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Originally published Monday, December 1, 2008 at 12:00 AM

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Convention center vs. KeyArena: Expansions may compete for same tax money

Seattle's downtown convention center could double its exhibit space under a proposed expansion aimed at luring more convention-goers to the city. But the plan could conflict with efforts to upgrade KeyArena to attract a new NBA team.

Seattle Times staff reporter

Seattle's downtown convention center could double its exhibit space under a proposed expansion aimed at luring more free-spending convention-goers to the city. Washington State Convention & Trade Center (WSCTC) officials have been quietly laying the groundwork for the expansion over the past several months and plan to ask state lawmakers to approve the project when the Legislature convenes next month.

The expansion would add 210,000 square feet of exhibit space and be built over the downtown Seattle bus tunnel's Convention Place Station, a block from the existing state-owned convention center, said WSCTC President John Christison.

But those plans may complicate efforts by Seattle Mayor Greg Nickels to secure a $300 million KeyArena expansion needed if the city wants to attract another NBA team to replace the departed Sonics.

Nickels and WSCTC backers are eyeing the same pot of money — a 7 percent tax on Seattle hotel and motel bills currently dedicated to marketing the convention center and paying off debt from its $170 million expansion in 2001.

The tax brought in $37 million last year, and Nickels believes there is more than enough for both KeyArena and the convention-center expansion.

But Christison said he can't support diverting any of the convention center's hotel tax to KeyArena until he sees firmer cost estimates for the expansion. He said the project might cost "in the neighborhood of more than $500 million."

Both sides will make their cases today in Bellevue to a legislative task force examining future uses of the hotel tax, plus several related King County taxes currently dedicated to paying off Qwest and Safeco fields.

Seattle Deputy Mayor Tim Ceis said Nickels supports the convention-center expansion but believes money should be made available for KeyArena as well.

The city potentially has $30 million — plus its hopes of landing another NBA team — riding on its ability to get the Legislature to contribute to a KeyArena expansion.

Earlier this year, the city negotiated a legal settlement with the Sonics ownership group led by Clay Bennett that allowed the team to break its KeyArena lease and move to Oklahoma City in exchange for a $45 million payment.

As part of that settlement, Bennett agreed to pay Seattle another $30 million in five years if the city receives no replacement NBA team. But Bennett will not owe that money if the Legislature fails to authorize $75 million toward a KeyArena expansion by the end of 2009.

Nickels wants the state's $75 million share to come from the convention center's hotel-motel tax. A private ownership group led by Microsoft CEO Steve Ballmer has offered to contribute $150 million toward the KeyArena project. The city would kick in another $75 million through admissions taxes.

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The Legislature has rejected four previous proposals to pay for an upgraded KeyArena or new NBA arena — including this year when Ballmer's group stepped forward, offering to cover half the cost of the KeyArena upgrade.

Ceis said redirecting a portion of the 7 percent hotel tax could prove more palatable because it is collected only in the city of Seattle and primarily from out-of-town guests. (King County hotel rooms outside of Seattle are charged a 2.8 percent tax for the convention center.)

"We think this is a really solid proposal," Ceis said.

If the city doesn't get an NBA team, Ceis said the money could be redirected to other worthwhile projects at Seattle Center.

But Christison said the convention center has to be first in line.

"We're certainly not opposed to what the city wants to do. All we're saying is in our mind expanding the convention center is the highest priority," said Christison.

Both projects could face skepticism from legislators facing a budget shortfall of more than $5 billion.

Although the convention center's hotel-tax money is not part of the state's general-fund budget, lawmakers have raided it before.

Two years ago, the Legislature grabbed $65 million from the convention-center account for the general fund — redirecting surplus hotel-tax funds to pay for other state services.

Christison said WSCTC officials hope to convince lawmakers to retain the rest of the hotel tax for the WSCTC expansion, which could be completed by 2015.

"The convention center is not a part of the state's budget problem," he said. "What we are saying is in a time when things are really, really tough, that this may be an important time to invest in something that may be an economic inducement here."

Christison said the convention center now ranks 68th in size in the U.S. and Canada and turns away business all the time because it is comparatively small.

But some critics of the industry say there is a glut of convention space competing for a smaller and smaller share of convention-goers. A 2005 study for The Brookings Institution criticized cities for conducting a convention-center "arms race" despite declining market demand.

WSCTC has hired consultants to do a feasibility study and a financing plan for its expansion — documents Christison said were not ready for release last week.

But even without those details, some key business leaders and political officials already are lining up behind the convention-center expansion plans, while expressing less interest in Nickels' KeyArena proposal.

In a letter to House Speaker Frank Chopp this month, the leaders of the Greater Seattle Chamber of Commerce opposed plans to redirect the hotel tax to other projects.

The Chamber urged the Legislature to maintain the hotel-motel money "in full" for the convention center, according to the letter signed by Chairman J. Tayloe Washburn, and President Steve Leahy.

While not directly mentioning KeyArena, they wrote that "other important projects" should be considered only after the convention-center project is funded.

King County Executive Ron Sims is also enthusiastic about the convention-center expansion, which would be built over the county-owned bus-tunnel station.

Sims said Seattle has become an increasingly big draw for tourists but lacks the space needed to attract the largest national conventions.

"I think it's an incredibly good investment," Sims said.

The county also stands to benefit from selling or leasing its land for the project. A Sims' aide estimated the land could fetch $50 million to $100 million.

Seattle City Council President Richard Conlin said the convention-center expansion, "from everything I've heard, probably makes sense in terms of future marketing for the city."

But both Sims and Conlin declined to say anything at all about Nickels' KeyArena proposal.

Jim Brunner: 206-515-5628 or jbrunner@seattletimes.com

Copyright © 2008 The Seattle Times Company

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