The FAQ You Wanted on the Measure That Would Increase the Hotel Tax

Government UNVEILING THE UNSEEN

Everything You Should Know About San Diego’s Hotel-Tax Increase Measure

The definitive FAQ on the measure voters will consider in March that would increase hotel-room taxes to fund an expansion of the Convention Center, homeless services and street repair.

Mayor Kevin Faulconer at a Yes! For a Better San Diego campaign press conference in October 2019. / Photo by Megan Wood

In March, city voters will finally weigh in on a proposed hotel-tax hike to fund a Convention Center expansion plus homeless initiatives and road repairs.

The unprecedented business and labor coalition behind the measure is ramping up its campaign after initially struggling to make the ballot. Now the coalition must try to win support from two-thirds of city voters, a challenging threshold that has bedeviled many past ballot measures.

Let’s run through the basics of the initiative, how it’s supposed to work and the questions being raised about it.

What is it?

It’s a ballot measure. Voters within the city of San Diego will have to decide if the city can increase its hotel-room tax rate. When people stay in hotels within the city of San Diego right now, they pay 10.5 percent to the city for what’s officially called the Transient Occupancy Tax. The hotel industry also added its own 2 percent levy on top of that called the Tourism Marketing District. Thus, visitors pay effectively 12.5 percent.

The initiative would increase taxes for those visitors rather than city taxpayers. The amount tacked onto hotel bills — which will range from 1.25 to 3.25 percent — will vary based on the hotel’s proximity to the downtown Convention Center. Visitors staying at downtown hotels near the Convention Center will pay more than those in the outer reaches of the city.

Why?

The measure is designed to deliver something city power brokers and tourism industry leaders have long wanted: a Convention Center expansion they believe will bring additional hotel visitors and jobs.

The campaign estimates the measure will pull in about $3.8 billion to expand the Convention Center along the downtown bayfront and later help with other needs such as operations and maintenance at the center.

Proponents say the measure will also generate $2 billion for homelessness programs over the next four decades. They expect the tax to bring in $147 million in its first five years, becoming the city’s first dedicated source of money to address homelessness.

After the first five years, a portion of hotel-tax hauls would be funneled toward street repairs. Supporters have predicted those funds will total $604 million.

These projections assume hotel-room revenues and tax collections would rise an average of 4 percent annually over the next four decades. The consultant hired by the campaign has said that estimate factors in the possibility of future recessions.

Here’s a breakdown of how collections are to be doled out in the first five years when the measure would simply provide funds for the Convention Center expansion and homelessness.

And over the remaining years of the measure.

What if they can’t build a Convention Center?

Per the measure, if the city does not pursue a Convention Center expansion in the next decade, the additional tax collections will halt unless the city has borrowed money for homelessness initiatives or street repairs that it must repay.

Where will the money go?

If voters approve of the measure, the city expects to begin collecting additional hotel taxes in May 2020.

The initiative states that the cash for the Convention Center and tourism programs, homeless services and street repairs should then be deposited into three separate accounts and that those funds should be lock-boxed for those specific categories.

The measure calls for the city auditor to review how those funds are eventually spent and the outcomes of that spending every three years.

The measure gives the city the go-ahead to issue bonds to boost efforts in all three categories, including up to $750 million for homelessness and $400 million for street repairs. It says the city must rely on each separate fund as it makes the case for loans rather than try to sell investors on the expected $6.4 billion in total collections expected over the next four decades.

This is designed to shield the city’s homelessness and road repair funds and spending plans.

The city isn’t guaranteed to borrow money to support its homelessness and street repair plans, but outside financing will be necessary for the Convention Center expansion.

What’s the plan for the homelessness money?

The initiative does not dictate how the homelessness money should be spent. It defers to city leaders to make those decisions.

The measure calls for the mayor to pitch five-year implementation plans for both homelessness and street repair spending to the City Council, starting with the first year the tax is collected. The initiative also says the City Council should schedule a review of that plan two years into the five-year period it covers to consider if changes are needed.

The initiative also requires the City Council to create a seven-member citizens oversight committee that would make recommendations to the mayor and City Council on homelessness spending plans and review the city’s plans for the new cash.

Homeless advocate Michael McConnell has raised a slew of concerns with this lack of guarantee about where the money is going.

“(It) offers little certainty that the right people will even receive the funding and programs needed, the housing, to even get off the streets,” McConnell said.

The campaign has said the initiative was worded to give future city leaders the flexibility to use the homelessness and street funding in the way they believe would have the greatest impact.

What if the Convention Center expansion ends up costing a lot more than expected?

The city’s latest cost estimate for the expansion is $685 million and the measure would initially let the city seek up to $850 million in bond financing to pursue the project. However, officials have already warned that the cost of the expansion is rising by millions of dollars each month — and the initiative accommodates higher construction costs.

If it chooses, the City Council can vote to lift the $850 million bond cap.

Some advocates, including Andrea Guerrero of Alliance San Diego, have raised concerns about this portion of the measure.

“That is a blank check,” Guerrero said.

Christina Chadwick, a spokeswoman for Mayor Kevin Faulconer, said the city is prepared to consider ways to reduce expansion costs if necessary.

Can voters count on money for homelessness and street repairs?

McConnell has seized on portions of the measure he believes could allow the City Council to shift funds away from homelessness and street repairs. He has also emphasized that the measure doesn’t cap administrative spending on those needs.

“The measure is able to be changed by the City Council and money is able to be moved from one bucket into another,” McConnell said last month during a debate at Politifest.

The campaign is adamant that homelessness and street funding can’t be shifted around.

“The mayor and City Council do not have discretion to move funds around contrary to the will of the voters,” campaign spokeswoman Rachel Laing wrote in an email. “The initiative makes clear that the monies generated from it must be used for their intended or dedicated purpose.”

Laing noted that the audits, five-year spending plans and the new citizens oversight committee focused on homelessness spending described in the initiative are meant to ensure hotel taxes are allocated and spent as promised.

Assistant City Attorney Sanna Singer told City Council members that her office shared the campaign’s interpretation earlier this month ahead of their vote to place the measure on the ballot.

“The Council is not authorized to amend the municipal code provisions in a way that is inconsistent with the special tax purposes described in the citizen’s initiative or in any way that would change the percentage of tax revenues allocated to the three dedicated revenue accounts — for the Convention Center purposes, homelessness programs or street repairs, or that would transfer funds from one dedicated revenue account to the other,” Singer said.

But future city leaders may one day have an opening to make temporary changes.

After 20 years, the initiative states that the City Council could vote to divert a percentage of Convention Center cash to homelessness or street repair needs if both the mayor and a majority of the Convention Center Corp. board expect to collect more than enough hotel-tax revenue that year to cover those costs.

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