City officials gave $2.3 million in rental discounts on the newly minted Raleigh Convention Center through 2023 and $167,000 in taxpayer-funded subsidies this year to attract companies and organizations, public records show.

The city also booked at least 10 groups for free, among them RBC Centura Bank, and another dozen organizations for one dollar each. Other groups, however, paid full freight for conventions next year.

The John Locke Foundation released an analysis of the bookings in September on the day before the convention center opened. The center will have an economic impact in the tens of millions of dollars, city leaders say. But it took deep markdowns to get the first 164 conventions to choose Raleigh.

In addition to the $167,000 used to attract organizations, $166,000 in subsidies is in the pipeline awaiting approval. The Raleigh City Council, the Wake County Board of Commissioners, and the city’s visitor’s bureau must approve any single subsidy more than $100,000.

North Carolina State University has received the biggest grant, $96,900, so far for a community college conference Oct. 11-14.

Wake County Commissioner Paul Coble likened the rental discounts to a private store offering sales to get customers familiar with its product. “The real question is how long the convention center will have to be subsidized, because any good businessman knows you can’t make a loss up on increased volume,” Coble said.

“From a marketing standpoint, I understand what they’re doing, but the question then comes down to how long you are going to do it, and is it really effective?” he said.

Roger Krupa, director of the convention center, criticized the JLF report for focusing on the rental discounts rather than the economic benefits that he said the center will bring to downtown.

“Is it in the convention center? Not necessarily. It’s in the total economy: the hotels, the restaurants,” he said.

Little to no cost

The 68 conventions scheduled during the next 10 months got an average 58 percent discount in room rental rates. The mortgage protection insurance company National Agents Alliance, for example, paid zero in rent and a one-dollar “rental deposit” for a weekend conference in mid-September. The rental price for the rooms booked by the firm would normally total $22,725.

The Alliance also is one of six groups that received taxpayer subsidies from a business development fund created by the Raleigh City Council and Wake County commissioners. The company was approved for a $12,800 subsidy in April, meaning it got nearly $36,000 in discounts and subsidies combined.

A majority of other groups received at least a minimal price break, and many of them got steep discounts. The N.C. Department of Environment and Natural Resources will conduct a convention in February at a 71 percent markdown. The N.C. Department of Public Instruction got a similar discount for a convention in April — from a $30,400 list price to $12,000.

Some organizations did not get a price cut. The Diocese of Raleigh paid the full $17,000 list price for its Ignited by Truth conference in February. But the Diocese did get a discount on its conference for Catholic schools. A taxpayer subsidy of $28,820 for the Tekakwitha Conference, a group of Native American Catholics, is pending.

Other groups are paying full price, too: the Werner Publishing Corp., Lightner Youth Leadership Academy, and the High Five Regional Partnership, among others. The N.C. State Fireman’s Association will also pay the full rental rate for its convention in August, but it got a discounted rate for its convention in 2010.

Mike Fedewa, superintendent of formation and education for the Diocese of Raleigh, said he was unaware that the diocese was not afforded a rental discount.

“We’re struggling to pay for this. The people who we are targeting, they can’t afford a lot. With the cost of the speakers, the cost of the venue, it’s going to be difficult,” he said.

Selling the center

The fluctuation in rates between conventions is because of the competitive process needed to get groups to choose Raleigh over other cities, Krupa said.

“At each turn when you’re out selling … you start getting a good idea in the negotiation of how to get someone to move to your city,” he said. “It’s a very competitive environment. It becomes apparent very quick [sic] what it’s going to take to make the business happen in your city. Each case is substantially different.”

Asked why almost two-dozen groups and businesses paid zero to one dollar to use the convention center while others paid full price, Krupa said rental costs should be viewed in the broader macro-economic picture.

“There are a multiplicity of factors on how important the rent is,” he said.

Rental discounts and taxpayer subsidies are based in part on how much cash a convention is expected to bring to downtown businesses from other areas of the state or country. But some companies and groups in Wake County got vastly different rates.

Raleigh-based Red Hat Inc. booked three ballrooms and the ballroom lobby for a holiday party in December for free. Wake Med, in contrast, paid nearly full price for a convention scheduled for October.

“What’s the difference?” Coble said. “Wake Med is a homegrown hospital, one of our largest employers serving the community, where Red Hat is a private entity. The only argument you can make is to look at the background of each group and see if they contributed to the center and this is the quid pro quo.”

There are also questions of how the new convention center will affect existing venues in Wake County, such as the McKimmon Conference and Training Center at N.C. State University.

Krupa said that the McKimmon Center likely has had “limited economic impact” on Wake County. “Does it make a difference whether [conventions go] to the McKimmon Center or here? Probably not,” he said.

Taxpayer-funded subsidies

In April 2007, Raleigh and Wake County leaders created a business development fund financed through hotel and restaurant taxes. The Greater Raleigh Convention & Visitors Bureau is responsible for approving any grant less than $100,000. County commissioners and city council members must approve grants larger than that.

If the visitor’s bureau approves all the grants now on the table, taxpayers will have footed the bill for a total of $332,800 in subsidies. Along with rental discounts, the grants are one of the perks the city uses to attract conventions.

“If it had not been set up, the burden would have been on property taxpayers, and that didn’t seem fair,” said Krupa when asked why the fund was created.

One of the subsidies — $96,900 for N.C. State University’s community college conference — is close to the amount that would require review. But Coble said city and county leaders should not micro-manage the convention center by lowering the threshold, at least for now.

“We have professional staff who we have put in charge of that,” he said. “I do think it is incumbent upon the council and the commissioners to go back and look at it on occasion and see if there is a pattern of subsidies just under $100,000 in order to skirt that issue.”

‘A loss leader’

Initial cost estimates for the convention center were $180 million. The final price tag ended up being 23 percent higher. Convention center supporters say the increases were caused by rising cost of supplies. But not everyone was pleased with the price jumps.

“We’ve gone from $180 (million) to $192 (million) to $215 (million) to $222 million. I’m not happy about being here,” said Wake County Commissioner Joe Bryan in 2006, according to WRAL-TV.

The convention center is expected to lose millions annually. “It probably won’t be self-sustaining,” Krupa said. “But when you think about what this building does, it’s the loss leader in this area. The goal is to make people spend money in the city. That’s the enterprise you want. This is the factory for that enterprise.”

David N. Bass is an associate editor of Carolina Journal.