Aug. 19 (Bloomberg) -- First the binge, now the hangover.

A headline in the Aug. 10 Omaha World-Herald succinctly sums up the state of affairs at the city's new convention center hotel: ``With Too Few Conventions, Hilton Can't Pay Its Way.''

The story described how the city of Omaha, Nebraska, would have to tap reserve funds to make payments on the bonds it sold to build the hotel in 2002. When the city sold the $103 million in bonds, it also promised to make up a portion of the debt service, if hotel revenue fell short. In part because of that promise, Ambac Financial Group Inc. guaranteed the bonds.

The hotel, owned by the city and operated by Hilton Hotels Corp., is meeting its goal of filling two-thirds of its rooms, but not at the rates originally projected, which were $143.43 in 2005 and $147.07 in 2006. A couple can stay there this weekend, for example, for as little as $109 per night.

That's not all. It looks like the city will have to increase property taxes in 2007 to pay debt service on the bonds it sold to build the convention center. The center has booked 14 conventions for 2006, and only six in 2007, the newspaper reported.

``2007 is a big problem,'' the newspaper quoted Dana Markel, director of the Greater Omaha Convention and Visitors Bureau. ``We are very concerned about it.''

Welcome to the convention business. Now get ready to raise taxes.

Space Race

During the past two decades cities across the U.S. went on a bender building convention centers. They were told by bankers and the consultants who put together feasibility studies that it would spur economic activity in their downtowns and that the conventioneers' dollars would roll in.

Then they were told that their convention centers were too small and they had to expand them if they wanted to attract the really big shows that bring in thousands of attendees.

Then they were told that they really couldn't expect those convention centers to fill up unless there were hotels, and not just your ordinary downtown hotels. No, hard-core convention goers apparently have to be housed right on top of or just alongside the convention center itself.

Oh, and by the way, cities were told they shouldn't expect hotel chains to step up to build those hotels themselves. This is a part of the hospitality business where the private sector fears to tread.

Shrinking Business

And so city officials across the country bought into the idea that the convention business would bring in money, new development and prestige beyond imagination. Cities sold billions of dollars of bonds to build the convention centers, expand the convention centers and build the convention center hotels.

This process hasn't stopped. The city of Baltimore, for example, just this week approved building a $305 million, 752-room convention center hotel of its own.

After all, city leaders don't want to be left behind.

Now, quite predictably, and as Omaha is finding out, there is a convention center glut. Everyone's in the convention business, and you can bet that those who aren't are going to get in.

The bad news is that all these cities are chasing a business that isn't growing and may have seen its best days. Attendance at the top 200 trade and convention shows declined to 4.08 million in 2003 from 5.08 million in 1996, according to Tradeshow Week, the newsletter that tracks the convention industry.

This inconvenient fact was featured prominently in a report, ``Space Available: The Realities of Convention Centers as Economic Development Strategy,'' by Heywood Sanders, a professor in the Department of Public Administration at the University of Texas at San Antonio. The report was published by the Brookings Institution in January.

More Space

At the same time that the business has been shrinking -- which it was even before the Sept. 11 terrorist attacks -- convention and convention center hotel space has been expanding. Since 1990, exhibit space has increased 50 percent, to 61 million square feet, according to Sanders, and more is coming.

It doesn't take a genius to figure out that more convention centers chasing fewer and smaller shows equals a glut. What we don't know is if another four-letter word is on the horizon for this business: bust.

Perhaps the convention business will grow again. Will it go up 50 percent? Will it double? That seems unlikely, especially at a time in the business world where it seems every minute and every dollar counts. Perhaps people just don't have the time, or even the inclination, to go to conventions, conferences and trade shows and all the rest of it any more. Such events now seem like the relics of a more leisurely age.

Omahans shouldn't feel too bad. They have plenty of company.

To contact the writer of this column: Joe Mysak in New York at jmysakjr@bloomberg.net.

Last Updated: August 19, 2005 00:07 EDT