Car dealers were so disgusted three years ago with cronyism at the convention center that they threatened to pull the North American International Auto Show out of the Motor City, but those days are in the rearview mirror now.
The Cobo Center is undergoing a $279 million makeover that officials say will position it to hold almost any of the world’s largest conventions. The auto dealers have signed on for five more years, and even the American Society of Association Executives, the people who help decide where conventions are held, has booked the center in 2015.
The turnaround is largely the result of a state intervention in 2009 that put city-owned Cobo in the hands of a regional authority charged with stabilizing its finances and rooting out corruption. As Detroit itself heads into a state-enforced restructuring under the oversight of a financial-advisory board, the Cobo authority offers a rare example of what can happen when the city collaborates with regional and state officials to address longstanding challenges.
“I think the biggest lesson is that it can happen here,” said Waymon Guillebeaux, a member of the Cobo authority and executive vice president of the quasigovernmental Detroit Economic Growth Corp. “You can get five people from very different backgrounds to work together if they come to the same conclusion that we want to be successful and that we’re going to put our business acumen first.”
To be sure, the convention center’s financial challenges pale next to the fiscal crisis gripping Detroit. Under the weight of a $265 million deficit, an estimated $13.2 billion in long-term liabilities and no infusion of cash from the state on the horizon, it will be a tough road to recovery for a city that lost one-quarter of its population between 2000 and 2010.
On Monday, Detroit Mayor Dave Bing proposed cutting 2,500 municipal jobs and merging or privatizing several city departments to help save more than $200 million.
Cobo, named after former Mayor Albert Cobo, was long a troubled asset for Detroit. Less than one-third of its 700,000 square feet of exhibit space was used for many years. It tied for last place in hosting national conventions and trade shows among similarly sized centers, according to a 2010 report from Conventions, Sports & Leisure, a consulting firm.
A big drawback: widespread corruption that inflated exhibitors’ costs. Two successive Cobo directors were sent to federal prison in 2009 for taking bribes from a contractor who provided electrical, janitorial, catering and retail services. Patrons and exhibitors also complained of Cobo’s poor food, parking hassles and inefficient loading docks.
While the typical convention center the size of Cobo brought in annual revenue of more than $22 a square foot of capacity, Cobo drew less than $5, according to a 2010 study prepared for the Cobo authority. The city propped it up with as much as $13.8 million in annual subsidies.
By 2009, the hall’s showcase tenant, the Detroit Auto Dealers Association, was threatening to move its annual auto show to the suburbs. The city could ill-afford to lose the $350 million in economic activity generated by the show; yet neither could it afford the updates the dealers were demanding.
When the state suggested transferring control of Cobo to a regional authority to tap a broader pool of funds, some city council members resisted, worried that a key asset would be surrendered to outsiders. Similar protests dominated the city in recent weeks as the council debated a power-sharing agreement with the state to help stabilize Detroit’s finances.
Ultimately, the mayor pushed through a deal with the state and the counties that would fund Cobo’s operations and renovation with new bonds and a combination of state and local liquor, hotel and tobacco taxes. The city got $20 million in cash but retained ownership of Cobo.
Even then, skeptics said the new authority would never work because its governing structure required unanimous votes by its five members, who are appointed by Detroit’s mayor, Michigan’s governor and the heads of three area counties, respectively.
But authority members say their working relationship has been collaborative. Brooks Patterson, chief executive of Oakland County—who once pushed to host the auto show in his county north of Detroit—says a board governed by unanimity has been essential to the progress so far. “There are no more friends-and-family contracts, no more nepotism,” he said.
The authority hired a professional management company that reduced costs and signed up a new food vendor. Last year, auditors reported Cobo’s operating revenue doubled, while state and federal subsidies declined 37%.
So far, Cobo’s renovation, due to finish in 2014, is running on time and under budget. The project will add nearly 125,000 square feet of convention space and convert the attached sports arena, where Mr. Bing, the mayor, once played professional basketball, into a ballroom overlooking the Detroit River.
Enormous challenges remain. A big chunk of Cobo’s subsidies are set to expire in coming years, and it still hasn’t attracted enough new business to make up the difference. Experts also warn that the auto show could limit Detroit’s ability to attract other conventions, because it blocks the calendar for about three months a year for the dealers to set up and dismantle the show.
Still, local leaders are optimistic. “It’s going to be a showpiece for the city of Detroit,” Deputy Mayor Kirk Lewis said. “It’s also going to allow us to get back to the core functions of the city to improve services for residents and visitors alike.”
Mathew Dolan, The Wall Street Journal