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Thursday, Sep 29, 2022

Laying Financial Foundation for Center Expansion Is a Challenge

If you build it, they will come. Studies prove that to be true. But how do you pay for it?

That’s the question officials are asking at San Diego City Hall as they pursue their dream of increasing the size of the San Diego Convention Center by a third to lure bigger conventions now lost to competing cities.

A few of the pieces are beginning to snap into place, but completion of this very complex and very expensive jigsaw puzzle is years away.

Mayor Jerry Sanders unveiled a tentative financing plan on May 12 to fund the $550 million expansion of the cavernous San Diego Convention Center, a plan that would tax city hotels 1 percent to 3 percent to generate as much as $30 million a year to repay the bonds needed to undertake the project.

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The mayor’s proposal would create a hotel taxing district within the city limits, which would allow the city to assess 3 percent to a guest’s nightly bill for hotels closest to the center.

Stays at hotels farther away from downtown, such as in Mission Bay, would be taxed 2 percent, while stays at hotels still farther out, such as Rancho Bernardo, would be taxed 1 percent.

The added taxes would increase the top room tax to 15.5 percent from the current maximum rate of 12.5 percent.

A Regional Treasure

“This (center) is the goose that lays golden eggs for the city, indeed for the entire region,” said Darren Pudgil, a spokesman for the mayor. “It would give us the largest contiguous convention center space on the West Coast.”

“The expansion would add about $16 million in hotel tax revenues to the city every year that we use for police and fire, and produce about $121 million in new hotel room sales each year,” he said.

Since the proposal only covers 75 percent of the financing required, Sanders is relying on politico-without-portfolio expert Steve Cushman to come up with the other 25 percent of the cash needed to pay bonds sold to pay for construction.

Sanders and Cushman met with 30 hoteliers earlier this month to vet the plan, and Cushman said the two got a favorable reception.

“We gave them a progress report about where we are at this time, and they listened,” he said.

He said hoteliers are concerned that they’re saddled with too much of the bills.

But Cushman told them he’s thinking of having bars and restaurants in the Gaslamp Quarter participate — with an annual contribution from city’s redevelopment agency and the Port of San Diego.

He’s also talking with area retailers, including the 130 operating at the five-level Westfield Horton Plaza shopping mall in the Gaslamp for a possible local retail sales tax.

“More than 50 percent of the retail sales derive from out-of-state visitors,” Cushman said. “It’s a potential source of revenue for the project.”

He’s even considered “flag tax” on taxis to add to the monies that are needed.

“Everyone who benefits from this project needs to participate,” Cushman said. “I am giving everyone involved in the project a place to stay in the tent.”

Before that happens, however, he’ll have to weave his way through the labyrinth that is Proposition 26, which requires a two-thirds, or supermajority, vote for new taxes or fees.

He and other proponents argue a public vote won’t be necessary, because the hotel assessment falls within one of six exemptions allowed under the new ballot initiative, passed by California voters.

Some proponents are fearful because voters twice rejected room tax increases in 2004.

Cushman also said he’s concerned about Gov. Jerry Brown’s efforts to eliminate city redevelopment agencies, which could torpedo the expansion.

“We just don’t know what’s going to happen,” Cushman said. “It’s anybody’s guess as to what’s going to happen.”

The expansion would add more than 400,000 square feet of useable space, increasing the size of the bay front exhibit hall to 750,000 square feet of contiguous space.

Construction would include a 5-acre waterfront park to give local residents access to San Diego Bay.

Losing Business

Like most other advocates, Cushman says San Diego turns away a year’s worth of meetings annually due to the lack of space, and the city often loses out to rival halls in Los Angeles, Orange County and San Francisco.

The organizers of Comic-Con International, the giant convention held each summer in San Diego, toyed with the idea of moving to Anaheim or Los Angeles, where facilities are larger.

East County-based Comic-Con capped attendance at 125,000 several years ago.

Pudgil says the expansion would ensure that Comic-Con remains here where it started in the 1970s.

“They have essentially run out of space,” he said. “So, we could get not only more conventions, but larger conventions, and it would, of course, bode well for our attempts to lock in Comic-Con long-term.”

Meanwhile hotel industry expert Bob Rauch, owner of two hotels in the Del Mar area who also manages the El Cordova Hotel in Coronado, says his fellow hoteliers are taking a wait-and-see approach to the mayor’s plan.

He said hotel owners and operators, especially those farther away from the center, are concerned about the added costs that they would incur; they’re also concerned that the city didn’t consider a taxing district to include other cities, such as Coronado.

“They are concerned about what they are going to get out of this,” Rauch said. “It’s going to take a tough sell,” he said. “Somehow those that share in the benefits also have to participate,” he said, noting that the Hotel del Coronado is prime beneficiary of the convention center.

Still, he said that he was encouraged, and thinks that the details of the financing can be ironed out in favor of hoteliers to nail down their support.

“They have to sell it to everyone involved, but they have done a remarkable job of keeping it alive during a tough economic period,” Rauch said. “But there is still a lot of work that needs to be done. It’s a work in progress.”

Tom York is a contributing editor for the San Diego Business Journal.


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