsidies to associations — in the form of lower rent and other savings — in an attempt to overcome buyer reluctance. It spent $5 million on such subsidies last year.
Jack Ferguson, head of the Convention and Visitors Bureau, has the job of selling the city to prospective convention clients. The future of the center, he said, “will be based on our ability to perform for customers in a competitive, price-value and hassle-free way.”
And Ferguson is optimistic the center can work out of its current slump and get new business in 2016 and moving forward.
But if the latest efforts to fix the problems fail, the city and state could be saddled with a $1.3 billion white elephant.