$780 Million to Expand the Convention Center
Friday, June 19, 2009
If San Diego wants to expand its convention center, it will likely cost at least $52.5 million a year in new taxes and fees over the next 30 years. Is an expansion of the convention center worth the $780 million price tag? And, with the proposals to build a new city hall and downtown library also in the works, which project should be a priority?
DOUG MYRLAND (Guest Host): You're with the editors at the roundtable. I'm Doug Myrland, sitting in for Gloria Penner. And despite general economic stress and some unusually difficult budget challenges, the City of San Diego has two major construction projects on the table. There's the proposed expansion of the convention center, estimated to cost about $53 million a year for 30 years, and the new city hall project which would come in the $200 million range. The question is not only how to pay for them or who should pay but is now the time to be considering them at all? And Tom York, you recently editorialized about the city hall project. Can you tell us about that analysis that you made?
TOM YORK (Editor, San Diego Business Journal): Well, you know, in looking at the – at what's happening down at city hall, the city government leases more than 500,000 square feet of space downtown to accommodate its employees. And one of the justifications for considering a new civic center is doing away with those leases and moving those employees into a newly constructed city hall. The question revolves around the numbers involved and whether or not it's cost efficient to do that. And some people are saying, in the commercial real estate industry, that it's not, that some of the estimates that have been put forth to justify consolidating employees in a new city hall are over inflated in terms of the cost. And I editorialized about this in our issue that came out on June 15th and this week in the Union-Tribune a story popped up which quoted Jason Hughes from Irving Hughes, which is a broker, saying the numbers that have been used to justify, you know, moving the employees, getting rid of the leases, are widely inflated.
MYRLAND: So let's step back and minute…
MYRLAND: …and just see – talk about the implications of that because a whole big part of the proposal is that it could actually save money by moving those people out. And if the estimates are as wildly different as people are asserting, that's a real game changer, isn't it.
YORK: Well, I think that this – this happens a lot in city government here in San Diego and everywhere else, is that, you know, the city wants to do a project so they have to come up with a, you know, a justification, an economic justification, so they go out and hire a consultant, tell the consultant, well, we're looking at doing a project and then the consultant comes in with a report that basically has numbers that favor doing the project. And I think in this day and age with the economy in such turmoil and with the city – you know, the city's finances in such turmoil, it kind of boggles the mind that we're even seriously considering a project of, you know, $200 million, although the City is saying that that would be – you know, pay for itself. Of course we know from past experience with other projects that these – you know, these monuments to ego rarely ever pay for themselves.
JW AUGUST (Managing Editor, 10News, KGTV): Squishy math, it's all squishy math, I think. Very widely divergent figures. I'm not so sure that the consultant didn't have a game plan. They all do. And they have to come in and tell them how it can be done and they're always going to paint a glowing picture. And why does the city need more space anyway?
YORK: Yeah, well, you know, I – Here's the deal. You know, city hall is a kind of a wreck. I mean, when you go down there, it's approaching, you know, slum status in some ways. It hasn't been maintained, it's rundown, and I think in some ways the city the size and the stature of San Diego probably does need a new civic center.
MYRLAND: That's almost like the library argument.
YORK: But if we're going to build a city hall, let's say, okay, we're going to build a new city hall, it's going to cost a lot of money, it's probably not the best time to do it but we should start planning now. When the economy gets better, and let's go ahead and do it. And, you know, we won't futz around with the cost estimates, we'll just go ahead and do it. Be up front about it. But what's happening is, is that they're trying to, you know, push the numbers around in their favor and I think that it smacks of this – you know, I talked about front door politics as opposed to backroom politics. This one has the patina of backroom politics.
MYRLAND: Well, I want to stay with the idea of leased space for a minute because it seems to make common sense when we're seeing 25% vacancy rates in commercial property and all this economic stress, that it's a wonderful time to negotiate leases and get – lock in some long term leases rather than…
MYRLAND: …spend the money on new construction.
YORK: Right. The consultant that did the study on behalf of the city said that, you know, that when the leases come up, primarily in 2013, 2014, you know, they would be at a much higher rate than is being paid now and then they would continue to increase over the next, you know, 15 to 20 years. Well, of course, commercial real estate is cyclical. We know that from our own experience just in the last 15 years. You know, as business conditions improve, commercial space gets more expensive. As business conditions worsen, commercial real estate space becomes less expensive. And the difference here is that the consultant is saying that it would cost about $2.17 a square foot versus what the – another critic is saying it could be as low as $1.30 a square foot. And that's fairly significant.
MYRLAND: John, are you going to weigh in on this discussion in your publication?
MYRLAND: Are you preparing an editorial?
JOHN WARREN (Editor and Publisher, San Diego Voice & Viewpoint): In time. It's not a priority at the moment. I think there are more pressing issues, the city dealing with a budget. We're talking about new buildings but yet we don't want to make a commitment to complete the library. We want to close and reduce library hours, we're not dealing with recreation for our kids, we're not dealing with transportation for our citizens at a time when gas is up and people are losing jobs, and we're sitting back talking about what city hall should look like. I think it's absolutely absurd and ridiculous. There are some things that should be made clear to the public. If it's going to be a capital project then a capital improvement budget is different from an operating budget. And so there are some vacant buildings downtown. As one suggested, can we buy a vacant building and adjust it to accommodate us as opposed to building a building with all the cost that goes into that. We don't hear serious discussion about these things. You have -- San Diego's a place that when people decide to do things, you hear discussion surrounding what they want to do but you don't hear discussions surrounding the collateral damage or the shifting of priorities. And I'm tired of seeing a ballpark when we don't have a library. You got libraries that need work. We don't have a adequate summer program for diversity – the rich diversity of young people who need work experiences and things to do and we're not addressing those issues. We're more concerned about the seals at the beach and, now, a new city hall. And I think the people should start holding the folks they elected accountable for not making these things priorities.
MYRLAND: I want to invite our listeners to join this conversation at 1-888-895-5727. And I also – I want to ask a question and I don't – I don't want to sound snarky but I – If the City leased space instead of maintaining their own city hall, wouldn't it likely be better maintained? I mean, we talk about how bad city hall is and how it hasn't been taken care of, well, what makes us think that they're going to take any better care of a new building? Wouldn't it be better to have a landlord who had to fix the plumbing?
YORK: Well, theoretically, if you lease space from a private, you know, private concern, obviously they're going to take care of their building because it's important to them to do so. I think there would be some truth in that but, of course, maintenance varies from owner to owner so you have to be very careful. One of the things I suggested in my Editor's Notebook this week is that maybe the City should consider, you know, buying an existing building or maybe building – having a private developer that already has the, you know, the permits in place to go ahead and build a building for them. And then one of the things – and if there's no council chambers, why not meet in the, you know, the Balboa Theater or meet out in the neighborhoods and, you know, take the city out to the community, which I think is very important in a city the size of…
AUGUST: That's much too common sense. That's much too common sense. It's never going to happen. By the way, I see – I grew up in city hall. That was one of my first jobs in media. I don't think there's anything wrong with the building that some paint and cleaning, a new carpet, and new tile might not fix. Just because the house is old doesn't mean you throw it out, just because the building's a little old – I love it. Location, that's a beautiful location. I mean, the plaza behind it, the trolley in front of it. I don't see the reason they got to move out of there.
YORK: Well, unfortunately, if I can just jump in here real quick. It doesn't meet current building codes as far as the handicapped goes and that sort of thing. Of course, I assume that it could be, you know, remodeled to do so.
AUGUST: For a heck of a lot cheaper than they're talking.
MYRLAND: Well, speaking of changes downtown, an even bigger project that people are talking about is the expansion of the convention center. Maybe the city council could meet in the new space at the convention center. What do we think about the issues involving that? That's a huge price tag.
YORK: Well, you know, once again I think that the numbers are being shoved around to make them work in favor of expanding the convention center, not that in the long term it's – may not be a good idea but one of the things that's brought – one of the conditions that's brought up is that to finance this $52 or $53 million a year over 30 years is that they would increase the hotel tax, you know, the tax that we charge for people who stay overnight. And right now the hotel industry is in the tank. In fact, we just reported this week that the W Hotel, the owner of that property gave the keys back to the lender, and our sources say that there's going to be a lot more of that. So the question that comes up is why are we thinking about this very seriously at a time when the hotel industry is really struggling through this recession?
MYRLAND: Well, we have some listeners who want to weigh in on the conversation, and we have Britta in Mission Hills who wants to make a comment. Britta, welcome to the program.
BRITTA (Caller, Mission Hills): Yeah, hello.
BRITTA: Yeah, I guess my argument is probably not very realistic but, nevertheless, I have a big problem. I mean, I was listening earlier about Schwarzenegger telling us that—I'm a senior—that seniors' in-home care, forget about it. You're just going to be out of luck and at the same time the city's talking about spending all this money on a new city hall and a convention center and it is just somehow – it almost offends me to think that they have the audacity to talk about things like that when we are in such a financial dilemma as we're in right now. It's like if I have – own a home and I have a mother whom I take – well, parents, who I'm taking care of, and at the same time I want to add on to my – put an addition to my house and then I find out, well, I can't have anybody come in to look after my parents so I'm going to have to do it and maybe I'll find someone to do it and pay for it and we'll forget about that addition until later. It's just not, you know – this is not the time to talk about this kind of thing when we're at the same time hearing all about banks crashing and, you know?
MYRLAND: Sure. Well, thank you, Britta, for that comment. And I'll throw that out, is this really tonally incorrect for the city to be talking about these projects during times of economic stress? John?
WARREN: Well, I don't think it's incorrect as much – Well, yeah, it would – You can call it politically incorrect. I mean, it shows an insensitivity, as she said, and I pointed out earlier. People want to know how they're going to be helped by government at this point. They're not interested in greater spending. And I think, Tom, one of the points you raised was a very good idea, that perhaps something could be done with an existing developer. JW, that building there behind that security building…
AUGUST: The old Security Bank building.
WARREN: Yeah, that building, as far as I know, is not owned by the city. The city leases that building.
YORK: Right. The City Attorney's office is…
WARREN: Yeah, so there's a number of buildings that are being leased down there. Perhaps they can be sold to us. That would make a difference. The one of the big concerns is the council chambers being on the 12th floor and people having access and the safety and the city having grown from what it was before. So the caller represents the folks who are not being heard in this though, and I think that's important.
MYRLAND: I want to talk about the convention center project, specifically, for a little bit. We've talked a lot about city hall. One of the interesting things I read in the research was the combination of interests who want to get the convention center built. One of the major investors was going to be the Electrical Workers Union. You've got quite a coalition of people who want to make this convention center happen. How do you think the politics of this is going to play out?
AUGUST: Well, I think who build – who benefits from it should pay for it. So maybe the union ought to come up – fork up – over the money.
YORK: Out of their pension fund.
YORK: You know, one of the arguments the convention center folks are making is that right now because the size of the center limits the kind of conventions that can go in there, they're losing business to the tune of $400 to $500 million a year. And that's business that would, you know, money that would flow through the city that would, you know, help all the people, especially those that work in the hotel industry, hospitality industry, convention industry. And so there's that argument. But, you know, given the economic conditions right now, to put something this costly into place and to have that obligation, I don't know, there's a lot of questions about that.
MYRLAND: Ron in Mission Hills wants to weigh in on this subject. Ron, please join us.
RON (Caller, Mission Hills): Hi there. I remember back in the – when they wanted to expand the convention center, the point they were making is, well, we're building a new hotel, the TOT from the new hotel will pay for the convention center. Then one year later they made the same exact argument using the same exact numbers for the money to build the ballpark. Well, the bottom line of it is all this stuff helps out the downtown people but really not much of the rest of the city. What I'd like to see is someone actually do a study sometime and say where does the money ever get returned? Do we really make money on these things or not? Right now I think we're paying about $12 million a year for the ballpark, still seven or eight million dollars a year – five million a year for the baseball – or, football stadium, and God knows how much for the convention center, so we're paying out a huge amount of money and they want us to pay more so we can have Comic-Con? We can never out-compete Las Vegas. Not going to happen.
MYRLAND: Ron, thanks for your comment. JW?
AUGUST: A hundred percent agreement on that. We can't beat Vegas. Why should we? We have a great city here, it's a great – a lot of people would love to come here. Do we – But I would argue that we should be talking about expanding the convention center because long term it is, I think, in the benefit of the city to do it. We should – You know, let's talk about it. We're in no hurry to do it. It's – The way we talk around here about projects, it'll take them five years to get it to the draw – you know, past step two. So there is some time to think this out, look who the players are going to be, and weigh everything. I do think it should be on the table and we should be talking about it.
WARREN: Oh, an observation here. San Diego is like number 13 in the nation in terms of its ability to hold large conventions. We keep throwing out the Comic-Con that started here, has grown, and it's leaving. Well, I don't think the center should be built unless we have the contractual commitments, long term, from all those entities such as Comic-Con that we want to come here. That means then that they should sign a ten- or fifteen-year contract with us. If they do that, that kind of contractual work, then, yes, we know what we have going. Now we're saying that we're going to pull in $378 million a year in revenue from the center once it's built but we're going to rape and cripple everybody to build it to the tune of this $56 or $58 million a year that we have to come up with. That money is not realistic and it omits another important point, that people in other cities are looking at doing the same thing that we're doing. So at what point does the law of diminishing returns kick in and we start considering whether we become satisfied with what we're able to track because we have so many other things that draw people as well as the waterfront and the city and all of those things, and find our niche, if you will, in the marketplace and work within that niche as opposed to continuing to stretch ourselves when we're not taking care of the rest of it. I think those – that's the kind of discussion people want to hear.
MYRLAND: So are we going to have that kind of discussion? Do we have the political mechanisms in place to really have those kinds of thoughtful discussions with the public or is this going to continue to be driven by a few people who really want to make it happen, and what's the landscape going to – how's it going to play out?
AUGUST: I'll take B. Those with an interest will drive it. That's exactly what's going to happen. That's the nature of how this city works.
MYRLAND: Well, on that less than optimistic note, we're going to move on. We'll go to a break. We're with the editors at the roundtable. Joining us today is JW August, managing editor of 10News, and John Warren, publisher of the San Diego Voice & Viewpoint, and Tom York, editor of the San Diego Business Journal. And we will be right back with more Editors Roundtable right after this quick break.
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