Over the past decade, efforts to increase the city of San Diego’s taxes on visitors have had a winding history. Mike McDowell has been at the center of all of them.
Now as hotel-room taxes are targeted to pay the majority of a proposed $550 million Convention Center expansion, McDowell remains one of the most important players in the debate.
McDowell heads a local hotel industry trade group that formed in the wake of efforts to boost hotel-room taxes a decade ago. In 2004, he supported a failed ballot measure that would have increased the tax rate, with some of the money guaranteed for tourism promotion. The same year, he helped kill a ballot measure that would have given new money to the city’s day-to-day operating budget. Later, he authored a successful plan for visitors to pay an extra 2 percent on their hotel bills, with all the money going to tourism and marketing.
McDowell also serves as board chairman of the San Diego County Taxpayers Association and is an executive with the company that owns the Town and Country resort in Mission Valley.
Our conversation delved into the depths of California tax law. It also goes a long way toward explaining the Convention Center deal’s structure. Here are Cliffs Notes:
McDowell says visitors will pay increased tax rates to fund the expansion, but he’s confident the deal won’t qualify as a tax under state law and won’t have to face a risky public vote. Still, the city’s day-to-day operating budget, which pays for fire, police and library services, ultimately will back the expansion’s bonds if the new funds can’t cover the cost. And, he said, a new downtown Chargers stadium could add to an expanded Convention Center, but not replace it.
While we dislike acronyms and avoid them as much as possible, you need to know two to follow the conversation. TOT stands for transient occupancy tax, the formal name for the hotel-room tax. TMD stands for Tourism Marketing District, which assesses the additional 2 percent charge added to hotel-room taxes.
What did you learn from the failed efforts to increase the hotel-room taxes in 2004?
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. It provided guaranteed revenue streams for public safety, for parks, streets and the tourism industry.
Arts, there was an arts component. While we lost, there was a considerable majority that supported the premise.
And the next one?
Prop. J was the City Council looking at the popularity and saying, “Well, gee, they got 62 percent.”
All we need is 50.
All we need is 50 to come back with a general tax, which they did. (Editor’s note: The tax wasn’t designated for any specific purpose, so it only needed more than 50 percent voter approval. The hoteliers opposed it.) But our history as an industry has shown that when they raise the tax for general purposes it didn’t really mean any incremental investment in tourism. It was an incremental investment in what we called the black hole of City Hall.
I think that we’ve always felt that there was some vested right relative to TOT.
You mean from the industry perspective? Using TOT funds to fund marketing and tourism?
Exactly. It was created by a vote of the people to promote San Diego. Our premise is that the voters have spoken once on this. They approved the initial TOT, it was for this purpose and we’re vested in that.
You’ve been described as the author of the Tourism Marketing District plan, the 2 percent charge on hotel rooms for tourism promotion, that happened a couple years later. I’m wondering if there’s any lessons that you took away from the ’04 TOT campaigns that helped you in terms of developing that.
Absolutely. I think that probably the most important lesson of the process of the ’04 elections and coming forward was the reality that we never wanted to have to want to have to stand in front of the council as an industry and tell them why they should fund tourism promotion and not public safety. Because that is not a position that we would want to support. We didn’t want the council to have to pick and choose particularly between us and them.
At the end of the day, and you asked from a historical perspective, we just didn’t want to be in competition with very important elements of the community. Not that we’re not an important element of the community, but they have a certain panache when it comes to being first in line as they should be, as the charter says they should be.
Forgive me here for being a little bit glib, but is it the lesson from 2001 and 2004 and the TMD is that increases in the TOT rate are OK provided that the hoteliers are on board and voters don’t have to weigh in?
No. Increases in the TOT rate, or TMD, or the Convention Center Assessment District, are only OK when they’re reinvested in growing room nights, hotel revenue and immediate tax revenue to the city. That’s the only thing that makes it OK.
Is the Convention Center financing plan a tax increase?
You know we can play semantics. And go back and forth on this. We created the TMD under [business improvement district] assessment law. And the state calls it an assessment. You can call it a tax.
(San Diego County Taxpayers Association President) Lani Lutar called it a tax.
Lani may end up calling it a tax at the end of the day.
But the state Legislature calls it an assessment. I think for unknown purposes and particular agendas, people use different words to drive those agendas.
At the end of the day, it shows up on the visitor folio, it says, TOT, transient occupancy tax. It says Tourism Marketing District assessment. It says California state tourism assessment. But at the end of the day, the consumer looks at that and says those are the taxes I paid on my bill. I don’t disagree with that. But am I out there saying, or is it my responsibility to carry a sign around and say, “This is a tax”? All I’m doing is operating under existing state law that calls it an assessment.
So to be clear, if the Convention Center financing goes through, it would appear as a similar line item on people’s bills as the rest?
Who would be the ultimate backstop for these bonds?
The city. So the general fund, then?
Yeah. I’ve been in one meeting with bond counsel on this and that’s about as much as I understand about bonds. But there are various levels of risk and responsibility the way that the deal is structured. The idea here of course is to have a dedicated stream of revenue that services those bonds.
So yes, I think the city would be the ultimate backstop. But I think the plan has always been to figure out how, within the context of the structure of the bond, that we could give as much certainty as possible to make sure that that backstop was never required. As I’m told, there are ways to do that.
What percentage chance do you think you have on the Convention Center expanding?
I think it’s 80-20.
In favor. There’s a few unknowns. This isn’t a quick fix or an easy answer. There are a lot of moving parts.
Is the 20 percent primarily related to Proposition 26 and concerns about that and a public vote potentially applying?
You have to put Prop. 26 into perspective. Prop. 26 comes into play after the fact. We have to deal with it. We have to understand it. We have to attempt to craft whatever we do into the exceptions that are provided under Prop. 26. That’s the best we can do.
But does that hold it up? It doesn’t hold it up from my perspective. You can still go forward. You can still create the district. You can begin to do what you need to do because if there’s a challenge it will come very quickly.
Why the emphasis on trying to craft it into an exception? Why not just let it go to a vote and don’t even worry about it?
You asked me very early on what I learned from the 2004 election. And that is that a two-thirds vote threshold is too risky. Having learned that lesson and going down that road, would you come back and call me stupid?
And presumably we’re talking June 2012 if there would have to be an election. A lot of money going to the mayor’s race. A lot of money going to a 401(k) ballot measure. A lot of money going to whatever the heck else is going on. Potentially tax extensions for the state. Not a lot of space there for much of anything else.
You said that, not me.
What are your thoughts on the Chargers stadium discussions that would include an expansion to the Convention Center?
The (Convention Center) task force specifically dealt with this question. We dealt with it from a user perspective. We asked the potential convention planners what their priority would be. They told us and we have recommended that the expansion be contiguous. Nobody wants to sit at the little kid table.
Is there a role that a new stadium downtown adjacent to or in the vicinity of the Convention Center could play in a select few major national conventions? Absolutely. It would be a valuable asset.
I saw these things for a while as being parallel. A new stadium. A Convention Center expansion. Now as more and more the stadium folks are talking about conventions as being part of what they’re doing, I just don’t see how they don’t run into each other. If I’m a general member of the public and the the argument is being made, I don’t understand why you don’t just do one.
Because you can’t play football in the expanded Convention Center.
Is there anything else that you want to emphasize or add at all?
Our premise is: raise the revenue, not the rate. The way you raise the revenue is by driving demand so that your demand is delivering the occupancy and the rate to grow the TOT revenue. We grow the pie.
But you are raising the rate, though.
To reinvest. To grow the pie.