Last week, the LA City Council voted to move forward with a $2.6 billion expansion and renovation of the Los Angeles Convention Center. With interest payments, the total cost will be more than $5 billion. While Los Angeles truly needs a modern convention center, the specific deal that was approved is a very bad one for taxpayers and includes unnecessary and serious risks. Two colleagues and I approved a better option in Budget Committee, but unfortunately, the full City Council moved forward with a very problematic plan.
To expedite the work, the convention center was initially awarded via a sole-source design-build contract because AEG was going to run the facility and could make it happen before the Olympics. There was no ‘request for proposal’ (RFP) or review process to hear different plans from a variety of contractors and receive bids that could have helped control costs.
The conceptual design dates from 2012, as an alternative to a Downtown football stadium, long before Covid transformed business travel and technologies such as driverless cars and AI changed what’s needed for an ideal convention center. The Budget Committee proposal involved issuing a new RFP that would not only help control costs, but would insure a state-of-the-art convention center.
Despite all this, I was supporting moving ahead until recently when the estimated costs doubled and the assumed revenues started to evaporate. The financial burden of the project was shifting to the taxpayer, and exponentially increasing and crowding out every other critical city priority, from hiring cops and firefighters to paving streets, housing homeless folks and rebuilding the Palisades.
The project relied heavily on assumed revenues from freeway facing giant digital advertising. However, the City’s ability to include them hinges on a State approval that is far from guaranteed. Without the freeway billboards, the City general fund must make up the difference. The project includes a large park/open space where people can gather. Because the project was costing too much, the park was eliminated from the proposed budget. However, the park is still a necessary element, so eliminating its costs didn’t actually lower the budget, it just hid that cost by assuming that the City would pay for the park from a different pocket. There are many more examples of ballooning costs.
The project’s debt will cost city taxpayers over $100 million a year (at a minimum) for the next 30 years. Just a few months ago, the Budget Committee faced the worst City budget since the Great Recession. With a billion dollar deficit, we were forced to cut critical services like street resurfacing, sidewalk repair, tree trimming, on and on. Even in the aftermath of the Palisades Fire, we were unable to provide significantly more firefighters or fire apparatus. If at that time I proposed spending $100 million for 30 years on anything, I would have been laughed out of the room. Since then, the City’s finances have gotten worse and the Trump administration’s actions will likely make things bleaker. All of the City’s projected revenue growth for the next decade or more will be eaten up by this project, with nothing left for restoration of City services. Yet a majority of the Council voted to move forward with the project.
The worst part is that the costs are not controlled and will increase further. Though the developer has to take on certain cost increases, any expense that comes from the City’s inability to meet the already unrealistic permitting and other deadlines becomes the City’s responsibility/cost burden. If phase 1 is not completed before the Center is needed for the Olympics in 2028 those costs would be catastrophic because it would mean having to move events out of the convention center. The City is also responsible for cost increases caused by ‘force majeure’ — like City declared emergencies which have become regular occurrences.
The project assumes unrealistic deadlines for understaffed City departments. For example, certain major work by DWP that normally takes 18 months must be completed in 6 months – ⅔ faster than usual. If it isn’t, the City is on the hook for those cost overruns. During the hearing the DWP did not exude confidence, though it might be possible if resources were redirected from other priorities such as the Palisades rebuilding and every other major project throughout the City. This would take a tremendous toll on the City — financially and otherwise.
While we all desperately want a new convention center, it cannot be at any or all costs. Just talking about the benefits of a convention center without weighing the risks and the costs is irresponsible. At this point, these risks and costs far outweigh the benefits.
I will take no pleasure in saying I told you so as the costs balloon even further over the next few years. I hope I’m wrong.