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For a Stadium, the Chargers Will Have to Beat Hoteliers, Then Win Them Over

The Chargers, and the motley alliance the team has joined, hope to repeal and replace a decade's worth of visitor industry policy pursuits in the city of San Diego. If they succeed, they will still be far from a stadium. To get a stadium, they will also somehow have to win over the hearts and minds of the hotel owners they just defeated.

Chargers fans are alight with anger at the city’s hoteliers. It is the product of a public perception push the Chargers have pursued for years. The team has an idea for downtown, and it is the hotel owners — and the mayor supposedly in their pockets — who stand in the way.

This message was like a blue flame the team kept stoked as it lobbied to move to Los Angeles. Now team owner Dean Spanos has decided to stay in San Diego, provided he finally gets a new stadium.

In the process, he has set up a final confrontation with hoteliers.

The irony, though, is that the Chargers’ new plan for a stadium relies on hoteliers to work.

That’s not only because hotels could spend money to defeat the Chargers’ plans at the ballot box. And it’s not because the political opposition of the visitor industry, even without money, is devastating to a multifaceted ballot measure whose only unifying trait is that it is all about the visitor industry.

It’s because for the Chargers to build a stadium in East Village under this plan, they need the hotels to voluntarily invest in it — hundreds of millions of dollars in fact.

So the football team has now joined an alliance that is attempting to repeal the hoteliers’ No. 1 agenda item over the last decade while also persuading that group to support them. Helping lead the charge is the man the visitor industry has spent millions trying to defeat in court, Cory Briggs.

Briggs and the Chargers think they have a sweet enough carrot and a strong enough stick to pull off that incredible civic move.

In my time watching the city, I have never seen such a contest take shape. On the one side, Spanos and his new stadium maven, Fred Maas, are Republicans — both ardently supported former Texas Gov. Rick Perry in the 2012 presidential election. They bring along tens of thousands of fans and boosters, who are now working with Briggs, an edgy progressive environmental lawyer who has built a lucrative career using California’s ecological protections to frustrate or mold large development projects and waterfront construction. Briggs brought along Donna Frye, the environmental populist who served on the City Council.

Frye used to have a top spot on the list of people stadium boosters felt stood in their way.

And then there’s former Padres owner John Moores, who says all he is interested in is preserving the Qualcomm Stadium site for local public universities to grow.

But the company Moores founded, JMI Realty, also is in this alliance. And it stands to benefit greatly if the vision is realized for a downtown campus-style convention center expansion.

On the other side is the civic power structure — a blend of actual institutions like the Convention Center Corporation and coalitions like the Lodging Industry Association and the Republican political network that stands to easily secure Mayor Kevin Faulconer a second term this year.

The Chargers’ band of misfits might be able to defeat this group. But even if that happens, can they pivot into a position to win their hearts?

I set out to explain their vision of how this might work and the opposition it will face. Would hoteliers ever support the vision for a campus-style convention center so crucial to the Chargers’ plan?

For the most part, they’re not talking.

I did get a hold of one hotelier: Scott Hermes, general manager of the Westin Gaslamp.

Hermes and I had a great conversation. But when I got to the part about whether he would support the Chargers’ plan, he said he could not answer that.

Why?

Because of ongoing litigation, he said. To understand why he would say that about an issue not facing any obvious legal challenge right now, you need a bit of background.

A Bitter Defeat

Go back 12 years, before Faulconer had ever won an election.

It was 2004. Then-Mayor Dick Murphy was up for re-election. The tourism industry was rallying behind a new measure to increase the city’s hotel room tax from 10.5 percent to 13 percent. Hotel owners desperately wanted the city to invest in promotion to compete with other destinations.

So with the increase in revenue, they secured rock-hard laws that would set aside money to pay for tourism promotion forever. But some of the other new money would fund other needs, including public safety. The city’s firefighters and police were on board. Arts organizations joined the cause.

Mike McDowell helped lead the effort. McDowell was a vice president at the Town and Country Resort and a maven in the visitor industry. The measure needed two-thirds approval to pass.

It came up short. A solid majority supported the initiative but not two-thirds. Supporters blamed a nervous mayor who was unwilling to back it and a late spending effort against it by then-hotelier renegade Doug Manchester.

The bitter defeat forever changed McDowell.

“I think the first thing we learned from those 2004 campaigns, the strongest message was that two-thirds is almost an insurmountable threshold when you’re dealing with a tax measure. As good as that measure was,” he told us in 2011.

McDowell won’t return my calls now but that 2011 interview provides a window into the industry’s thinking. He still helps guide a group that was formed after that devastating loss, the Lodging Industry Association.

That group recently voted to oppose the initiative the Chargers have now embraced: the Citizens’ Plan. The Lodging Industry Association, a political action committee, has no website. It has, though, reported recent fundraising.

McDowell became instrumental in the creation of the Tourism Marketing District. It was a clever innovation that twisted a state law allowing businesses to join together into so-called business improvement districts and tax themselves. But in this case, they would not be bound to a neighborhood. And rather than absorb the tax they levied, they made the 2 percent fee they created a line item on customers’ bills.

The fee was often labeled, right on customers’ bills, as a “tax.”

They had found a way to raise the tax without a vote. But this time, the visitor industry got to control the money. It was brilliant.

McDowell was its architect.

It worked so well, they tried a similar approach, this time to fund a long-hoped-for expansion of the Convention Center. But this time the city attorney was squeamish. Two attorneys and their clients pounced, and after several appeals, McDowell and friends got terrible news. The tax was illegal — it was clearly a tax, and voters should have had a say.

One of the two attorneys who killed the tax is now the Chargers’ ally: Briggs.

And Briggs was not done. He was gunning for the earlier levy — the tax or fee that was promoting San Diego as a tourism destination.

You see, McDowell had made one mistake. He only got the TMD approved for five years in 2007. When it was close to expiring, it went up for renewal for 40 years and the City Council rubber-stamped it.

For whatever reason, though, then Mayor Jerry Sanders never signed the documents to implement it. His successor, Bob Filner, decided not to sign so he could see what he could squeeze out of the industry.

Hoteliers shuddered. The money stopped flowing. Efforts to market San Diego destinations stopped.

Hermes said it was a nightmare he and his counterparts fear repeating.

“We lost market share. We lost business. We lost revenue. We lost hours for workers and the city’s general fund took a hit,” he told me.

That fear is now the Chargers’ and Briggs’ most powerful weapon.

The Tourism Marketing District came at Briggs, spending millions on lawyers and investigators to prove that he had no standing to sue – a legal maneuver where one side says the other isn’t even eligible to participate in the suit. And it was during the heat of this fight that he and JMI Realty, former state legislator Steve Peace and Frye conceived a plan.

Briggs said he tried to figure out where everyone’s interests crossed paths. The hoteliers were worried about the lawsuit causing another disruption. Briggs was fighting both that and a Convention Center expansion along the waterfront. And JMI Realty had worked for years envisioning an alternative to a waterfront expansion.

Thus the Citizen’s Plan was birthed, a complex effort that would eliminate the 2 percent tourism fee Briggs was fighting. It also would stop the Convention Center plan along the waterfront and then raise the city’s hotel-room tax by 5 percentage points — about to the level the city tried to get it to build a Convention Center plan.

But Briggs wanted to bring hotels on board, so he came up with a plan to let them deduct 2 percentage points from that tax if they invested in a new tourism marketing district that did not pose as a tax on customers’ bills.

And if hotels representing 50 percent of hotel-room revenue voted to invest in the campus-style Convention Center JMI Realty and Briggs preferred, they could deduct another 2 percentage points. Meanwhile, revenues to the city general fund would still increase.

Briggs wanted to kill the fee. The lawsuit from his group, San Diegans for Open Government, was the stick. This plan was suddenly the carrot.

And then came a blow to the Tourism Marketing District: The effort to prove Briggs had no standing to sue failed, setting up a historic legal showdown on the merits of Briggs’ claim that the hotel fee used to promote tourism to San Diego is an illegal tax. If he prevails, not only would it realize that nightmare again for hoteliers, but it could have claw-back ramifications for the city of San Diego, which may have to rebate up to $30 million in its own funds.

The threat is pretty clear. A Union-Tribune columnist recently warned the visitor industry to prepare for defeat. If a loss in court would really have as dire of consequences for the city and businesses as they say, we need to deal with it.

Are they open to this route?

Not yet.

Another Carrot and Stick

Peace, the former state legislator and provocateur of big ideas, is a longtime associate of Moores and JMI Realty. When he makes the case for a campus-style Convention Center – away from the current waterfront location – it’s part appeal, part confrontation.

If passed, the Citizen’s Plan allows hotels to invest in this vision and deduct 2 percentage points from the tax they send to the city, which would go up to 15.5 percent of hotel room stays.

But crucially, hotels representing more than 50 percent of revenue would have to vote to approve this investment.

So the group can’t just convince the public to get it done. They have to also persuade hoteliers.

In the appeal to the public, Peace says we have created an island southwest of Harbor Drive downtown. The hotels on that side of the wide thoroughfare have meeting space, restaurants and, of course, the Convention Center itself. They want a larger convention hall because it will serve their goal to get more people to the area and keep them on that side of the street.

This is a fine position for them to have, Peace says, but it’s not the one the city as a whole should have. We should work to spread meetings throughout downtown so more businesses benefit. He points to history and Moores’ support for the widely criticized pedestrian bridge. Why was it built if not to support this vision?

Right now the bridge leads to a parking lot. It should lead to more convention space, intertwining downtown and making the whole place more walkable and unified.

It’s an argument you might think would appeal to Hermes, the general manager of the Westin Gaslamp. It would be in his hotel’s interest.

But Hermes doesn’t buy it.

First, he says, people readily cross Harbor Drive already.

“Anybody that is meeting in the convention center is likely going to saunter across the street to eat, drink and shop in the Gaslamp. Meeting planners look at the total destination when they pick San Diego, not just that side of the street,” he said.

He’s fully in the camp that believes the Convention Center should be expanded on its current spot. Again, though, he stopped short of saying he would not support Peace and JMI’s vision.

Briggs cautioned not to read too much into Hermes’ take. Of course some people visiting the Convention Center cross Harbor Drive.

“I don’t think Steve Peace would deny that. I don’t. It’s not the absence or presence of spillover that is motivating their opposition. It’s still in their economic interest to keep as many from spilling over as possible,” he said.

But Peace isn’t trying to just persuade, he’s also trying to force.

The visitor industry needs JMI Realty to build a hotel on its land next to Petco Park regardless of whether JMI gets the kind of expansion it desires. The hotel would help handle demand an expansion is supposed to drive, and its revenues and tax contributions would help justify the economics of the project.

But JMI recently said it would not build a hotel to support an expansion of the Convention Center on its current site.

There’s the stick.

Hermes told me he’s not convinced on the Citizens’ Plan.

“I think it is trying to do an awful lot in one bucket and that is itself cause for concern,” he said. He wants to see proof the measure only needs a simple majority to become law.

That’s at the heart of the pushback against the Chargers-Peace alliance. The measure is too complex and vulnerable to litigation.

The hoteliers, after years of testing the law with innovative, risky solutions, are suddenly risk-averse.

The San Diego County Taxpayers Association seems headed toward opposing it too. After a hearing on the measure where Hermes debated Briggs, the group gave me a skeptical statement.

“We aim to ensure taxpayers have the information they need to evaluate the proposal in its full context, recognizing that it would preclude a contiguous expansion of the convention center and that it will compete for our tax dollars with roads, transit, facilities and other critical civic priorities,” wrote Haney Hong, the group’s new CEO.

When I asked the Taxpayers Association for clarification on how the measure competes with transit funding, spokeswoman Rachel Laing said it would hurt the chances for a separate tax increase being floated by the San Diego Association of Governments.

The Taxpayers’ statement also highlights the hope many still have to expand the Convention Center on its current site.

And that bigger building is looking more and more like a fantasy. It’s not just the Citizens’ Plan standing in the way of expanding the Convention Center where it stands.

After judges threw out the novel approach to funding it, boosters have concluded there’s no other way to pay for it than to ask voters to approve it with a hotel-room tax hike.

The mayor pledged to put such a measure on the ballot in his State of the City speech in January. He also acknowledged in the speech the prospect of a tough legal battle with Briggs – who said the design would illegally cut off public access to the waterfront.

The mayor vowed to fight all the way to make it happen.

Then the Chargers leaped to kill it with the vague announcement they were joining Briggs, Peace, Moores and Frye in the effort to stop it. That, in fact, was the only reason they spoke up when they did.

It looks like it worked. A measure requiring a two-thirds vote needs universal support — if the Chargers mobilize fans to kill it, it’s dead.

The mayor only has a few days to mobilize the City Council to put it on the ballot, and it appears the deadline will pass without action.

Briggs said he hopes everyone can get in a room and deal, pragmatically, with what’s at stake.

He and his friends theorize the hoteliers will be so worried about losing their tourism marketing dollars they will eventually come around to a plan to keep it going.

And the Chargers hope that after all these threats and challenges are confronted, the hoteliers will also come around to build a facility that would open the door to a new stadium in East Village.

It would mean Briggs did more to influence the long-term design of downtown than Faulconer. It’s hard to picture how Faulconer’s coalition would allow that to happen but harder to picture what it will do instead.

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