Efforts to make Austin a convention destination have proven so effective that a larger event center is needed to accommodate increased demand, according to city staff.

The city is proposing to expand the Austin Convention Center westward by adding 321,680 square feet of leasable space. The expanded center, outlined in a master plan considered Nov. 12 by City Council, also could include a 3-acre park atop the facility and a private hotel.

But before such an expansion can proceed, council members want to know what alternative projects, including a potential arena, could be funded using the city’s hotel occupancy tax, or HOT tax, revenue.

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“There are some issues that have been raised by some folks as to what is the opportunity cost associated with this proposal,” Mayor Steve Adler said. “I want to make sure we’re not going to be doing anything by this vote that is going to … affect what we can do in the future.”

The expansion would cost $405.3 million and another $45 million to $50 million for land acquisition, according to the center’s director, Mark Tester, who started in 2008, six years after the last convention center expansion was completed.

“We went from having a decent-size convention center with not enough hotel rooms to having too small of a convention center with too many hotel rooms,” Tester told council in August.

Some council members said they worried they may be perpetuating a seemingly never-ending cycle should expansion plans proceed.

“I have a concern about this tourism and hospitality industry,” District 1 Council Member Ora Houston said Oct. 12. “It feels like a giant that just keeps growing and growing and has to be fed, so there's some unintended consequences. I need more time to understand if we have to continue to feed this giant.”

Arena alternative

Revenue from HOT taxes, which are used to fund the convention center and any potential expansion, has increased nearly every year, Tester said. The city anticipates collecting $76.3 million in HOT taxes in fiscal year 2015-16, up from $45.2 million in FY 2008-09 and $24.6 million in FY 1999-2000. Voters may be asked—as soon as November 2016—to rededicate a 2 percent venue tax within the HOT tax collections to expand the convention center without increasing property taxes, Tester said.

However, Council Member Greg Casar suggested in October that money could instead go toward a new sports arena, and Adler agreed now is the appropriate time to consider partnering with The University of Texas to replace the Frank Erwin Center, which will be torn down in the next 10 to 15 years, according to school officials. Adler said the venue could be replaced by a smaller on-campus venue about half the size of the Erwin Center.

“It is a timely question to answer … to learn whether or not we should be considering joint venturing with The University of Texas and the state to preserve that size venue in the city, which might otherwise go away,” Adler said during an Oct. 13 work session.

UT spokesperson Gary Susswein said there have been no formal discussions with the city so far about a potential arena partnership, and it is too soon to address any size or cost considerations. The school is open to exploring off-campus locations for a new venue, he said.

“These are the issues we will need to address as we explore the different options for a new arena,” Susswein said via email.

Case for expansion

Until a convention center expansion occurs, the facility risks losing new and existing events because of lack of availability and space, Tester said. In 2013 the center lost as many events—145—as it hosted that year, according to the master plan created by city-hired consultant Gensler & Associates Inc., which has an office in Austin. During discussions with convention center customers, Gensler principal Alan Colyer said the reaction to Austin was mostly favorable but came with a caveat.

“They all said they love Austin and love doing business here, but they are outgrowing us,” Colyer said.

Colyer has teamed up with David P. O’Neal, chairman of Florida-based consulting group Conventional Wisdom. O'Neal was involved in the last Austin Convention Center expansion in the late 1990s to early 2000s.

“You have to take a step back and look at what the Austin market was at that time,” O’Neal said. “We did mostly state business, and at the time we accepted our role as a second-tier market.”

Now Austin is a hot destination that can go head to head with San Antonio, he said, unless the center is not expanded.

“In this market you’re falling behind if you’re not moving forward,” O’Neal said.

Consultants considered multiple expansion possibilities before deciding on a non-connected expansion that could be built while normal operations continue, Colyer said.

“It turns out this is the best win-win solution,” he said.

Urban Land Institute Austin’s Technical Assistance Panel, which was tasked with reviewing the master plan, agreed with Gensler’s expansion recommendations. Affected property owners in the proposed expansion area have not publicly expressed interest in dealing their land, which is currently leased mostly by restaurants and bars, but ULI interviews indicated “the owners could be amendable to a sale,” according to the panel report. Tester said previously that eminent domain could also be used as a last resort.

“The people who had any negative comments were more critical about the structure being internally focused and the building not being accessible to local people,” panel Chairman Phil Capron said. “Most of us, even those who were a little skeptical, said we’re in favor of the expansion because it is not taxpayer-financed.”

ULI panel feedback resulted in more ground-floor restaurants and retail shops being incorporated into expansion plans to make the project more attractive to non-convention attendees.

But the ULI report does not take into account the realities of the national convention center industry, said Heywood Sanders, a professor from The University of Texas at San Antonio, who wrote a 2014 book, “Convention Center Follies,” in which he refutes many consultant estimates about convention center performances.

Industry statistics claim there were 66 million convention and trade show attendees nationally in 2000, and by 2014 that number had increased only slightly to 68.9 million, he said, despite a 37 percent increase in convention center space nationally during that same time.

“What happens when you have a significant increase in supply and demand stays about the same, then cities start discounting, incentivizing and regularly giving convention center space away for free,” Sanders said.

Tester admits the competitive nature of the convention industry nationally has resulted in events getting cheaper rates in 2015 than what was charged in 2000. That means HOT revenue is sometimes used to help offset catering fees as a way of incentivizing conventioneers, he said.

“The industry is not dying; it’s just doing business differently,” Tester said.

Local support

Expansion efforts have been formally endorsed by the  Downtown Austin Alliance, a nonprofit organization mostly funded by public improvement district taxes that represents downtown property owners, residents and businesses.

But not all downtown residents agree with the plan as proposed. Marshall Jones, a 10-year Hilton Austin resident next to the convention center, said he prefers the convention center build vertically instead of taking out portions of Second and Third streets.

“Expand the convention center, but stop closing streets—it’s called a grid for a reason,” Jones said. “We welcome all this growth and expansion, but we want to be able to get around, too.”

However, building the existing facility up would require the convention center to close for a year or two, according to Tester, resulting in a loss of revenue during that time.

Rainey Neighbors Association President Bonita White said the roads into the neighborhood are exactly the same as when she moved to the area in 1999, and additional growth threatens to increase traffic congestion—already a top point of contention among Rainey Street residents, she said.

“If this is something the city is going to do, I just hope they have the vision they had on the west side of downtown to address the infrastructure issues,” White said.

Colyer, O’Neal and Tester insisted the Waller Creek Conservancy development and rise of the Innovation Zone near The University of Texas Dell Medical School will reignite interest in downtown’s east side. Should the project gain approval, the expanded convention center could open by November 2021, according to the master plan.