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As Voters Weigh Expanding San Diego Convention Center, Many Measure C Details Unknown
Thursday, February 20, 2020
Measure C has been pitched to San Diego voters as a key to reducing homelessness, a boost for local roads and a necessary investment in the downtown convention center to maintain valuable tourism dollars.
But when inewsource dug into the initiative, which would raise the tax on hotel stays, we found language that showed some promises may have to be adjusted in the future.
Here are examples of what could change if voters approve Measure C on March 3:
– The city would get the go-ahead to sell $2 billion in bonds to help pay for all three components in the measure. But if the higher room tax increase doesn’t raise enough money to cover the debt, there’s a possibility the City Council could take money from the general fund to cover the difference. That means money for police and fire services, for example, could decline.
– The sale of bonds could exceed $2 billion. A provision in the measure allows the City Council to lift a cap on bond debt obligations for the convention center expansion after holding a public hearing.
– Many details about how the new tax revenue, officially called the transient occupancy tax, will be spent are unknown and left up to future councils.
A coalition of high-profile supporters – buoyed by considerable resources – are backing Measure C, and say the new revenue will be shielded from misspending, protected by five-year spending plans, annual audits and a citizens oversight committee. Mayor Kevin Faulconer, Assemblyman and mayoral candidate Todd Gloria and City Council President Georgette Gómez are among the supporters. Campaign finance reports show that as of Wednesday, the Yes on C! For a Better San Diego committee had raised at least $2.7 million and spent more than $1.5 million.
Despite multiple prior attempts, San Diego’s TOT has not increased in nearly 26 years. The latest incarnation melds two of the city’s most urgent problems with a convention center expansion, which proponents say is needed to hold on to the annual Comic-Con event and secure other large conventions in the years ahead.
“The strategic decision made was that by adding the homeless services component and the street maintenance they would be able to secure more voter support,” said Tom Shepard, a longtime San Diego political consultant who isn’t involved in the Measure C campaign. “Whether that turns out to be true or not is as yet unclear, but voters ought not be confused. The majority of these funds are going to finance the expansion of the convention center.”
If voters say yes, the measure will raise the room tax from 10.5% up to as much as 13.75% over the next four decades. It would be charged on stays at hotels, motels, campgrounds and RV parks, with locations closest to the convention center paying the largest increase.
The new tax revenue would initially be split three ways: The convention center would get the bulk of the money, 59%, and homeless efforts would get 41%. In fiscal 2025, the split would change: 59% would still go for the convention center, with homeless efforts getting 31% and street improvements getting 10%.
After 20 years, the City Council can approve a change to the split again to cut the amount going for the convention center and raise the percentages for homeless efforts and street improvements.
Forty-five years in, if no recession hits and no changes to the percentages occur, it’s estimated the new revenue would have generated $6.8 billion, according to the city’s fiscal impact statement.
The most prominent opponent to Measure C is Michael McConnell, a philanthropist and homeless advocate who argues the ballot measure is far short of what’s needed.
So far, McConnell has spent at least $370,000 to try to defeat the measure, according to campaign finance filings.
Richard Rider of San Diego Tax Fighters and the San Diego County Republican Party also oppose the measure.
Voters will be deciding Measure C at a time when the city faces substantial deficits: over $3 billion in pension debt; an $857 million funding gap for storm water repairs; and a deficit of $108 million to fix sidewalks.
On top of that, taxpayers are still paying off debt from a previous convention center expansion. The city owes $90.4 million and expects to pay that off by 2028.
Given these needs, any new revenue from a TOT increase could be a solution for a number of items that are priorities for residents. But if Measure C is approved, it will cement the fate of the new room tax revenue for several decades. To pass, two-thirds of the city’s voters ‒ or nearly 67% ‒ need to vote yes.
A San Diego Union-Tribune and 10News poll released last week found 61% of likely voters supported the initiative, with 21% opposed and 18% undecided.
What Measure C could mean for the homeless and city streets
Even though most of the money from Measure C would go to the convention center expansion, the full text of the initiative leads with homelessness, calling it a “humanitarian crisis.” The text claims the ballot measure “will significantly reduce homelessness in San Diego.”
But city estimates show the measure is projected to bring in only $265 million for homeless efforts in the first decade – far less than the $1.9 billion called for in a strategic plan the City Council adopted in October. That plan includes costs for permanent housing, rental assistance and services, but lacks funding. Measure C, however, could be a partial money source.
The measure also doesn’t detail where the new money for the homeless will go. It says the funds will be used “exclusively for Homelessness Program Costs” but offers no specific spending plans.
Several major players involved in providing services to San Diego’s homeless are backing Measure C, including Alpha Project, Veterans Village of San Diego, People Assisting the Homeless and Father Joe’s Villages. The latest estimates show the city has 5,082 homeless people ‒ a number many consider an undercount ‒ and more than half of them have no shelter.
Deacon Jim Vargas, president and CEO of Father Joe’s Villages, acknowledges the measure is short on spending plan details, but he said that doesn’t mean the money won’t be spent on the homeless. Vargas recognizes some voters may want more specifics, but he likes the flexibility.
“It gives us an opportunity to sit back as a community and service providers, and give some input and make some recommendations as to how to best utilize these dollars,” he said.
Vargas hopes Measure C funding can be coupled with a $900 million city housing bond proposal that could go before voters in November. It would raise property taxes to pay to build housing for the homeless, veterans, senior citizens and others.
He knows Measure C won’t solve the region’s multibillion-dollar homeless problem, but he said whatever tax money comes will be welcome to those who work to try to help the homeless.
“It's a complex situation,” Vargas said. “It's a lot of people who we have out there. And so yeah, it takes a lot of money.”
Rachel Laing, a spokeswoman for the Measure C campaign, said the ballot proposal was deliberately designed without spending details to allow for changing circumstances and changing best practices when it comes to addressing homelessness. “And everybody who really understands how decision making is done understands that this is a good thing,” she said.
Later, Laing added, “Citizens will be able to come down and weigh in on the spending plans, how they plan to spend it. They'll be able to hold (City Council members) accountable.”
She warned voters that, in her view, the opportunity to increase the tax on hotel stays may not come around again.
“Every time we've attempted to raise the TOT, it's been met with a pushback from the hospitality industry or by anti-tax folks. And this is the one time where everybody's on the same page saying we need this,” Laing said.
But McConnell sees the Measure C homeless funding differently.
“The money that this will raise at best is a Band-Aid, a little bit of extra money. It's not strategic,” he said.
He also called the measure “poorly written” with “so many loopholes, so many risks to our city's budget,” that he wants voters to reject it.
McConnell worries the new revenue will be lost in “bureaucratic waste” with no limits on administrative costs and that expanding the convention center is not a top priority for most residents. He also points out that he’s paying to oppose the measure with his own money.
“I'm able to look at things from a very independent perspective. I'm not going to get anything out of this if it passes, and I'm not going to get anything out of it if it fails,” he said.
Measure C revenue estimates for road improvements are more modest than those for homeless efforts. The city estimates $49 million will be raised over the next decade. For context, the city estimates it needs $219.5 million for street repairs over the next five years. The Measure C campaign also estimates the increased TOT revenue would pay for work on an additional 150 miles of streets per year. Last fiscal year, the city repaired 273 miles.
By far, the bulk of the new revenue would go to pay for expanding the convention center: $452 million over the first 10 years, according to city projections.
Possible changes to Measure C spending in years ahead
Measure C opponents say the city has great latitude to change how the new TOT revenue is spent in the years ahead.
The Independent Budget Analyst’s Office, which advises the City Council, acknowledges some of that is true.
For example, McConnell points to language in the text of the measure that appears to allow the mayor and City Council to use other city funds to pay back debt. He questioned whether that gives the city the ability to dip into the general fund, which pays for everything from police and fire services to libraries and parks, if the new TOT revenues don’t meet projections. That could happen if tourism slows down or the economy takes a dip.
Measure C proponents say that won’t happen – the bond debt will be secured exclusively by the proceeds from the new TOT revenue.
A line in the measure’s text backs that up, but other language leaves open the possibility that other city funds could be spent if the new TOT revenues fall short.
Jeff Kawar, deputy director of the Independent Budget Analyst’s Office, said that’s an option but not a certainty:
“There is a provision within the measure that would potentially allow for that, but it doesn't compel the city to do that,” Kawar said.
Another part of the measure’s text that concerns McConnell and his attorney: “The People of the City of San Diego intend that the Additional Tax Revenues will supplement, rather than replace, any existing revenue sources …”
Andrew Werbrock, a political law attorney retained by McConnell, said the use of the word “intend” is unusual. When jurisdictions want to protect funding they typically prohibit it outright in writing, he said.
“I wouldn't swear that language like this doesn't exist elsewhere, but I've never seen anything like it before. Because ordinarily when you include a clause like this, it's because you want it to mean something,” Werbrock said.
Some critics also call the measure a blank check. One provision describes how an $850 million cap on issuing bonds for the convention center expansion can be lifted by a City Council resolution following a public hearing. Another provision says the council can amend the measure “in any manner that does not alter the tax rate or constitute a tax increase for which voter approval is required” – raising worries among some that broad changes could be made.
Staff from the Independent Budget Analyst’s Office said the city also does not yet have a finance plan in place for the measure –– meaning it’s unclear what approach the city will take with the money. The city could initially just start spending on expenses before issuing bonds, Kawar said.
Over time, he said, whatever amount of debt the city takes on issuing bonds is likely to come close to tripling in cost once interest is factored in.
The details of the financing plan are expected to be developed if the initiative passes. Laing said residents will have a say in that process, and the terms of the bond financing will be voted on in a public hearing.
Andrea Guerrero, executive director of Alliance San Diego, which does civic engagement work, said if the measure passes it will affect generations of San Diegans.
“It's critical for voters to ask hard questions and look deeply at this ballot measure,” Guerrero said.
Her nonprofit is not opposing or supporting Measure C but challenged the ballot summary language in court.
“The public should be aware that the ballot measure does allow (the) City Council to exercise significant discretion,” Guerrero said.
Convention center expansion not guaranteed even if measure passes
Whatever voters decide on Measure C, debate over expanding the convention center is likely to continue.
“This expansion is an odyssey that's been going on for at least the last 15 years. And if it doesn't pass this time, it's likely that it will go on for even more years,” political consultant Shepard said. He worked on two successful campaigns related to the convention center: a 1983 plan to build it and a 1998 expansion. Shepard said he believes voters understand the value of the convention center and its ability to attract tourists.
Mayor Kevin Faulconer has made funding the expansion a centerpiece of his agenda since being elected in early 2014.
“He has repeatedly, particularly in his annual state of the city messages, identified this as his top priority, and he’s had six years to work on it. So I think it will end up largely defining his success or failure,” Shepard said.
In emails and conversations with the mayor’s staff over the course of a month, inewsource tried to get an interview with Faulconer about Measure C. In the end, he declined to comment.
Even if the measure passes, Shepard said several issues could stymie the convention center project.
There are conflicting California court rulings over whether Measure C requires a simple majority to win or passage by two-thirds of voters to prevail. The city attorney has said it needs two-thirds, and that’s what backers of the measure are going for. Issues over the land lease for the convention center could be a problem, too.
The new room tax increase, if approved, also would stop if the expansion doesn’t happen within 10 years. Even so, the measure allows revenue already in the city’s pockets to be used toward the convention center for such things as operations and support activities.
Shepard said many issues could remain in play no matter what happens with the election.
“I don't think voters should expect that anything's going to happen immediately after March 3,” he said. “It's likely that we'll face months if not years of litigation.”
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