To:   HONORABLE MAYOR AND                   From:   Jim McBride

                        CITY COUNCIL                                                        James Helmer

 

   Subject:   SEE BELOW                                               Date:   September 10, 2003

 

Council District: 3

 

SUBJECT:     AUTHORIZATION FOR FLEXIBLE PRICING OF THE CONVENTION & CULTURAL FACILITIES

 

 

RECOMMENDATION

 

(a)                Approval of an ordinance amending Sections 22.01.070 and 22.01.080 of Chapter 22.01 of Title 22 of the San Jose Municipal Code authorizing the Director of Convention, Arts & Entertainment to reduce facility fees for the use of the Convention and Cultural Facilities; and

(b)               Adoption of a resolution amending the Master Parking Rate Schedule to modify parking rates charged at the convention center garage by (i) authorizing the Director of Convention, Arts & Entertainment to reduce or increase flat parking rates; (ii) establishing incremental parking rates for non-event days; and (iii) including the convention center garage in the Downtown Retail Validation Program.

 

 

BACKGROUND

 

The Mayor’s June 4, 2003 Budget Message directed the City Manager to develop a strategy for structuring convention center rates to provide the Convention and Visitors Bureau with the necessary flexibility to successfully book meetings in today’s highly competitive convention market.  This memorandum proposes amendments to the San José Municipal Code (SJMC) to provide flexibility in facility fees, and to the Master Parking Rate Schedule to provide rate flexibility in the convention center parking garage.

 

Ordinance No. 24939, approved on June 20, 1995, authorized the Director of Convention, Arts and Entertainment (“Director of CAE”) to reduce facility fees established by resolution of the City Council for the use of the Convention and Cultural Facilities (“Facilities”), if the Director of CAE determines the lower rates are necessary to attract events that offer the City a unique opportunity.   Presently, the Director of CAE is authorized to reduce facility fees up to 50 percent of the established rate if the request is received at least one year prior to the proposed date of the event.  However, the City faces intense competition within the Bay Area and from Southern California cities as San José strives to attract events that stimulate the local economy.   In the current economic environment, greater flexibility to negotiate facility fees is needed to entice events to San José.

 

Resolution No. 71068, effective June 18, 2002, amended the Master Parking Rate Schedule to increase the overall transient and monthly parking rate for all City owned or operated parking facilities in the Downtown, including the convention center garage.  Although the rate increase was based on the average private parking rate in San Jose, the private market actually adjusts its rates based on the parking demand.  The private market is able to decrease rates when parking demand is low, and increase the rates when the demand is high.  The ability to adjust rates based on market conditions and to remain competitive is crucial to providing customer service and maximizing parking revenue.

 

The general downward shift in convention business due to the economy and increased competition among cities for events makes it necessary that the Director of CAE have greater flexibility to negotiate facility fees and parking fees.

 

 

 

ANALYSIS

 

Flexible Pricing of the Convention & Cultural Facilities

 

The economic benefits of hosting conventions, trade shows and other events are not limited to the fees and charges collected by the City for use of the Facilities.  While maximizing direct revenue to the Facilities remains critical, there may be times when the economic benefits of an event to the City out-weigh the value of that revenue. 

 

The most significant economic benefit to the City is from the out-of-town exhibitors and attendees that bring new dollars into the local economy.  Exhibitor and attendee spending in the local hospitality, entertainment, transportation, and restaurant businesses, creates new jobs and tax revenues.  The tax revenues include: Transient Occupancy Tax (TOT) generated by hotel guests; sales tax from exhibitor and attendee spending; sales and business taxes from convention-related contractors; hotel property, real property, and personal property taxes; and income tax from the new jobs.

 

The Director of CAE currently has the authority to reduce rates up to 50 percent if the Director of CAE determines that such lower rate is in the best interest of the City and is necessary to:

 

1.      attract unique events, which would bring special prestige or economic benefit to the City; or

2.      attract events during periods when the Facilities are underutilized. 

 

Currently, authorization is limited to requests that are received by the Director of CAE at least one year in advance of the event.

 

In order to remain competitive and capture greater market share, it may be necessary to reduce rates to less than 50 percent of the established rates, including reducing them altogether, or to reduce rates within the one-year timeframe for short-term business.  Therefore, the Department recommends the following changes:

 

  1. delete, in part, SJMC Section 22.01.070, Paragraph C, that limits rate reductions to no more than 50 percent of the established rate; and
  2. delete, in part, SJMC Section 22.01.080, Paragraph D, requiring that rate reduction requests must be received by the Director of CAE at least one calendar year prior to the proposed date of the event.

 

The criteria to be used in determining rates include: time of year, hotel tax and operating revenue history, multiple event commitments, and diversification.  The latter criterion is essential to creating a diversified portfolio of events that will help to insulate San José from fluctuations in technology-related events.  Any rate adjustments to events of less than 50 percent of the established rates, or to events within one year of the proposed date of the event will be reported to Council on an annual basis.

 

Flexible Pricing of the Convention Center Garage

 

Because the success of an event depends largely on the number of local attendees, and these attendees typically pay directly for their parking, parking fees at the convention center parking garage are frequently a key component of the negotiation process with event planners.  Although the majority of City parking facilities charge an incremental parking rate, the convention center garage charges a flat daily parking rate of $10 per vehicle until 6 p.m., $4 per vehicle after 6 p.m., and $20 per day for an in/out day pass.  A new revenue control system that will allow the flexibility to charge an incremental parking rate on non-event days and a flat rate on event days is scheduled for installation at the convention center garage in Winter 2003-04.  This flexibility will serve as an inducement to attract new business and capture more parking revenue.

 

Staff proposes that the Director of CAE have the ability to reduce or increase the flat parking rate at the convention center garage if it is determined that a reduction or increase is necessary to:

 

  1. optimize use of spaces in the convention center parking garage; or
  2. attract events that contribute to the economic vitality of our community.

 

When considering an event promoter’s request to reduce the flat parking rate, the Director of CAE will assess the event’s economic benefit, the projected number of parking spaces needed, and the demand for parking spaces at the convention center garage.  For non-event days, the incremental rate will be in effect.  The Director of CAE will submit a report in April 2004 to City Council of any parking rate increases or decreases that are made from the standard flat rate in the first six months, and every year thereafter. 

 

Following is a list of the proposed standard incremental parking rates and the proposed range for the flat parking rate for the convention center garage.

 

Standard Incremental Rate                                            $1.00 per 20 minutes

Maximum Daily Incremental Rate                                  $15.00

Maximum Daily Incremental Range                               $10.00 to $18.00

 

Flat Rate Range                                                            $0.00 to $18.00 per vehicle, per entry

 

In and Out Daily Pass                                                   Posted Flat Rate x 2, per vehicle, per day

 

The proposed parking rates will allow for inclusion of the convention center garage into the Downtown Retail Validation Program as directed in the June 4, 2003 Mayor’s Budget Message.  Implementation of the Downtown Retail Validation Program at the convention center garage will coincide with the installation of the new parking revenue control system in Winter 2003-04.

 

COORDINATION

 

This memorandum has been coordinated with the City Attorney’s Office, and the City Manager’s Office.

 

PUBLIC OUTREACH

 

The Downtown Parking Board unanimously approved the proposed parking rates on September 8, 2003.  Convention and Visitor Bureau staff have been involved in the preparation of this proposal and the Convention and Visitor Bureau Board has conceptually approved it.

 

 

COST IMPLICATIONS

 

Convention center parking revenues averaged approximately $120,000 a month during FY 2002-03 and are highly dependent upon convention center events.  A flexible rate structure for both facility and parking fees will help market the convention center, offer public parking rates that are competitive with the private sector, and attract additional events to offset the potential loss of operating revenues.  This recommendation is consistent with the June 4, 2003 Mayor’s Budget Message directive on improving convention center competitiveness and efficiency. 

 

 

CEQA

 

Not a project.

 

 

JIM McBRIDE, Acting Director                                               JAMES R. HELMER, Director

Conventions, Arts and Entertainment                                         Department of Transportation