Fee Waivers Violate City Procedures

In the year since an audit criticized the Los Angeles Convention and Visitors Bureau for excessive waivers of rental fees at the city Convention Center, nine more conferences held there have received bureau discounts that violated city policy.

All rental fees were waived for the nine events, costing the Convention Center more than $1.8 million.

The city allows discounts to lure business to the sprawling facility, but the amounts cannot exceed the hotel bed tax generated by each event. For the nine events held since June 2001, the discounts exceeded bed taxes by $667,000.

The size of discounts has been the subject of a long-running dispute between the bureau, which has a contract with the city to book conventions, and the management of the city-owned Convention Center, which is supposed to oversee and approve discounts offered by the bureau.

George Rakis, general manager of the Los Angeles Convention Center, said sometimes rents must be waived or discounted to make Los Angeles more competitive with other cities. But he said some discounts have been excessive and have been approved without his full input.

Rakis also said the bureau has given large discounts to trade shows that had been booked for years by the Convention Center’s own staff and had paid full rent. The bureau offered the discounts if the shows would book as bureau accounts.

The Convention Center manager wrote a letter in July protesting the bureau’s practice of raiding the center’s “house accounts” to help the bureau meet its booking goals.

“These events have never required discounts and, in some cases, are now having portions of their rental reduced by your sales staff,” Rakis wrote to Bureau President George Kirkland. “We strongly disagree with offering discounts to these groups since the discounts are not necessary, and having these events listed as bureau accounts.”

Bureau Vice President Michael Collins said this week that those discounts were only offered after other cities stepped up to compete for the shows.

“In each case, the clients are committing to a number of years in the future and in each case there are other West Coast cities that would offer the moon and the stars to have them meet somewhere other than L.A.,” Collins said.

Bureau officials say that discounts are necessary to counter Los Angeles’ competitive disadvantage with other cities caused by a lack of hotel rooms and other amenities close to the Convention Center.

But city officials say discounts have sometimes been given out without enough thought.

“I’m concerned because it impacts the operating profit of the center,” said Peter Zen, chairman of the city Convention Center Commission, which is conducting a wide-ranging review of the bureau’s performance and business practices. “It means less revenue.”

Zen said he would be less concerned if the discounts were bringing in a lot of business, but he said few conventions are being booked by the bureau these days.

With fewer conventions coming to town, less money is available to pay down the $525-million debt incurred to expand the Convention Center in 1993, forcing the city to dip deeper each year into the general fund to pay off the bonds.

In an audit completed last June, the city controller found that the bureau and Convention Center had waived $25 million in rental fees in the six-year period ending June 30, 2000. The controller noted that $5.8 million in waivers were provided in violation of the policy limiting them to the hotel bed tax generated for the events.

Since then, a review of Convention Center records shows that nine more events received discounts that exceeded hotel bed taxes. The shows include:

* The American Assn. of Health Plans received a waiver of $89,701 but only generated $77,060 in hotel bed taxes.

* The American Society of Health System Pharmacists received a rental waiver of $216,000 while generating hotel bed tax of $132,213.

* Digital Consulting Inc. had all $118,995 in Convention Center rents waived for its event last December but only generated $13,800 in hotel bed taxes.

Bureau officials said there is a difference of opinion over the intent of city discounting policies and who is ultimately responsible.

“The bureau has no authority to unilaterally authorize discounts to conventions,” the bureau said in a statement, noting that the city administrative officer and Convention Center must approve all discounts.

However, Rakis said many of the discounts were agreed to by the bureau and convention organizers and approved by City Administrative Officer William T. Fujioka as “done deals” by the time they reached his desk for consent, potentially resulting in liability if he said no.

In the statement, bureau officials said the “collective understanding” of city officials and others was that the aggregate sum of the discounts annually should not exceed the total hotel bed taxes generated in that year by all events.

However, the city administrative code prohibits rent discounts that exceed the amount of hotel bed tax generated by the event discounted. The city controller’s office confirmed that was the policy in last year’s audit.

Interpreting Findings

Bureau officials said they have been operating since the audit basing discounts on the controller’s interpretation of the policy.

They also said the nine conventions in question were booked years before Controller Laura Chick raised the objection. However, in some cases, Convention Center records show the events were booked knowing the hotel bed tax would not cover the discount.

The Convention Center audit was completed in June 2001 during Rick Tuttle’s term. Chick took office July 1 and made it public with her own additional analysis in September.

Chick challenged the amount of discounting and said lax policies appear to have resulted in unwarranted financial losses by the city.

“The lack of a comprehensive discount policy may have resulted in unnecessary and / or excessive discounting by the Los Angeles Convention and Visitors Bureau,” the audit concluded.

As a result, Los Angeles has the lowest rental revenue per square foot of five comparable convention centers. Los Angeles received $9.72 per square foot in rent in 1999, lower than San Francisco, New Orleans, Atlanta and San Diego.

Chick said the Convention Center management and the city administrative officer “did not adequately monitor space rental discounting by the bureau to ensure compliance with guidelines.”

But Rakis said the problems go beyond what was uncovered in the audit.

Events such as the Western Restaurant Show and Audio Engineering Society had been held for more than two decades at the Convention Center and paid full rent, before switching from center accounts to bureau accounts, Rakis said.

The bureau has provided the California Restaurant Assn. with $271,000 in discounts for its last five shows, including $49,222 for its convention last year.

Collins said the bureau offered a discount to the restaurant show after Anaheim put in a bid to take the show. The amount of discount, he said, is minor compared to the show’s gross of $876,000 at the Convention Center and the $249,000 in hotel bed tax it generated.

After two decades of paying full rent to the Convention Center, Audio Engineering Society has received $224,000 in discounts for its last three conventions, including $101,985 of the $113,750 rental for its show this year.

Collins said the bureau offered a discount after the society went to San Francisco one year, but Rakis said that change of location was only a temporary move because the Convention Center was under construction that year.

Laura Colona, a spokeswoman for the society, said the discounts were not decisive factors in the group continuing to come to Los Angeles.

“While discounted rates are appealing to the AES, they neither make nor break our decision to return. Holding our event there is based strictly on the success of past shows,” she said in an interview.

More important is that, along with New York City, Los Angeles is one of the audio industry’s two hubs, “thus making it a natural choice for the convention.”

The group rotates between Los Angeles and New York and has done so for 20 years.

Considering New Policy

Fujioka’s office is drafting a new policy that Rakis said will give him the chance to consent to discounts ahead of time.

“I think that will take care of the problem,” Rakis said.

The city administrative officer, however, is likely to recommend a policy requested by the bureau--that discounts be allowed as long as the total amount in a year does not exceed total hotel bed taxes by all events.

Bill Mercer, the consultant drafting the new policy, said it is only fair that all the conventions in a year be added up to see if the city got more in hotel bed taxes than it paid out in discounts.