The Genius of – and the Problem With – the Briggs Hotel-Tax Overhaul
A new measure being pushed by Cory Briggs and Donna Frye would remake downtown and the city’s hotel-room tax system unlike any proposal in the decade-plus since two proposals to increase the tax failed at the ballot box. The proposal seems to have left San Diego’s elite tongue-tied. Why? Well, one part of the measure is innovative, if not genius. It’s the same part, though, that’s legally shaky.
At one point in my recent meeting with Cory Briggs, Donna Frye and two members of San Diegans for Open Government – Pedro Quiroz Jr. and Richard Lawrence – Briggs’ smart phone rang.
Mark Fabiani, the special counsel for the Chargers, was the name that came up on the screen. Briggs put his hand over it and put the phone away. We all laughed a bit.
On Nov. 20, Briggs will send out signature-gatherers to collect the 75,000 or so valid signatures they would need to get an initiative on the ballot for June. Their measure would remake downtown and the city’s hotel-room tax system unlike any proposal in the decade-plus since two proposals to increase the tax failed at the ballot box.
The proposal seems to have left San Diego’s elite tongue-tied.
Well, one part of the measure is innovative, if not genius. It’s the same part, though, that’s legally shaky. So far, only a fiery talk radio host is willing to say it’s illegal.
Briggs’ innovation is in what we’re going to call here “the deductions.”
To understand it, though, you have to dial back a bit. Right now, the city of San Diego’s hotel-room tax stands at 10.5 percent. But after voters rejected two efforts to increase it – one that was widely backed by hotel owners – in 2004, the tax was essentially raised to 12.5 percent without a vote of the people.
How? Hotel owners got together and formed something like a business improvement district, or BID. They called this the Tourism Marketing District, or TMD. But unlike other businesses that get together to do this in neighborhoods, the TMD put the fee right on their customers’ bills. In some cases, they even called it a tax. On the bills.
They liked this approach so much that they tried it again, this time to fund a Convention Center expansion. It was a different structure but similar in the effort to raise the tax again – this time up to 3 percent for hotels closest to the Convention Center – but again without a vote of the people.
The city attorney was so unsure of the legality that he invited people to sue so it could be validated by a court before construction began. Briggs and attorney Craig Sherman obliged, and the increase was thrown out, along with the Convention Center expansion.
Now Briggs has moved on and is challenging the TMD. The trial began this week. It may very well also be thrown out.
You have to understand that to understand this latest proposal.
The initiative Briggs, Frye and their allies are pushing has some basic elements. One, it would restructure the hotel-room tax and eliminate the TMD; two, it would prevent an expansion of the Convention Center on the waterfront; three, it would pave the way for a stadium downtown or in Mission Valley while making more explicit some of the protections for area around the San Diego River.
None of that is particularly genius.
The innovation from Briggs is this: The initiative would raise the hotel-room tax from the 12.5 percent it effectively is now, to 15.5 percent. But if hotels owners decide they still want the Tourism Marketing District (Hint: They do) they can prove they contributed to a new one, and deduct 2 percent. If hotel owners decide they want to build a Convention Center in the same way, they can deduct another 2 percent.
What’s more, it would also authorize the city to allow the visitor industry to take over operations of the Convention Center – something that has caused a beef between the Convention Center and the San Diego Tourism Authority for years.
In other words, Briggs intentionally designed the initiative to appeal to hotel owners.
He said he stared at a wall for many weeks trying to figure out the spot in a Venn diagram where the hotels, Chargers, taxpayers and his group’s interests intersected.
He said he was inspired by the federal tax code, which provides a major incentive – through the mortgage interest deduction – for people to purchase homes.
The deductions to the hotel-room tax rate, he said, would provide an incentive to self-assess for marketing and to pay for the Convention Center annex.
“We don’t say what the self-assessments are. What we do say is this is the most you can deduct from your (hotel-room tax) bill. Two percent. Now they have every incentive to do it on time, on budget, make sure there are no cost overruns, run it efficiently and the city gets all the upside of a convention center with a cap on its share,” he said.
Bill Evans, the owner of several hotels in San Diego and the exact type of person Briggs is trying to appeal to here, did not dismiss the initiative. He said he didn’t understand it. (“I feel like a dog watching TV.”)
But he’s waiting to hear why it won’t work.
“I have no idea if this thing is based in reality or fantasy. What I haven’t been able to get from anybody is – show me, prove to me, other than with your gut instinct – something that says it doesn’t work,” he said.
Carl DeMaio says he can.
The talk radio host and former city councilman supported the hotel-room tax hike without a vote of the people that was later deemed illegal.
Now, though, he’s ready to stand up for the public’s right to vote on an increase. He says the genius part of Briggs’ initiative is actually illegal. It should require approval not only from voters, but from more than two-thirds of them. He said he’ll sue if it is approved.
“If hoteliers are going to be seduced by this, my friends, it’s not going to come without the risk of legal action,” DeMaio said on the radio. “If you think doing a deal with Cory Briggs is wise, man you guys are ignorant.”
DeMaio’s contention is that the deductions would be specific earmarks for where the money raised from the tax increase goes.
California law has a peculiar twist that governs tax hikes that go toward specific causes. If local governments want to raise taxes and if they don’t say at all where the money is going to go, they only need a bare majority of voters to support it.
If they do say where the money from a tax increase will go – and voters seem to like that more – it requires a two-thirds vote.
DeMaio’s contention is that Briggs’s deductions are just clever signals to voters as to where the money is going.
“He’s kind of done a backdoor way around calling something an earmark,” DeMaio said.
Putting aside DeMaio’s demonstrated failure to identify illegal ways around voter approval for tax hikes before approving them in the past, it is the biggest question here.
DeMaio told me that he’s even pulled the Howard Jarvis Taxpayers Association into the effort to oppose Briggs’ measure.
But I called Jon Coupal, the executive director of that group, who said he was only slightly aware of the issue and had not “directly engaged with it.”
He did offer his basic principle: “Proposition 218 requires that its provisions relative to voter approval be liberally construed,” Coupal said, referring to the state law that governs the voter thresholds for tax hikes. “If there’s some effort to deprive voters of their rights to approve an increase to a special tax, the burden will be placed on the city to demonstrate compliance.”
Briggs said the initiative would not at all require the city to spend the money in any certain way. The deductions hotel owners might make from their tax burden are all purely optional. What’s more, he said, it will be assumed legal until proven otherwise.
Sherman, the other lawyer who helped throw out the city’s last attempt to avoid a public vote, said he was unsure as well. The assurance that hotels had a choice in the matter reminded him of the city’s earlier assurance that they had a choice to put the tax on the bill of their customers – an option everyone knew they would not take.
Regardless, unlike the city’s attempts in the past, this would be a vote of the people.
“We got in this situation because a whole lot of people tried to figure out a way to keep the public shut out of the process,” said Frye.
She’s motivated by what the measure does for Mission Valley, strengthening protections at the Qualcomm Stadium site for the riverfront.
Briggs made a change after first announcing the plan. He included a provision that cleared the environmental hurdles for a football stadium on the same site – just as it does for downtown.
That might be why Fabiani was calling.