Those Who Benefit Pay What They Want: Convention Center Expansion
The City Council takes a major step in hiking visitor taxes to
finance the expansion. But questions about equity and risk
Everyone who spoke about the $520 million San Diego Convention Center expansion at City Hall on Tuesday agreed with Mayor Jerry Sanders.
“I’ve said all along,” Sanders said in his remarks at the outset of the City Council hearing, “that those that benefit from the expansion should help pay for it.”
The council spent the next two hours learning that the reality of the expansion financing plan, which includes considerable public investment, relied more on how much certain major players in the deal are willing to pay. Not how much they’ll benefit.
The three mega hotels next to the Convention Center could see $273 million of new revenue in the first six years after the expansion opens, an economic analysis says. Guests at their hotels will pay 3 percent more in taxes under the plan preliminarily approved by City Council on Tuesday.
Why was 3 percent chosen for those hotels and others downtown? asked Councilman Todd Gloria. Because those hotels and others downtown will benefit the most from the expansion, responded Mary Lewis, the city’s chief financial officer.
Gloria pressed a little more. Isn’t it really because those hoteliers said that’s what they’d support?
No one said anything. But Gloria noted that Steve Cushman, a local businessman who developed the financing plan for Sanders, was nodding his head in the crowd.
Last week, the Unified Port of San Diego agreed to pay $60 million toward the expansion. The port gets more money when its waterfront properties, such as the three Convention Center hotels, make more money.
Why wasn’t the port paying more? Gloria asked.
“It’s what they were willing to offer the city for the project,” Lewis said.
What about the bayfront city of Coronado, asked John Gates, who runs the Rancho Bernardo Inn. Coronado’s hotels are much closer to the Convention Center than Gates’, which sits more than 25 miles away.
“I just think we need to do a little more science with those metrics,” Gates said.
Lewis said Sanders’ office was talking with Coronado, but offered no specifics on the discussions. “We can’t annex another city,” she added.
And so within these parameters, the city could only turn to itself to fill the expansion’s funding gaps. In October, Sanders said he needed $90 million from the city’s day-to-day operating budget for the expansion over the next three decades. This budget pays for fire, police, street repair and other regular services that have seen a decade of decline. Last month, that number grew to $105 million, or $3.5 million annually for the next 30 years.
To be sure, the city expects the expansion will boost the day-to-day budget by roughly $13 million a year, more than enough to cover its costs and turn a profit. This expectation comes with major risks. Tax revenue projections might not materialize and the city’s contribution could grow higher, the city’s independent budget analyst has warned.
So why isn’t the city capping this risk to its bottom line now, asked Councilman Carl DeMaio.
Lewis said that’s because the city didn’t know what it needed now.
“We need to have all the pieces together to provide that to you,” she said. “We have a lot of work to do.”
It was under these circumstances that the council voted Tuesday 6-2 for a hotel-room tax increase to finance the majority of the expansion. The council will discuss the tax increase again and city hoteliers still need to approve it. But Tuesday’s action effectively solidifies the maximum San Diego visitors will pay toward the expansion, capping that revenue stream.
Guests staying at downtown hotels, including those next to the Convention Center, will pay 3 percent more. Visitors staying at hotels in Mission Bay and surrounding areas will pay 2 percent more. Those staying at hotels in more far flung areas, such as La Jolla and San Ysidro, will pay 1 percent more.
The council did make one change. It required city officials to cap the contribution from the day-to-day budget before the hotel-room tax hike returns for a second approval in January. Even though the city’s payment increased by $15 million over the last two months, Cushman said after the hearing that he expected it wouldn’t go any higher.
“I think the $3.5 million (annually) is the cap,” he said.
The council’s approval came despite strong concerns from David Alvarez and Sherri Lightner, both of whom voted against the plan. Alvarez represents the city’s most southern neighborhoods and Lightner represents some of the city’s most northern. They didn’t buy the argument that hotels in their districts would benefit as much as their guests would pay.
“This is not a fair way to distribute the cost,” Alvarez said.
Alvarez tried to postpone Tuesday’s vote so that Sanders’ office could change the boundaries of the hotel-room tax increase. The council voted down his proposal.
Still, there were signs Alvarez’s colleagues shared some of his sentiments. Nearly every council member asked about equity.
“I guess this would be a philosophical question and maybe it’s rhetorical,” said Council President Tony Young when it was his turn. “But does that hotel in Rancho Bernardo benefit from the Convention Center?”
Young waited for an answer. No one responded.
“I guess that would be rhetorical,” Young said.
Liam Dillon is a news reporter for voiceofsandiego.org. He covers San Diego City Hall, the 2012 mayor’s race and big building projects. What should he write about next?
Please contact him directly at firstname.lastname@example.org or 619.550.5663.
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