B may turn to private managers
This is the 13th in a series of articles taking a closer look at ''Plan B,'' the financing mechanism proposed by Pittsburgh and Allegheny County officials to pay for new baseball and football stadiums and the expansion of the David L. Lawrence Convention Center.
Today's installment is about the prospects for privatizing the convention center.
Q: Will the David L. Lawrence Convention Center be privatized?
A: ''Privatization'' isn't the right word, say local officials. That implies that the center, which was built by the state in 1981 and has always been owned by the state, would be sold to a private company.
That's not going to happen. What probably will happen, however, is that by the time a $267 million expansion of the convention center is completed in 2001 or 2002, the Public Auditorium Authority would assume ownership of the facility.
The big question is whether the Auditorium Authority, a joint city-county agency, will bring in an outside management company to run the center's day-to-day operations. County Commissioner Bob Cranmer, in particular, is pushing for private management.
Q: What is the Public Auditorium Authority?
A: It is a five-member agency that is expected to grow in importance. Two members are appointed by the county commissioners and two others by the mayor of Pittsburgh, with the fifth member a joint appointment. Since 1981, the Auditorium Authority has employed an executive director and a staff of 20 to 25 people to run the Convention Center, including booking, setting up and taking down the many conventions, trade shows, public shows and meetings held there.
The authority also owns the 37-year-old Civic Arena, but that facility is managed by a private company, SMG of Philadelphia. SMG also manages Three Rivers Stadium, which is owned by the city's Stadium Authority.
Under Plan B -- the $803 million city-county proposal to build a new baseball park and a new football stadium and to expand the convention center -- the Auditorium Authority will become even more influential than it is now.
It is to own both new stadiums and likely will be the new owner of the convention center. The Stadium Authority is likely to be phased out when Three Rivers Stadium is demolished, which is now scheduled to begin in January 2002.
Q: Who's running the convention center now?
A: The Auditorium Authority's 23-member staff is headed by Executive Director James Kiesel, an authority veteran who's been in charge since 1984.
Q: Why is Cranmer pushing for a new private management firm?
A: He thinks it could reduce or eliminate the center's annual operating deficit of about $3 million. Annual expenses at the center average about $6 million, but income is only $3 million. The difference is made up through an annual infusion of revenue from the county's tax on hotel and motel rooms, which raises about $14 million a year.
Cranmer is also trying to increase the amount of private financing in Plan B, which, as now structured, would get two-thirds of its revenue from public sources. Officials hope private management companies might try to outbid each other for the right to run the center, increasing the amount of private funds in Plan B.
Q: Is there a benefit to county taxpayers through lower costs of convention center operation?
A: Clearly there would be if the annual subsidy in hotel tax revenues could be cut or eliminated, but that's a big if. According to Kiesel, in order to attract many conventions, he's forced to lower or eliminate the rent he charges a group for use of the center, thus reducing his income.
Thom Connors, an SMG vice president, said about 15 percent of the convention centers in the U.S. operate in the black. Profit ''is not the norm, but it can be the case,'' he said. Even if a center doesn't show a profit, he said that through tighter management, it's possible to shave the deficit significantly.
Q: Why is the Lawrence Convention Center's deficit so high?
A: Competition between cities for conventions, meetings and trade show business is intense. Convention and meeting planners play one city off against another in an effort to save their organizations money. If Pittsburgh doesn't reduce the rent to be charged at the center, a group threatens to go elsewhere --and often does.
Let's face it, Pittsburgh isn't exactly in the major leagues of convention cities. It's impossible to compete with the attractions offered in glitzy places like New York City, Chicago, Orlando, New Orleans, Las Vegas or Atlantic City.
But with the Lawrence Center's small size -- 131,000 square feet of exhibit space, much less than Cleveland, Philadelphia, St. Louis, Louisville, Baltimore and other competitors -- and without a ballroom or adequate parking spaces or enough nearby hotel rooms, Pittsburgh is at a major competitive disadvantage.
Kiesel said he's willing to forego rent because conventions are good for Pittsburgh. They increase business at hotels Downtown as well as in Greentree, Monroeville and at the airport. Free-spending conventioneers also help restaurants, taverns, taxicabs, retail shops and other businesses.
Q: How can a private operator hope to erase $3 million in red ink?
A: ''More efficient management,'' which is easy to say but hard to do. Sometimes it can mean getting more work out of fewer employees, which could prove to be difficult, with the strong presence of unions at the center. Connors said SMG had learned much about efficient operations through its 20 years in the convention center management business.
Another way is to use better advertising and marketing to raise the profile of the center both in western Pennsylvania and nationally, thus attracting more business.
One important way to strengthen Pittsburgh as a convention destination would be to increase the number of tourist and visitor attractions -- more things like major league sports, the Heinz Regional History Center, the Warhol Museum, Station Square, the Carnegie Science Center, etc.
Orlando has Disney World, New Orleans has the French Quarter, Las Vegas has gambling -- all reasons to go there. Mayor Murphy is trying to create a ''first-day attraction'' on the North Shore -- a virtual reality amusement park, for example -- to give conventioneers more to do here, make Pittsburgh a more desirable place to hold a convention and reduce the need to discount the rental rate at the center.
Q: Who are some of the big players in the professional convention center management industry?
A: SMG is the 800-pound gorilla. It manages 27 convention centers in the U.S. and Canada which together have 5.5 million square feet of exhibit space. It manages over 90 percent of all the exhibition space currently available in the public facility management industry.
Its facilities include big-name venues like the New Orleans Superdome, San Francisco's Moscone Center, the Miami Beach Convention Center and the new convention center in Atlantic City, as well as smaller centers in places like in Mobile, Ala., Baton Rouge, La., and Grand Rapids, Mich.
There are a couple of other smaller competitors. Cranmer said that bids would be sought from more firms than just SMG, if the decision was made to bring in a professional manager. ''SMG doesn't have a lock on it,'' he said.
Q: Organized labor has had a strong presence at the convention center since it opened in 1981. How have the unions reacted to the idea of private management?
A: There is concern that a private manager might try to do away with the unions, but Cranmer and SMG's Connors say there's no reason for such fear.
''I don't see private management as a threat to labor unions,'' Cranmer said. He noted that the county had brought in a private firm to handle the gigantic task of reassessing thousands of properties in the county. He said it was using members of the Service Employees International Union for that work.
Connors said SMG worked with unions in many cities and ''we have an outstanding reputation for labor relations.''
Do you have questions about the components of Plan B? If so, send them to Dissecting Plan B, c/o Local News, Pittsburgh Post-Gazette, 34 Blvd. of the Allies, Pittsburgh, PA 15222.