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Tourism Marketing Tax Approved, But Is It Legal?

Jordan Barry, a professor at University of San Diego's School of Law, talks to KPBS about San Diego's Tourism Marketing District and whether a tax on hotel rooms is legal.

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San Diego's Tourism Marketing District was launched as a pilot program five years ago to collect funds from hotels to pay for marketing campaigns aimed at tourists.

On Monday, the City Council voted to re-authorize the district to collect 2 percent of gross room revenues from hotels with 30 or more rooms to continue the sales and marketing programs. Smaller hotels would pay 0.55 percent.

City Councilwoman Marti Emerald was the lone dissenting vote.

Joe Terzi, president and CEO of the San Diego Convention and Visitors Bureau, or ConVis, praised the vote.

Terzi told KPBS about 75 percent of ConVis' income comes through the tourism marketing district. He said it currently generates $30 million a year, and expects that amount to increase because the new district is bigger.

Some have expressed concern about the precedent of private individuals assessing and collecting taxes, essentially without oversight or accountability.

But Terzi told KPBS "it's not a vote of the people issue."

"The test is are the funds that are being allocated into the district by the payers, is it benefiting the payers directly?" he said. "And you have to prove that that is the case, and there's not a significant benefit to anyone other than the payers. So that's why the district was expanded, to make sure that we're able to meet that test to say, 'yes, there is benefit to all of the hotels in San Diego. Some more than others.' And that's why the funding scenario shows that 2 percent for hotels that are larger and 0.55 percent for hotels that are smaller."

Terzi acknowledged that it's not hoteliers who pay the tax, but tourists paying for hotel rooms, but said there are "arguments on all sides."

"I'm not a lawyer, nor do I want to get into the legal arguments," he said. "I will tell you without the tourism marketing district, San Diego would be in a very bad position right now because we would not have the money to go out and compete with those that we compete with every day for these tourists coming into San Diego."

He added there is "more oversight than we'd like" from the city on how ConVis uses its funds.

"Having said that, we have an obligation to report to the tourism marketing district on expenditures," he said. "That gets audited and approved through their financial oversight organization, which is an independent accounting firm. Then those funds are approved and supported. Then they go to the city. And the city oversight through their department actually checks and verifies that the expenditures are appropriate based on the budget and the opportunity to use those funds, and finally we get the funds returned to us by the city.

"So there's not just one, there's two checks and balances on how the money is spent."

Mayor-elect Bob Filner wanted to use half of the tourism tax on public safety, but the City Council's vote Monday makes that unlikely. Terzi said Filner's plan is a bad idea.

"I think with all due respect, our new mayor really doesn't understand the issue," he said. "I know he has good intentions. But my first response would be the $148 million that is collected through the hotels in the form of TOT taxes fund a significant portion already of police and fire. And so to say that the tourism marketing district should be supporting police and fire is somewhat redundant when you think that most of the funds coming out of the TOT taxes that come directly out of hotels already support a significant amount of police and fire services."

Jordan Barry, a professor at University of San Diego's School of Law, told KPBS he understands why the tax makes people nervous.

"If you think about it one way, we have a decision about taxes being made by essentially just private actors," he said. "And we don't normally have that, right? Normally we have a vote of the people or elected representatives decide these things. Some people are very nervous about the idea that private companies can set tax rates.

"And this election that the hoteliers had, it's not even clear exactly how many votes each hotel had. We know the general scheme of how the election worked, but not exactly how the votes were divvied up. So it's a lot of concern about power being allocated in public hands, plus there's an issue of lack of transparency and accountability."

In February, City Attorney Jan Goldsmith told KPBS that limiting the vote on the hotel tax to only hoteliers “tests the boundaries of the law.”

Claire Trageser contributed to this report.


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