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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

Cost Benefit Analysis on the David Lawrence Convention Center

Presented by: Jie Hu, Dontai Johnson, Mike Niemeyer, Jin Wang

assumptions guiding entire analysis
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
use of the construction funds
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

cost markup history
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

bells and whistles crank up costs
“Bells and Whistles” Crank Up Costs

Source: Franken, Stephanie. “Convention Center Costs Mounting” Pittsburgh Tribune Review. Jan. 10, 2003

sensitivity analysis parameters
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%

present value of costs discounted 7 cont
Present Value of Costs Discounted 7% (cont)

Present Value of Costs => $372,926,556.10

present value of costs by declining method cont
Present Value of Costs By Declining Method (cont.)

Present Value of Costs => $577,401,589.9

assumptions of benefit analysis
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.

construction job benefits
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

benefits using net present value methods discounted to 1999
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

grand total with omb rate discounting
Grand Total with OMB Rate Discounting

Benefits: 350,344,036

Costs: 372,926,556

-22,582,520

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grand total with time decline rate discounting
Grand Total with Time Decline Rate Discounting

Benefits: 500,502,843

Costs: 577,401,589

-76,898,746

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how does a city save face
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.