The Way to (Team) San Jose Is Bumpy

Even though the number of events and hotel bookings is up since Team San Jose, a public-private partnership that runs the San Jose McEnery Convention Center and San Jose Convention & Visitors Bureau, was awarded the contract by the city in mid-2004, it's not good enough, according to a Santa Clara County Civil Grand Jury report released at the end of June.

The report not only found the city to be accountable for awarding the contract to Team San Jose based on what it said was a faulty RFP process, but it also recommended the San Jose City Council not renew the group's contract when it expires in June 2009.

Even though Team San Jose has missed its projections and continues to draw a subsidy from the city to fund its operations, Dan Fenton, chairman and CEO of Team San Jose, said, "Obviously, we don't agree with the report. But in no way, shape or form are we ignoring it either. We don't think it changes the long-term course of Team San Jose, and we believe even more than before in what we've done."

The grand jury report specifically cites a Team San Jose audit for the 2004–2005 fiscal year, published in October 2006, that stated the group did not meet two of its four performance measures and did not gather enough information to assess a third. A fourth performance measure was set so artificially low, according to the grand jury, that it was easily achieved.

The grand jury report concluded: "The agreement allows the city to cancel the project if Team San Jose fails to meet three of its four performance measures, but the city has not canceled the contract, and Team San Jose continues to lose money at more than double the rate stipulated in the contract."

The report is now with the City Manager's office, which has 90 days to respond. Kay Winer, deputy city manager, said. "The city is going to be responsible to respond specifically to each recommendation."

There are a few possible courses of action, she added, including revising the performance measures in Team San Jose's contract or going out for a new RFP. But, Winer said, even though the city has the legal right to cancel the Team San Jose contract with or without cause, "at this point and time we are not looking at that. Team San Jose has increased its revenues, and we want to continue working at it."

Team San Jose's original contract anticipated a deficit of $9.8 million over a five-year period. Consequently, it stipulated that the city would pay the group a $2 million annual subsidy. So far, according to the report, real losses have required a subsidy from taxpayers of closer to $4 million per year.

On this point, Fenton disagreed: "When the transient occupancy tax was put into effect 20 years ago, the law stated a portion of it has to go to the convention center. No one can change that, unless they change the law." In other words, he added, since the subsidy is funded by hotel bed taxes, it has nothing to do with taxpayer dollars and the amount of the real annual deficit is irrelevant. Winer agreed with Fenton but pointed out that, if San Jose's hotel business went into a serious downturn and the transient occupancy tax dropped off — something that has never happened — the city would be responsible for any convention center deficit and would have to fund it with taxpayer dollars.

It could be argued that Team San Jose has brought some of the problems stated in the report and audit on itself, such as the overly optimistic projections. However, others, such as continued fallout from the dot-com bust and the shows abandoning San Jose for San Francisco, were not in its control. The RSA Conference and the Game Developers Conference, for example, both left San Jose in 2004 for San Francisco's new, and bigger, Moscone West the following year.

When asked by TSW a few months ago, Fenton conceded he didn't factor into Team Sam Jose's revenue growth projections existing shows going to Moscone West, which has 296,000 total square feet of exhibit space compared with San Jose's 223,000 sq. ft.

"I think naively, frankly, we thought we would retain those groups," he said. "We're pretty competitive, and we didn't think we'd lose business."

As for as the unmet projections, Fenton added at the time, "You know how projections are, you do the best you can. We've had the lowest subsidy in years, and our revenue is up."

But, more recently, he also said that while the convention center's projections for a partial 2003–2004 fiscal year used for the bid process were for revenue of $8 million, actual revenue was closer to $6 million. "The convention center numbers were off the mark," Fenton added.

Now that Team San Jose has been at the helm for a few years and the focus is on subsidies and missed convention center revenue projections, the overall economic impact from the increased business the group has brought in has been overlooked, according to Fenton.

"We are constantly trying to make people understand the success of the convention center depends on a number of factors," Fenton said. "All of the economic indicators are way up since we took over."

Recommendations made by the grand jury to the San Jose City Council include the following:

• not renewing the contract with TSJ when it expires in June 2009
• beginning immediately to develop a new RFP that better reflects the directives of the city council and includes sufficient information to select the most qualified responder
• validating financial assertions by responders that have economic consequences to the city
• ensuring that all responders meet all qualification requirements established in the RFP and that selection criteria are applied equally to all responders
• establishing performance measures that accurately reflect the intent and terms of the contract
• enforcing contractual agreements to protect taxpayers from supporting failed operations

Winer said that, while the report is non-binding, her office intends to take it "very seriously" before making any recommendations to the San Jose City Council on what should be done concerning Team San Jose.

With two years left on Team San Jose's contract, Fenton said he is looking forward to the future, not the past. "We're going to continue the positive trend we've already started," he added.