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Cost Benefit Analysis on the David Lawrence Convention Center

Cost Benefit Analysis on the David Lawrence Convention Center. Presented by: Jie Hu, Dontai Johnson, Mike Niemeyer, Jin Wang. Major Sources of Data for the Project. Assumptions Guiding Entire Analysis. Costs and benefits are different from that of the former Convention Center

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Cost Benefit Analysis on the David Lawrence Convention Center

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  1. Cost Benefit Analysis on the David Lawrence Convention Center Presented by: Jie Hu, Dontai Johnson, Mike Niemeyer, Jin Wang

  2. Major Sources of Data for the Project

  3. Assumptions Guiding Entire Analysis • Costs and benefits are different from that of the former Convention Center • Impact of new hotel not included • Estimating 19 year life span for new center (old center: 1981-2000) • Started analysis in 1999 when funding secured and ended in 2020 • Debt service costs extended to 2035

  4. Use of the Construction Funds • Construction: $318,809,298 • Acquisition/Relocation/Demolition: $24,206,186 • Consultant/Permitting/Legal: $2,894,608 • Admin/Financing: $19,603,497 Source: Correspondence with Kim Amey, Sports and Exhibition Authority

  5. Cost Markup History • 1997: $262 million before design selected • 2000: $330 million after Rafael Vinoly design selected • 2002: $365 million after “bells and whistles” added Source: Franken, Stephanie. “Convention Center Costs Mounting” Pittsburgh Tribune Review. Jan. 10, 2003

  6. “Bells and Whistles” Crank Up Costs Source: Franken, Stephanie. “Convention Center Costs Mounting” Pittsburgh Tribune Review. Jan. 10, 2003

  7. Assumptions Guiding Cost Portion of Analysis

  8. Initial Cost

  9. Initial Cost (cont.)

  10. Sensitivity Analysis Parameters • Used the OMB discount rate of 7% • Used a Time Declining rate as follows: 1999-2004: 4% 2005-2023: 3% 2024-2035: 2%

  11. Present Value of Costs Discounted 7%

  12. Present Value of Costs Discounted 7% (cont) Present Value of Costs => $372,926,556.10

  13. Present Value of Costs By Time Declining Method

  14. Present Value of Costs By Declining Method (cont.) Present Value of Costs => $577,401,589.9

  15. Assumptions of Benefit Analysis 1. The elasticity of hotel demand to derive social cost of hotel tax is 0.9. Because of tax increase of 2% from 5% to 7%, there should be a 1.8% decrease in occupancy. So hotel spending is 98.2% of the original data. 2. Because nationwide convention market is not increasing, and there is a 31.16% total increase of available space in the top 50 convention centers nationwide, we assume that there will be 31.16% fewer conventions coming to Pittsburgh than in 1990s. So hotel spending is discounted by 68.84% then. 3.All items besides hotel spending are discounted by 68.84% too.

  16. Construction Job Benefits Construction worker’s annual salary => $43,981.60 Number of workers from 2000 to 2003 => 200 Total benefits at 7% Rate => $24,761,991.31 Total benefits at Time Declining Rate => $26,290,371.56 Source: http://ci.ftlaud.fl.us/jobs/01_positions/67-559-07.pdf

  17. Convention Center Non-Construction Benefits

  18. Convention Center Non-Construction Benefits (cont.)

  19. Benefits Using Net Present Value Methods Discounted to 1999 Using OMB Rate at 7% => $350,344,036.20 Using Time Decline Rate => $500,502,843.10

  20. Grand Total with OMB Rate Discounting Benefits: 350,344,036 Costs: 372,926,556 -22,582,520 -

  21. Grand Total with Time Decline Rate Discounting Benefits: 500,502,843 Costs: 577,401,589 -76,898,746 -

  22. How Does a City Save Face? “Often there’s additional public investment to try to save the convention center that was supposed to save downtown. The quest to redeem a non-functioning convention center often ends up putting the public sector into the hotel business.” -Heywood Sanders, Ph.D., University of Texas-San Antonio Source: Bromley, Hank. “Convention Center Follies: An Interview with Heywood Sanders.” ARTVoice. 03/23/00.

  23. THANK YOU

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