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The city has tried again and again for 15 years to increase its hotel-room tax – and it’s never worked. The history of the effort helps explain why supporters see the latest measure as their best chance yet.
For more than a decade, San Diego hotel operators and leaders in the visitor industry have been trying to expand the Convention Center. Now they are praying that despite 15 years of failed efforts to raise hotel taxes, somehow, some way, this will be different.
After a series of stumbles, hoteliers and business leaders are lining up behind a March 2020 ballot measure that would also collect money for homeless initiatives and road repairs. An unprecedented coalition that includes labor groups and Democrats is now standing with them.
Hotel industry insiders believe it represents their best chance to consummate a project they have long believed is necessary to help the city hold onto conventions like Comic-Con and to pull in more visitors.
“If we don’t get it done this time, we will never get it done,” Tourism Authority CEO Joe Terzi said.
While not all count out the possibility of future attempts at a Convention Center expansion if the ballot measure fails, all emphasize the unique opportunity they believe they have with an expanded coalition and a more broadly focused ballot measure – and how recognition of that opportunity is firing up supporters.
“The industry is stepping up like I’ve never seen them step up,” longtime expansion champion and power broker Steve Cushman said.
Campaign finance reports show hoteliers have poured more than $1.5 million into the now multi-year campaign to increase hotel taxes.
But city voters have rejected four previous ballot pitches to increase taxes tacked onto visitors’ hotel bills, including one that the visitor industry and labor groups previously rallied behind. Other efforts to avoid voters have also failed.
Victory in March will likely require two-thirds support from voters, a threshold that many past tax measures have not been able to overcome. It’s such a high barrier that the coalition behind the proposal pursued a citizens’ initiative precisely because they had hoped a legal ruling might help them avoid that high threshold. That now appears highly unlikely.
Then there are long-running arguments, increasing as the city’s politics shift left, that tourism tax increases should flow to a slew of city needs other than the Convention Center.
The years-long push to expand the Convention Center has also fueled confusion.
“We have talked about the Convention Center for so long that we actually think we voted on it over and over again,” said Building Trades union political director Carol Kim, who’s also a member of the Convention Center board.
The March 2020 initiative will mark the second time city voters have been asked to sign off on a Convention Center expansion but the first time they will be asked to increase taxes to do it.
Hotel-tax increases would seem like the easiest sell to city voters. After all, visitors – not city taxpayers – pay them.
But city voters have rejected four measures attempting to increase hotel taxes since 2004.
Hoteliers were vocal players in each failed attempt.
Hoteliers have had a sense of ownership over that funding stream since the city started collecting the tax more than 50 years ago. Visitor industry leaders think the money should go toward efforts to bring more people to San Diego. Other advocates think tourists bring their own needs they should pay for – they access public services, police officers, beaches and other burdens on the city budget.
“The tax on our guests is supposed to enhance a visitor’s experience in San Diego at some level,” said Namara Mercer of the San Diego County Hotel-Motel Association.
The city began collecting so-called transient occupancy taxes in 1965 to bolster promotion of the city as a tourist destination. It started as a 4 percent tax added to hotel bills. Over the years, city leaders repeatedly voted to increase the tax and funnel new money into the city’s general fund, making the case that the new money would help address costs associated with tourism.
Today visitors pay 10.5 percent to the city plus another 2 percent to the hotel industry’s Tourism Marketing District, which the industry created in 2007 – the first effort to raise the tax by avoiding voters. The visitor industry wanted to protect public money for marketing San Diego while city leaders looked more and more to tourism tax dollars for basic city needs.
The industry did that in the wake of a failed March 2004 ballot measure.
That year, hoteliers teamed with the city’s fire union to urge voters to increase hotel taxes 2.5 percent to bolster public safety and infrastructure investments plus tourism promotions in the aftermath of the devastating 2003 Cedar Fire.
Politicos now agree that the measure – which required a two-thirds vote – was torpedoed by last-minute opposition spending by hotelier Doug Manchester. But then-Mayor Dick Murphy, at that time in a tough re-election campaign, also did not support the measure. It demonstrated how hard it is to raise the tax with even minimal opposition. More than 62 percent of voters supported the effort, but not the 66.7 percent needed.
Undeterred, the City Council voted to place another 2.5 percent hotel-tax increase proposal on that November’s ballot with the knowledge that it only needed a simple majority to pass if they promised the new cash would flow to the city’s day-to-day fund rather than earmark it for specific initiatives. The city’s public safety unions got behind the campaign, pledging the tax hike could improve emergency services in the city.
But hoteliers were not on board. They wanted earmarked cash for tourism marketing and to ensure cash wouldn’t be sucked into what Mercer now describes as “the black pit” of the city’s day-to-day fund.
Then-City Councilwoman Donna Frye recalls hoteliers being focused on their own industry’s bottom line.
“I learned very quickly that unless the hoteliers got the bulk of the money, they were not going to support it,” Frye said.
Voters ultimately weren’t supportive either. Just 42 percent voted in favor of Prop. J.
About a decade later, Frye pushed one of two 2016 ballot measures that also tried – and failed – to increase hotel taxes.
The proposal Frye came up with in partnership with attorney Cory Briggs and funded by former Padres owner John Moores, Measure D, aimed to hike hotel taxes by up to 5 percent. But it was much more complicated than just that, and, among many other goals, it pressured hoteliers to get behind a new tourism marketing arrangement and a different Convention Center expansion that would avoid the bayfront. Hoteliers – and voters – weren’t impressed with the complex, largely overlooked measure. Fifty-nine percent of voters came down against it.
That fall, hoteliers and city voters were far more focused on the Chargers’ attempt to increase city hotel taxes by 6 percent, siphoning off some of the new cash for tourism marketing but throwing the lion’s share at an East Village stadium and convention facility.
Their opposition helped kill the Chargers measure, which pulled in just 44 percent of the vote, far short of the required two-thirds.
Against seemingly all odds, the fight with the Chargers only made hoteliers more passionate about the need for a bayfront Convention Center expansion. A new effort to make that a reality emerged within weeks.
The latest campaign to expand the Convention Center essentially kicked off a decade after city voters endorsed the last expansion.
In June 1998, 62 percent of voters gave the city the go-ahead on a Convention Center expansion and a plan to pay for it after a signature-gathering effort forced a public vote. (Worth noting: The vote did not require two-thirds approve because it didn’t call for a tax increase. Instead, it authorized the city to borrow money that would be repaid with hotel taxes.)
In 2008, then-Mayor Jerry Sanders stood with Convention Center Corp. leaders to announce they’d be taking initial steps to expand the Convention Center again.
Downtown power brokers, politicians and tourism leaders have spent the last decade wrestling with how to pay for that second expansion.
Still fresh off their failure to make the case for a hotel-tax increase in 2004, hoteliers first tried the path that had brought them additional tourism marketing money before. Sanders and hoteliers decided to have hoteliers vote on whether to add their own tax on hotel bills to fund a Convention Center expansion, rather than the public.
Then-Lodging Industry Association president Mike McDowell was candid about the controversial calculus in a 2011 interview with Voice of San Diego.
“A two-thirds vote threshold is too risky,” McDowell said. “Having learned that lesson and going down that road, would you come back and call me stupid?”
The Chargers seized on the opportunity to redirect attention to a plan that could accommodate both convention space and a football stadium. The team had lobbied against the Convention Center expansion along the bayfront. But then they tried to move to Los Angeles. When their first proposal for Los Angeles failed to get NFL approval, they put together a long-shot measure to raise the hotel tax that seemed almost designed to generate intense, diverse opposition.
And it did.
After the Chargers’ failure, Terzi said he advocated that Mayor Kevin Faulconer and hoteliers get behind a ballot measure that would address more than a Convention Center expansion. He argued the city’s growing homelessness crisis and crumbling streets were also hampering tourism and that the city’s tourism economy could play a role in helping addressing them. He also thought those issues could lead to more success at the polls.
“I don’t think we could get two-thirds vote if we said we just want to increase the hotel tax for the [convention] center,” Terzi said.
Stephen Puetz, the mayor’s former chief of staff who is helping manage the latest campaign, has said Faulconer wanted to incorporate homelessness in the measure despite early arguments that it wouldn’t help it surpass the needed two-thirds threshold.
Faulconer made his intentions public a couple months after the Chargers measured crumbled.
“I will ask voters to increase lodging revenue from tourists so we can finally fund the waterfront expansion,” Faulconer said during his 2017 State of the City address. “This is the only legitimate plan that guarantees we can move forward with this critical project.”
He also described plans to use the new money to help fund homeless services and street repairs too.
The plan was to raise hotel taxes 1 to 3 percent, depending on their proximity to the downtown Convention Center.
Hoteliers and business groups were on board. Their support wasn’t enough.
City Council Democrats rejected Faulconer’s proposed November 2017 special election, citing a 2016 ballot measure requiring that initiatives appear on general election ballots. Council members, joined by labor leaders, also argued the measure didn’t invest enough in homelessness solutions.
Seemingly undeterred, the city power brokers, including hotel industry leaders, soon started negotiating with labor and community leaders.
They emerged in January 2018 with a broader labor and business coalition, a more substantial proposed tax hike and more promised money for homeless initiatives. The new pitch: A 1.25 to 3.25 percent hotel-tax increase, a range again depending on hotels’ proximity to the Convention Center.
But the years-long drama was far from over.
First, at Faulconer’s urging, the City Council and Port Commission rushed in June 2018 to vote on a deal to secure land needed to proceed with the Convention Center expansion. That was necessary because the city had stopped making payments amid faltering attempts to expand the Convention Center, imperiling the bayfront expansion.
Then came a spectacular failure. The Convention Center measure failed to qualify for the November 2018 ballot after the city clerk determined the signatures it turned in last summer required more verification. Faulconer and other supporters were devastated.
They still didn’t give up – and decided to pursue a March 2020 measure that would help the campaign avoid competing with an untold number of other ballot measures to come in November 2020.
The campaign’s special election proposal splintered Democrats divided over another pitch that contradicted the city’s general election mandate for ballot initiatives.
Last month, the campaign urged the City Council to vote to place the measure on the March ballot despite protests.
The City Council narrowly voted to place the measure on the ballot, giving city voters their first chance to vote on a Convention Center expansion that hoteliers and power brokers have obsessed over for more than a decade.