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Yukonomist: If we need a new convention centre, the private sector should pay for it

Excellent news for the shareholders of Whitehorse hotels and construction companies!

Excellent news for the shareholders of Whitehorse hotels and construction companies!

The Yukon government seems determined to build a new convention centre.

According to media covering the release of the Request for Proposals (RFP) for the new facility, Minister of Tourism and Culture John Streicker told the media that when Premier Ranj Pillai gave him the job he said, “You’re taking Tourism and Culture. Make sure to get a convention centre.”

A new convention centre would be a nice addition to the city. But when weighing whether to put scarce public capital into health care, housing or a convention centre, it is important to think through who benefits and who else should contribute.

Conventions centres, like new arenas for professional sports teams, highlight classic economic debates.

Fans of John Oliver saw his diatribe on how local governments end up paying big bucks to subsidize stadiums for billionaire team owners. Former Clinton cabinet member Robert Reich has written on how North American sports teams have “intercepted” $30 billion in taxpayer funds since 1990.

Proponents of convention centres and stadiums always produce economic studies showing how much economic activity the project will generate.

In the case of the new Whitehorse convention centre, we are told we are losing out on hosting conferences due to lack of space and that each conference goer will grow the Whitehorse economy by $500-$1,000. The pre-pandemic direct local economic impact of convention tourism was $6.5 million and a new 1,000-attendee facility could double this.

We don’t know how much the new facility will cost, but the RFP foresees government funding of up to $35 million.

The first question is whether such a spend, plus the risk of cost overruns, is worth it.

The problem with these studies is that they often frame the question as “build the convention centre or do nothing.” In this case, any boost in economic activity looks good. For governments, there can be a logic in this if the economy is weak and there is massive long-term unemployment.

However, Whitehorse is in the middle of a labour shortage which shows no signs of going away.

Is it a good idea to spend public money to generate more business for contractors and restaurants that already struggle to find staff?

There is also the question of what we are deciding not to build with those tens of millions of dollars.

A better way to frame the question is to compare the convention centre to what that much public money could do in other sectors. How about a 100-unit public housing building? New renewable power facilities? A clinic with doctors who could serve the thousands of Yukoners without one?

It’s hard to imagine that these year-round facilities would generate less benefits than a convention centre that operates only some of the time.

But let’s give the proponents the benefit of the doubt and suppose that the cost-benefit ratio is better for a convention centre than public housing, renewable power or a clinic.

If you think this means the government should fund the project, please contact me as I would like to go to Diamond Tooth Gertie’s with you. We would play roulette this way: you put $100 chips on black; if we win, I get half the winnings; if we lose, I’ll feel bad for you.

Roulette is pretty close to even odds, so “we” would probably do okay over the evening. We might even end up ahead. But I would definitely do well.

Convention centres work this way too. Everyone pays the taxes to build them and, in many cases where initial business cases were too optimistic, cover their operating losses during the off season. Then the benefits go predominantly to a much smaller number of people.

Consider the daily cash spent by an attendee at some conference in the late 2020s.

First, our visitor must buy a ticket on Air North or a national airline. If a national airline, just a few per cent of that stays in the Yukon. Air North estimated a few years ago that flying on a national airline created 1.4 jobs per 100 departures versus 14.1 if you fly Air North. So the fraction of conference goers that choose Air North is a real benefit to Air North and its staff.

Second, say $250 per night for a downtown hotel. We don’t have a Yukon sales tax or a tourism fee, so that money goes straight to the hotel. A fraction of it goes to pay hotel staff (many at low wages), but remember we have a labour shortage so any additional staff at the hotel are staff taken out of the labour pool for other Yukon businesses. Most of the $250 is pure cash flow for the hotel. And remember that while some Whitehorse hotel shareholders are Yukoners, at some hotels much of this additional profit will flow to Outside investors.

The other bonus for hotels is that the convention centre will be able to host up to 1,000 attendees. With that many people trying to book rooms, the hotel pricing algorithms will boost prices for both the attendees and everyone else visiting the city. Ka-ching!

Then suppose the visitor enjoys the breakfast at the hotel and then conference chicken during the keynote lunch. The local caterers will make some cash on the day, as will conference support staff. Ditto for drinks and dinner and other conference hijinx. Suppose that averages out to $150 per day, spent either directly by the visitor or indirectly through their fees to the convention centre.

Finally, there is some souvenir buying and maybe a tourism activity. There is also the chance the visitor might stay over the weekend or even bring the family back the following year.

So you can see the conference is highly lucrative for the hotel owner, solid good news for Air North, and also has some smaller benefits for caterers, restaurateurs and shops. The service jobs don’t really count, however, since in a labour shortage situation those people would have jobs somewhere else if they didn’t work at the convention centre.

The losers are other facilities the convention centre competes with, such as the Kwanlin Dün Cultural Centre. Plus anyone (including businesses paying the expenses of consultants or technicians) staying in a hotel when conference pricing is in effect. Plus anyone paying extra to build a commercial or residential building while local contractors are busy on the new convention centre project.

Given that the benefits are so concentrated, the private sector should pay for the convention centre. While it would be nice to have a new convention centre, we should save scarce government capital for health, housing and low-carbon power.

If the premier and minister feel so strongly they need to have their names inscribed on the plaque in the lobby of the new Whitehorse Convention Centre, then there should be a new hotel tax so the private sector contributes. According to the 2022 HVS Lodging Tax report, the typical total tax rate for hotel stays in the top 150 US cities ranges from 13-15 per cent (including sales tax). With the five-per-cent federal GST, that would work out to a Whitehorse hotel tax of 10 per cent until the convention centre debt is paid off.

And conference goers who can’t show an Air North boarding pass should be charged an extra fee.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.