Could Proposition 26 Derail Proposed Convention Center Expansion?

Mayor Jerry Sanders and other city leaders are pushing for a $750 million expansion of the San Diego Convention Center, but how will they pay for it? We discuss how Proposition 26 and uncertain redevelopment revenue could affect the proposal.

Guests

Scott Lewis, chief executive officer of voiceofsandiego.org

JW August, managing editor for 10 News

Ricky Young, watchdog editor for the San Diego Union-Tribune

Read Transcript

ST. JOHN: Models of a new Convention Center expansion here in San Diego with a sloping public park on the roof top overlooking the bay. Seems like the plan is already gathering momentum, but the question of how it will be funded is lagging behind. And now, a recently passed proposition could throw a big stumbling block in the way. Scott Lewis has written about this. So Scott, do you want to explain why prop 26 might threaten pretty much the only money that the city was feeling confident would go towards this expansion.

LEWIS: Well, are not confident as much as they said it to go before they would do it. A Convention Center expansion would be one of the most expensive public construction things that the City of San Diego's ever built. It would be a $700 million, perhaps maybe lower, but they've held at 700 million for now. That means about a $50 million payment every year. So how do they get $50 million a year? One of the sources and the mayor and Kevin Faulkner, the City Council man, and Carl DeMaio, the City Council man, all say if they want to do this, the hotels have to contribute. The hotels that benefit from an expanded Convention Center have to contribute to this effort. And the route that they actually saw that happen was through basically an extension or an increase in the hotel room tax. Now, when you stay in a hotel room in San Diego, you pay 10.5 percent of your bill to the city. And in addition, you pay two percent on top of that which goes to what's called a tourism marketing district, and that money is actually administered by the hotels by basically the convention and visitors bureau, which by the way has never had as much money as it's had since that passed in 2008. The issue is that they want to extend that and increase that, but they started to get worried about what happened in November when prop 26 passed. Now prop 26 basically said that any assessment that is levied on somebody for no direct benefit to them in the sense of you don't get a service out of it, so any leafy you can charge a fee for a permit, you can charge a fee for a fine or a parking fee or whatever service the person gets out of doing that, then you can charge that. But if you do a leafy across a population of people, it has to be voted on.

ST. JOHN: In this case, it's tourists.

LEWIS: Right. And so what the -- so legally, this is kind of freaked out the local boosters of a new Convention Center, and in particular, the city attorney, Jan Goldsmith, who's form aid working group in his office to figure out what this means, basically, they're worried that prop 26 means they can't increase this little assessment that's been on top of the hotel room tax, and that they can't do it, in fact, without a vote of the people, which would mean that this wouldn't happen. Now, the hotels could still contribute it a pot that would go to fund the Convention Center. What they can't do or what they're worried about not being able to do is pass that cost directly on to the visitors of the hotel room, in the form of that assessment because of it being considered a tax, which basically it is, it's just a higher hotel room tax.

ST. JOHN: And that tax passed because the San Diego voters refused to pas a TOT tax increase before.

LEWIS: Twice. In 2004, they tried to increase the hotel room tax the city charges, and it was rejected twice. Now, what really interesting to me about this, to me it symbolizes the confusion among fiscal conservatives in this state. On the one hand, they are very anti-tax, and they pass things like prop 26. But on the other hand, it's like Rachael Ling of the mayor's office tweeted. It's all fun and games until somebody loses a project. And I think that's the issue here. Now they're struggling because they don't think that they can pass a tax, basically that would fund the expansion of the Convention Center.

ST. JOHN: So are there any ideas that local leaders are proposing to get around this prop 26 limitation.

LEWIS: Well, are the city attorney has this working group, and he promises that within the week, he'll have an answer for how it affects San Diego. What's really interesting about this is that the cal chamber, the California Chamber of Commerce was the main sponsor of prop 26, which means that prop 26, if it kills the Convention Center, will kill the project that the San Diego chamber thinks is so vital on the region. But when I called the cal chamber person, he said that anything that was legal before prop 26 should be legal now. But what he said was that any leafy on a hotel room visitor like this probably should have been voted on in -- before it was even passed before. Which throws into question the legality of the leafy that we've been collecting now since 2008 on hotel room visitors.

ST. JOHN: Well, is there any precedent of any jurisdiction around the state actually having to, you know, give back money that may have been a tax when they thought it wasn't?

LEWIS: Well, I don't know for sure. There was a small issue with the county and TOT that it was charging on an Indian reservation. I'm trying to figure any precedents out like that, but the point is, what it does do is threaten -- because this two percent assessment was only scheduled to last until 2013, so if they want to extend it and keep protecting the funding that's going to that marketing for visitors issue it's in doubt now too. And so it's a big, big deal, and not only for the Convention Center but for the entire local visitor industry, and it's been revealed, and sort of brought to the surface by their own allies in the anti-tax and conservative world including the Chamber of Commerce of California.

ST. JOHN: So now, Steve Cushman has been designated by the mayor.

LEWIS: Right.

ST. JOHN: To find the money for this expansion. He's a long time mover and shaker, and has he got any other sources of money up his sleeve?

LEWIS: Yeah, there's basically one source of revenue, they want to refinance the bonds of the other expansion that the Convention Center went through in the 90s so that would save potentially a lot money. And then the big one, the port is being asked, but the port's revenues are collapsing. But they have been asked for money for this too. And then the third is the big one, of course, redevelopment. Of and I think that this is -- this is gonna be what it all comes down onto is this redevelopment issue and whether we can sequester enough downtown tax increment money from property taxes and use that for the Convention Center. But if they only rely on redevelopment, that would -- that would fly in the face of their pledges that they would make the people who benefit the most from the expansion actually pay for it, which is the hotels.

ST. JOHN: And redevelopment, that's another whole ball of wax. Ricky?

YOUNG: Yeah, I was just gonna mention -- Scott mentioned that the California chamber indicated the existing TDP or whatever this thing is called.

LEWIS: TMD.

ST. JOHN: What does that stand for?

LEWIS: Tourism marketing district.

ST. JOHN: Thank you.

YOUNG: Existing TMD probably wasn't legal in the first place. It represents a fee or a tax or whatever that should have been approved pie voters and yet it's being collected and used here in the city. And the minds that brought you that, I imagine, will find a way around prop 26. I mean, these are smart people with lawyers and financial people, and I'm guessing that if they want to get this thing funded, they will figure out a way.

ST. JOHN: Well, but when the voters refused to pass the TOT tax, I can't remember how many years ago.

LEWIS: 2004.

ST. JOHN: 2004, okay, so then the hotels just decided we'll go ahead with this other one, and the City Council, there was some debate, I remember, as to whether this was such a good idea but --

YOUNG: I'm just saying they found a way. The voters didn't want to pass it, so they found a way. And I'm just saying, I imagine that's what will happen here.

LEWIS: Well, it's not me that brought up the worry. Will this was sort of circulating, and again, it's Cushman, it's the city attorney, and it's all the people who want to build the Convention Center.

YOUNG: They're needing to find a way. And I'm just saying I think they will.

AUGUST: Can I be a fly on the wall for that one? I would have to hear what they're suggesting.

ST. JOHN: JW, what is your whole take on the Convention Center expansion.

AUGUST: This is assuming that we really need to expand the convention -- I think right now, the powers that be have been convinced most of the population that we do it need it, it would be valuable for us, it would increase the number of conventions, they'd be able to use the city, and I think the Convention Center released some information that they had ten conventions in the last year, they had to turn down $40,000 people, I don't know if I'd trust the information but I'm just saying that's what they said.

YOUNG: The thick to keep in mind is this is a very competitive industry. And there's one-upsmanship that goes on from city to city, and as with everything else in San Diego, our hotel tax is I think a lot lower than others. I used to cover Anaheim, and I remember the hotel tax there being 18 percent or something.

AUGUST: Go to New York.

YOUNG: Back then, and I imagine it's gone up since.

ST. JOHN: Isn't it interesting that San Diego voters voted --

YOUNG: And they used that to fund their Convention Center which is huge.

ST. JOHN: So San Diego voters were not even let tourists come and pay a higher tax even though we're lower than other cities.

LEWIS: The problem is about 61 percent of them were. The problem here is that you need two-thirds OF the voters to increase it on a specially designated tax on it. When there was another tax that went up that only needed 50 percent because it would have been to the general fund, well, it fell short of that as well. So it's not that -- you know, I think a majority of people would increase it, it's just that you need a super majority. The other thing to keep in mind is that hotels could agree to collect and assess themselves and pay for this very easily. The problem is if they want to pass that cost directly onto their customers. In other words if they all want to get together and agree to raise their price two more percent to fund this, well, that's what the issue is. So that's what the prop 26 debate is indicating, that they might -- that they might have to do with a vote of the people. And so the thing here is, if they were so confident in the return on investment of this Convention Center, then why not agree to just simply assess themselves and collect this into a pot and not have to worry about passing that cost directly onto the people? It's that issue that is throwing the legality of this into question.

YOUNG: The issue is voluntary payments don't work as well as compulsory payments, and if you look at half of the voters approved this parcel tax for the schools last year, and the schools want to go and see if people will put in that money voluntarily, since they voted for the thing, even though it doesn't didn't, pass, and you'll see they'll get a lot list of that money than if the thing had passed.

ST. JOHN: But I believe Steve Cushman did say right at the beginning of this process, that he really felt that the hotels were gonna have to bear the bankrupt of the cost of this.

LEWIS: They all say that. The mayor has said that, the [CHECK AUDIO] they shouldn't do it unless the hotels do it you will of it, or the people who benefit do all of it. Of so this is a gigantic proposition, air gigantic investment at a time when the city is struggling, and so this is a very big issue. And if they do find a way around, it will be interesting, but if they don't find a way to assess the hotels for this, their rhetoric has boxed them into potentially not pursuing it, which would be a huge deal.

ST. JOHN: Well, I don't think -- it's not in the list of dream projects in the four billion dollar list that the city has put together for redevelopment right now, but is that definite or could it be snuck in later.

LEWIS: Well, there's a whole -- if you look at the pie, there's a whole other category, and even some of the affordable housing units are sections that they could move around for it. The other issue with redevelopment is that that area is not physically blighted. They'd have to make an argument that it's not blighted but there's an area in Barrio Logan that'll benefit because of all the things that'll be built around this or something like that. They'll have to make that determination if they want to use redevelopment for an expansion of the Convention Center.

ST. JOHN: JW?

AUGUST: Well, when there's a will, there's a way. And I think as Ricky said, they have the will to do it, so they always manage to push the right buttons and --

ST. JOHN: Okay. Well, listen we just have a couple of minutes and I wanted to get to another issue that was sort of a hot topic this week which was the trash fees of the City Council committee, we'll just do a quick once around on this. The City Council committee this week did it's best to foil the mayor's attempt to charge households on private streets for their trash pick-up, and of course as we know presidents of the City of San Diego, unlike anyone else in the county get free trash pick-up because of the People's ordinance of 1919. Of so I just wanted to ask each of you as editors and observers here, how long do you think it will be before San Diego residents will have to give up their free trash pick-up before the political tides turn, Ricky?

YOUNG: You know, I have no way to predict that. I feel like for reasons I don't fully understand, because I've paid for trash pick-up in other cities myself, and it seems like a utility to me more than a God given right, but in San Diego it is -- I've certainly learned it is determined to be a God given right. And I do think that it's kind of a nonstarter to take it away from the vast majority of the public. But I do think these people who live in gated communities on private streets, I think that that may be a concession that gets made.

ST. JOHN: 60 seconds here, Scott.

LEWIS: Now, wait, 40 percent of the city residents do pay for their trash service in a separate fee. Not all residents do get this sort of free service. And we have to remember that. And the issue is about equity across the board here. So you could do it without raising revenue to the city, but just make sure that it's spread out equitable.

ST. JOHN: And what about you JW.

AUGUST: Well, if you look at the city's seal in Latin, it says mother, apple pie, and free trash pick-up. It's part of our history.

YOUNG: Just to save some calls, there's a significant number of people out there who say it's not free, I pay for it in my property taxes.

AUGUST: Absolutely.

ST. JOHN: All right. I'd like to thank you so much for the discussion this hour.