Inside the Shelved Convention Center Audit
The price tag that gets thrown around most often when it comes to the Convention Center is a hefty one: $520 million. That’s how much it’ll cost to build a dramatic future expansion. But there’s a smaller price tag that’s relevant now and gets far less attention: $36 million – the amount it’ll take to replace the building’s sail-like pavilion, patch the roof and upgrade things like elevators, a result of years of deferred maintenance.
That puts the Convention Center in the same boat as plenty of other city assets – roads, sidewalks, sewers, the football stadium, many city buildings – whose upkeep has been put off because the city couldn’t pay for it. Nor is there money right now to pay for the repairs the Convention Center will need in the near future.
The burden of that reality, to some degree, falls on the San Diego Convention Center Corporation, the nonprofit tasked with operating the building that sits on Port of San Diego land.
And in the last few years, since an organizational shakeup shifted some of the corporation’s responsibilities to the private San Diego Tourism Authority, the Convention Center’s staff has been asked to cut its budget to help pay for the growing repairs list.
That triggered an outside audit that urged millions in cuts to staffing levels and employee benefits – suggestions that have sat on the San Diego Convention Center Corporation board’s shelf. The board member who pushed hardest to enact some of those cuts recently resigned, leaving the seven-member board with three vacancies.
The $30 Million Honey-Do List
San Diego’s Convention Center opened in 1989, expanded in 2001 and is working toward another 33 percent expansion that would let it retain big events like Comic-Con and attract new ones. That could debut in 2017, pending a legal challenge.
But the building as it currently exists has a long list of needs, including $15 million to replace the fabric structure used for the building’s iconic “sails” pavilion, $7 million to make sure the current building conforms with the new expansion and $7.7 million for capital upgrades like fixing roofs, replacing filter systems and upgrading elevators.
That list is much less sexy than building new stadiums or making sure Comic Con doesn’t leave town.
The Convention Center has spent roughly $2 million a year over the last three years to help address the problem.
But last year, during the Convention Center’s budgeting process, the independent budget analyst said the city and Convention Center should identify revenue sources that would pay for fixes to the building. It suggested using bond money meant for the expansion, increasing fees, creating new revenue within the facility or trimming its operating budget.
The city gives the Convention Center Corporation a $3.4 million annual subsidy – right now $1.5 million of that goes to maintenance issues, and the rest gets sent to the Tourism Authority, which in 2012 took over a major Convention Center function: long-term sales and marketing.
The Tourism Authority Takeover
Mayor Jerry Sanders was pushing his Convention Center expansion plan in spring 2012, when he hit a speed bump. He wanted the city’s hotel owners to impose an additional tax on hotel guests to help fund the project.
Before the hotel owners’ vote kicked off, Sanders asked the City Council to approve a change to the division of responsibilities between the city-controlled, nonprofit Convention Center Corporation and the privately funded Tourism Authority (then called ConVis).
It was widely seen as a sop to the hotel owners in exchange for agreeing to finance 70 percent of the expansion.
The vote gave hotel owners more control over efforts to market San Diego as a destination and book large Convention Center clients by transferring long-term sales and marketing efforts from Convention Center staff to the Tourism Authority. The Convention Center Corporation staff kept short-term responsibilities, like filling vacancies 18 months away or sooner.
A few months later, the Convention Center Corporation board requested an outside audit of its budget to find money for repairs, and to examine whether the corporation and the Tourism Authority were duplicating work.
The Audit That Fell in the Woods With No One Around
In August 2012, the Corporation tapped a company called the PFM Group for the audit.
The mission: Identify $1 million in savings without impacting Convention Center services.
Specifically, PFM was directed to look at employee retirement plans, staffing levels and room for efficiency in the organizational chart.
Indeed, the audit found:
• The Convention Center Corporation communications department was doing the same work — printing brochures, maintaining websites — as its Tourism Authority counterpart, and most of that effort supported long-term sales. Cutting the entire department could free up $325,000 a year.
• Convention services — sort of a liaison between the Convention Center and prospective clients, providing on-site visits and building long-term relationships — could also stand to go, the audit said. That’d save $658,000 per year.
• The size of the Convention Center’s short-term sales staff merited more study – the staff’s employee-sales ratio didn’t compare favorably to other centers.
• Big savings could be found in ending or reducing the 10 percent contribution the corporation makes toward workers’ retirement packages. Nixing it entirely would save $1.1 million a year.
None of those recommendations was enacted.
Instead, the board split into committees to deal with each suggestion. Most of the committees recommended not to make the cuts. The one committee that did suggest cuts was voted down by the board as a whole.
Why the Audit Went Nowhere
Convention Center Corporation board member Cheryl Kendrick, a marketing professional who was co-chair of a task force that put together the Convention Center’s expansion plan, led the committee on short-term and long-term sales. Her committee said some overlap remained between the Tourism Authority’s and the corporation’s efforts to sell convention space.
Convention Center staff should identify $750,000 in cuts to eliminate the duplication, her committee said.
Board members Phil Blair, CEO of staffing firm Manpower, Nico Ferraro, a former labor leader and Rabbi Laurie Coskey, director of the Interfaith Committee for Worker Justice, said they couldn’t support the recommendation as written.
Kendrick said she wouldn’t amend it and pushed for a roll-call vote. She cast the only vote in favor of cuts. Blair moved for a vote to have staff “critically re-examine its organizational structure” to identify potential savings. That passed.
Carol Wallace, CEO of the Convention Center, said the audit’s recommended cuts were ignored for a simple reason: They were based on the 2011 budget, and the staff had already cut 12 positions since then.
Though it didn’t make the same cuts the audit recommended, the budget had nonetheless been trimmed since the Tourism Authority shakeup, she said.
The corporation cut three more positions in its next budgeting period, following the board’s recommendations last spring, she said.
“Given the transfer of sales and marketing, I think the board thought they were doing their fiduciary duty and it was prudent to have an outside consultant look at it,” Wallace said. “In hindsight, it’s easy to say (the audit was a waste), but we’re just happy our work was validated.”
If anyone is going to pony up for deferred maintenance, she said, it should be the Port of San Diego, not the Convention Center Corporation’s operating budget.
Craig Hoshijima, director of PFM, said in an email he wouldn’t defend the audit’s findings or discuss the numbers it used.
“I appreciate the fact you are seeking information on the study – however, I’m not able to discuss this,” he wrote. “I believe I’m aware of the dynamics involved and do not want to say anything that will offend.”
Kendrick said there’s nothing wrong with the audit’s underlying numbers.
“We approved the budget contingent of the audit,” she said. “Shortly after that vote, staff said we saved this money, we don’t need to do the audit. They had made draconian cuts, but not systemic cuts. They weren’t examining the operation.”
Ninety percent of the sales and marketing budget was devoted to long-term work, Kendrick said, so the board wanted to know how much money was being spent to raise the remaining $3 million brought in from short-term bookings.
She said her attempts to get objective answers about the budget were interpreted as personal attacks by other board members.
“There was a disagreement on the board about the role of a fiduciary agent, and I was in the tiny minority that said we should be looking at this as a business with a zero-base budget,” she said. “The people on the board are good, hard-working people, but our approach business-wise was so different, and I realized — right, wrong or otherwise — these people truly didn’t agree with me.”
Ultimately, she said, the board wasn’t willing to deal with the ramifications of giving its long-term sales and marketing functions to another agency.
“We were all in favor of the expansion, and that decision on long-term sales was seen as one step in the approval process, but did they extrapolate what that really meant? Obviously not,” she said.
She said other board members insinuated she had always wanted to privatize the sales functions, and that’s what was driving her insistence on cutting the budget.
She resigned.
“I had put in too many years and cared too much to stay if I couldn’t be effective,” she said.
Coskey, who joined the board the same month the audit was presented, said the audit’s narrow scope never made sense.
“Why wasn’t revenue generation discussed?” she said. “What was the particular relevance of these three areas? Their conclusions, in a vacuum, might have led from the results they were instructed to find.”
The board’s now going through the budgeting process for the 2015 fiscal year, and it’s still working to find ways to address deferred maintenance.
Of its three vacancies, one will be filled by the next mayor. Council offices are currently recommending appointees for the other two.
The independent budget analyst this summer recommended the City Council direct the Convention Center Corporation board to revisit the audit.
Coskey said the board is meeting with interim Mayor Todd Gloria, the Port and staff to come up with a solution.
“Mayor Gloria talks about sexy streets, well, it’s not sexy to do the sails pavilion. So we’re talking about that, and who’s obligated to do it and how to do it not on the backs of who is responsible for making the center a success.”
Correction: A previous version of this story said the Convention Center is owned by the city. The Port of San Diego owns the building, and leases it to the city of San Diego for $1 a year.
Correction: A previous version of this story misspelled Nico Ferraro’s name.