Erik Burgess, Published February 10 2014
Fargodome consultant: Downtown convention center could cost more to operate
The Fargo Dome Authority received an hour-long presentation Monday detailing the economics of a new convention center, which dome officials say is needed for Fargo to remain competitive as an event location.
HVS Convention, Sports and Entertainment Faculties Consulting of Chicago analyzed the estimated cost of a new convention center, where the money could come from and what kind of economic impact such a center could have on the city as a whole.
The firm’s report found that a convention center is economically feasible in Fargo, but now policymakers must decide where the building goes, said Tom Hazinski, managing director of HVS.
Deb Mathern, president of the Fargo Dome Authority, said she’d like to make a final recommendation on Feb. 27, the board’s next meeting.
The report showed that a downtown center would likely attract more events, but it would also require hiring 15 more full-time employees. Attaching convention space to the dome would require adding only 8.5 full-time workers.
That alone makes the downtown site a more costly annual operation, Hazinski said.
With a convention center attached to the Fargodome, the dome would run an annual net operating profit of $200,000, about the same profit it had in 2012.
A convention center downtown would run at a net operating deficit of $700,000 annually, according to the report.
Hazinski told the dome authority not to be alarmed by that, though. It’s common for convention centers not to make a profit, he said.
“You tolerate these deficits because it’s creating a larger benefit for your community,” Hazinski said.
The HVS report showed that a downtown convention center would have roughly the same economic impact on Fargo as one attached to the dome.
In 2013 dollars, a convention center at the dome could bring in about $15.5 million a year to Fargo and create about 154 jobs, while one downtown could bring in $14.6 million and create 147 jobs.
Those dollar amounts include money paid directly to the convention center, plus any cash spent at hotels, restaurants and other similar businesses because of new convention traffic.
“Good news: We have a feasible project,” Hazinski said, meaning the project makes financial sense. “Bad news: Someone has to pay for it.”
The HVS report looked at a 78,000-square-foot convention space attached to the dome versus an 82,000-square-foot standalone convention center downtown.
An attachment to the Fargodome could be smaller because it would use some existing facilities, Hazinski said.
Downtown still murky
Despite the consultant report being in the final stages, there are still several unknowns about a downtown site. For one, Hazinski said they didn’t want to estimate how much a downtown convention center would cost.
He said there are too many unknowns – specifically the Second Street floodwall and a new City Hall – that would affect how a convention center is built downtown.
“(Those three projects) all have to be thought of as a single project in a way, so you can come up with overall cost estimates and figure out how each one of those components would share the costs,” Hazinski said.
He said parking downtown also remains a big question mark.
City Commissioner Tim Mahoney said how the city decides to repurpose the Civic Center and use its existing staff could also change how much a downtown convention center ultimately costs. Hazinski said his firm didn’t study how the Civic might be included.
Doug Burgum, founder of the downtown development firm the Kilbourne Group, made a pitch to the dome authority last summer to build the convention center in the more convention- and economic development-friendly downtown. He repeated his argument in an interview Monday afternoon.
“I’m still a strong believer that the catalytic impact of a downtown location will drive more private investments than a Fargodome location,” said Burgum, who did not attend the presentation.
Building a convention center onto the dome would cost about $56,160,000, according to the HVS report.
The report laid out one option for paying for it, which included taking $19 million from the dome’s reserve fund and increasing the city’s hotel, liquor, food and car rental taxes by 1 percent.
Over 20 years, 1 percent of each tax would raise the following funds, according to the HVS report:
E Hotel tax: $7.7 million.
E Food tax: $25 million.
E Liquor tax: $3.4 million.
E Car rental tax: $1 million.
These are all industries that would benefit from having a new convention center, Hazinski said.
The general public would not get to vote on these tax increases, said Kent Costin, the city’s finance director. Under state law, these types of taxes can be enacted by the City Commission using a local ordinance process, Costin said.
A 1 percent increase to the hotel tax would bump Fargo to 11.5 percent, putting it on par with Valley City as highest in the state, but Hazinski said that’s still below the national average of 13.5 percent.
The city also has the “huge advantage” of being able to use its $38 million Fargodome reserve fund, Hazinski said.
Still, a $19 million payment toward the convention center would cut the reserve fund in half, and HVS projected it would take until 2034 to restore that fund to present-day levels.
The reserve fund would dip to its lowest around 2018, when it would be at $14 million, according to the HVS report.
“You have a cushion of at least $14 million in your worst year,” Hazinski said. “But there’s no question that you’re putting that surplus fund at risk in order to fund (the project).”
Mathern said after the meeting that she wanted time to digest the data, but that it’s likely the dome authority will make a site recommendation Feb. 27.
That recommendation would go on to city commissioners, a majority of whom have said they want a convention center downtown.
Brad Wimmer was one of the commissioners leaning toward a downtown site, but after Monday’s presentation, Wimmer said there’s definitely more thinking to be done.
“We’re still in the wait-and-see,” Wimmer said, adding that he’d like a final decision to be made by the commission within the next six months.
Readers can reach Forum reporter Erik Burgess at (701) 241-5518