In December 2010 I wrote a report for the Canadian Centre for Policy Alternatives – Nova Scotia entitled Convention Centre in Nova Scotia: Economic Wellspring or Bottomless Pit? It concerned the proposal to replace the current World Trade and Convention Centre in Halifax with a new convention centre situated within a complex of hotel, restaurant, retail, and office tower space known as the “Nova Centre.”
As I wrote at the time, it was not my intention to be an opponent or proponent of the project but simply to drill deeply into its business case and provide a critical analysis of its potential costs, benefits, and associated risks. It’s a detailed report that examined the design, site, convention centre landscape in Canada and the United States, ownership and financing scenarios, and — most importantly — the financial details of the business case. I concluded that:
“Reasonable and prudent financial scenarios indicate that a new convention centre project will lose money and could stay afloat only with a substantial infusion of public money on the order of $8.7 million per year, or $218.4 million over the 25-year term of the project.”
At the time, only the provincial government had committed to the project. Since then, the municipal government of the Halifax Regional Municipality (HRM) has also come on board (the new ownership/management structure of the centre will involve a co-venture between province and municipality) and the federal government also committed money to it from a federal infrastructure fund.
The project was launched with great fanfare (see my article for rabble.ca, Convention Centre delirium: Politics, economics, development and hallucinations) by all three levels of government in an orgy of self-congratulation that saw then Defence Minister (and Conservative Party godfather for Atlantic Canada) Peter MacKay promising that the centre would, “take the ‘no’ out of Nova Scotia.”
Public support: Distinctly tepid
The project has never been supported by a majority of Nova Scotians. A 2010 online poll by The Coast found that 78 per cent of respondents opposed the project while 22 per cent supported it. A poll conducted by Marketquest-Omnifacts Research in 2011 found that 52 per cent of respondents opposed the project whereas 42 per cent supported it. Another poll conducted by the Foundation Research Group at the end of 2011 found that 50 per cent of Nova Scotians were either strongly or somewhat against the project, whereas 42 percent strongly or somewhat opposed it (8 per cent had no opinion).
• 86 per cent of respondents felt that the provincial government should get an independent second opinion before spending public money on the project. Only 14 per cent felt that the province needs a second convention center without delay.
• 89 per cent of respondents felt that the $51 million federal contribution for infrastructure could be better used for other projects such as roads, bridges, or public transport.
• 59 per cent were opposed to the Halifax city council changing its bylaws (as, Rank Inc., the developers, have asked them to do) in order for the convention centre to be built.
Not exactly a ringing endorsement.
Will the ship float?
Since I wrote my original study three-and-a-half years ago, there have been some substantive improvements to the project. Originally the $159.2 million of public money slated to go into the project would have resulted in no public equity. This has now been changed so that the municipal/provincial entity (the Halifax Convention Centre according to recently introduced provincial legislation) that will run the centre, will essentially be able to lease-to-own, able to buy out the facility after 25 years at a pro-rated cost, or purchase it outright for $1 after 30 years.
Also as a result of criticism and public input, the design of the Convention Centre has been modified, bringing the entity out of the basement of the Nova Centre (where it had originally been sited) to the ground level of the complex. This at least offers the opportunity to make some kind of distinctive architectural statement with the project, a complete impossibility in the case of a facility located underground.
That said, ownership, design, view planes, bylaws, and every other factor aside, the proposal stands or falls on the basis of its business case. Is a new convention centre actually required? And if built, do reasonable and prudent financial scenarios indicate that the enterprise can break even? Even close to even? My analysis cast doubt on this, and even Nova Scotia Auditor General Jacques Lapointe in 2012 expressed significant reservations, saying “We expected a much more comprehensive analysis supporting such aggressive growth targets.”
It’s clear that the centre itself will lose money — virtually all convention centres in North America do. However, is there a reasonable chance that the economic spin-off can at least compensate for the loss?
A recent article by Paul McLeod examining the economics of the newly constructed Ottawa Convention Centre (which stacked up favourably against the proposed Halifax Convention Centre in my 2010 review) provides a sobering reality check. Despite a far better “signature” design and similar levels of public funding, optimistic projections of the business that the new convention centre would attract have proved unfounded. Rather than boosting attendance from 80,000 visitors per year (in 2006-2007) to 160,000, attendance has instead fallen sharply to 43,850 in 2011-12 and 54,400 in 2012-2013.
These are bleak numbers and are apparently indicative of the convention centre business in North America as a whole. The most recent trends from the Centre for Exhibition Industry Research show that from 2000-2011 convention or exhibition space supply in North America increased by 35.4 per cent while attendance declined by 1.7 per cent. The laws of supply and demand being what they are, it doesn’t require vast economic acumen to understand that convention centre profitability will be in decline.
Although HRM Mayor Mike Savage has said, “I have confidence the convention centre in Halifax will be a success. Three levels of government invested in it and did their due diligence,” the unfortunate thing is that they did not.
Dam the torpedoes, full speed ahead!
“It’s true we’re on the wrong track, but we’re compensating for this shortcoming by accelerating.” — Stanislav Lec
Eyes wide shut, one has to ask why, in the face of such dodgy financial prospects, do communities like Ottawa, Halifax, Fredericton, Charlottetown, etc. carry on investing in such developments? What is the will-o’-the-wisp that draws otherwise sane people to dance on the edge of this financial precipice?
The siren song is always the same; we’ll build a facility that attracts high-rolling international delegates from far and wide and they will come, spend money hand-over-fist on accommodations, restaurants, and various chotchkies that will create local employment and generate revenues — and resulting tax revenues for all levels of government. They will, moreover, be so besotted by Ottawa or Halifax or Fredericton or Charlottetown that they will linger on as tourists while continuing to spend money — and will then return, families in tow, to spend yet again.
As a dream, it’s not such a bad one, but the problem is that everyone else has had it as well, and with convention centre space growing markedly, and convention attendance static or falling, competition is so cutthroat that some convention centres have taken to offering their facilities for free simply to lure events to their communities. The temptation is to believe that “build it and they will come.” That we will prove the exception to the trend, that delegates will descend in throngs. As the Ottawa Convention Centre illustrates, in the face of market realities you can’t wish your way to such outcomes.
Where do we go from here? HRM councillor Waye Mason has observed that the “ship has sailed.” A massive orifice was excavated in the centre of Halifax that, as I write, is being transformed into a multistory parking garage that will underlie the Nova Centre development. Former NDP member of the Legislative Assembly (MLA), Howard Epstein asks, “Surely we can get out from under this terrible boondoggle.”
Save the View member Alan Robertson has an interesting suggestion: pay the developer for the three story parking garage and call it a day. Then solicit ideas for useful things that could be done on the site. Downtown Halifax urgently needs parking space and the site is a prime location. What other interesting developments could take place there?
There would, of course, have to be compensation for the developer for the work done to date, but whatever the cost, Robertson argues it would be significantly less expensive than forking over $8.7 million a year for the next quarter of a century.
My modest suggestion to the city and province: drop anchor. Hire an independent, outside consulting company with convention centre expertise. Get them to crunch the numbers of the business case. Pay them to work jig time; it could be done in a matter of weeks, or a few months at most. Make sure that due diligence is done. Then release the results and make a decision accordingly.
While the ship has sailed there are whitecaps visible over what might be a hidden reef at the mouth of the harbour. Any mariner would know that due diligence involves getting out the sounding line and checking the waters. There’s no merit in ripping the bottom out of the municipal and provincial hull if a course correction can be made. Moreover, it will be Halifax and Nova Scotia taxpayers who go down with the ship if she flounders.