UPDATE: The Chargers, Convention Center and Taxes

As the landscape continues to change on this subject, it is important to keep the facts straight which is why I felt it is a good time to provide an update. Remember, this is one man’s opinion. There is nothing here but a love for San Diego and the Chargers (despite their current record). Below are my thoughts.

Chargers and Measure C

While I love the Chargers and watch each and every game, I completely disagree with their approach of using the ballot box to build a stadium before trying consensus building. Yes, I know they have been talking about a stadium for years, but how do we get a deal done? Certainly there is no reason to start with animosity toward them. This must be civil discourse. The Chargers insist on being downtown so assuming downtown is the plan, this would require cooperation among several players—the Port of San Diego, JMI (they own adjacent land), the tourism industry (they would have to give up the contiguous convention center) and city and county officials. Further, the public will have to vote but let us face some facts; it is a difficult sell to convince residents that a new Chargers facility is an economic boost for San Diego which is why they added in a “Convadium.” It is in fact a great civic pride boost to build a stadium and as a Chargers fan who watches them and attends games dressed in Charger blue, I love football and want the Chargers to stay in San Diego. But they never should have put on a full-court press without seeking some support in advance.

Convention Center

It has always been a preference for a contiguous convention center on the waterfront by almost everyone except for Cory Briggs and his few supporters. In litigious San Diego, can another waterfront expansion ever occur? Hoteliers voted to fund the center with a plan that would tax downtown hotels at 3 percent, hotels in certain sub-markets at 2 percent and those in the distant periphery at 1 percent.

Now, Cory Briggs and a few San Diego leaders have come up with a 3 percent net increase in hotel taxes that is on the ballot as Measure D. If a contiguous center cannot be built, maybe we should look at a non-contiguous plan if that is what San Diego leaders, in unison, decide. JMI has the adjacent land and has proven they can develop downtown–Petco is a great example. Second, the Chargers would obviously agree to stay in San Diego as part of a downtown Convention Center/Stadium combination so long as they secure the public support/funding that is Measure C.

The Chargers have released some beautiful renderings of what a convention center/stadium combo could look like and have run very compelling ads. The nautical feel of the design is truly a great representation of the city of San Diego. Always keep in mind though that renderings tend to give more life to a structure than the finished project. The combo also boasts a retractable roof which would turn the field into 100,000 square feet of pillar-less convention space. The project is estimated at $1.8 billion and the team is requesting public financing to be covered by a 4 percent net increase in hotel tax.

Unfortunately, despite the letter that Mayor Faulconer negotiated, there are no safeguards in the event that costs creep up to well over $2 billion. And they will increase based on interest rate increases alone.

Further, since they did not negotiate a deal for parking, nor did they get exact costs for relocation of the Metro, there are likely additional cost considerations at work here. Make no mistake, while many believe this is all about the Chargers, the economic return on a convention center is outstanding in San Diego while the return on 8-10 Chargers games is limited.

Arguably, San Diego is one of the very few convention cities that would benefit from an expansion of their center. Most cities only get a brief burst of construction spending and never get a real return on their centers. This city has the hotels, climate, attraction package and desirability to move large conventions here. Jobs, tax dollars and businesses that will create an even better lifestyle for local residents are major ancillary benefits. The much bigger return, however, would be with an expansion along the waterfront.

Taxes and Measure D

In my opinion, it is never a good idea to raise taxes unless absolutely necessary. Hotel room rates in San Diego are considerably higher than most of our competitors, due in large part to land and construction costs and access via air is much more difficult and expensive than most of our competitors. Further, we do not provide the level of convention center discounting offered by many of our competitors. For hotels outside of the periphery of downtown, rather than paying a 1 percent increase to 13.5 percent as per the agreement reached under then Mayor Sanders, now those hotels would pay 15.5 percent. Currently, all hotels in San Diego pay 10.5 percent to the city and 2 percent to the Tourism Marketing District, a fee that was self-assessed by hotel owners. All of that 2 percent goes to tourism marketing which in turn allows us to stay competitive with marketing heavyweights Disney/Anaheim, Los Angeles/L.A. Live/Hollywood and the San Francisco Bay Area.

In FY 2015, San Diego’s transient occupancy tax (TOT) of 10.5 percent generated $186 million for the city of San Diego. This is in addition to the tens of millions of dollars in other general fund revenues like sales tax, property tax, rents, etc. generated by visitor spending. By comparison, in 1980, TOT receipts totaled $10 million; in 1995, $57 million. The entire TOT revenue stream is used to supplement the city’s General Fund and underwrite basic municipal services such as road repair and park maintenance. These revenues also help fund cultural events, arts organizations and community-based programs throughout the city.

Moreover, the TOT provides funding to hire police officers for our neighborhoods, train firefighters and promote economic development. The TOT also helps to maintain many of the amenities that are enjoyed not only by tourists but also by San Diego-area residents such as Balboa Park, Mission Bay Park and the San Diego Trolley. The TOT is the source of funding for the expansion of San Diego’s enormously successful Convention Center. The expansion project has ensured the center’s continued competitiveness for years to come.

Among the many benefits of tourism, tourism dollars help shift the tax burden to nonresidents. While the general perception recognizes direct jobs in hotel, restaurants, airlines and travel service companies, there are myriad jobs created both upstream with suppliers such as aircraft construction and border services and downstream in areas such as retail, service stations, clothing manufacturers, and food suppliers.

In November of 2012, the city of San Diego approved a 40-year plan to fund the tourism industry through its creative Tourism Marketing District while then Mayor Bob Filner single-handedly disrupted spending to the tune of over $100 million. 2014 and 2015 have become story years for tourism in San Diego as revenues have grown by nearly 10 percent per year for the past two years. Now, Cory Briggs wants us to pass a five percent tax increase (net 3 percent as it includes the two points currently allocated to marketing) that in essence is a plan to get more money for the general fund and a convention center expansion off the waterfront. It would not pay for the Chargers Stadium!

The tourism and hospitality industry does enough for San Diego but if it wants a convention center it should pay for it and as a group, the hoteliers voted to pay for that contiguous center, now blocked by Cory Briggs (yes, this obstructionist is the one who is suing to stop the contiguous convention center expansion, sued unsuccessfully to stop the hotel community’s tourism marketing fund and also is an author of Measure D). Residents of San Diego should not expect the hotel industry to pick up the tab for the Chargers — that money should come from the NFL and the Chargers as well as the $350 million previously committed by the city and county of San Diego.

The Bottom Line

Say “no” to Measures C and D which will send the Chargers back to the negotiating table for a deal San Diegans can be proud of. Keep the 10.5 percent TOT, all of which goes to San Diego. Keep the 2 percent marketing fee, all of which goes to tourism marketing. Raise additional monies from hotel taxes as originally voted on by the hotel community for any costs directly related to a convention center approved by hoteliers. All other funds needed for the Chargers stadium should come from a combination of all who benefit and then the residents will be voting on a fair, balanced plan. Go Chargers!

Robert A. Rauch, CHA

Rauch is a Chargers fan and a local hotelier.

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