San Diego Business Journal

A state appeals court has ruled against the funding mechanism for a planned $520 million expansion of San Diego Convention Center, saying a proposed tax on hotel room bills is unconstitutional because it was not approved by voters.

In 2012, city council and local hoteliers approved a financing district to fund the bulk of the project, in which San Diego hotels with at least 30 rooms would apply a tax of 1 to 3 percent to guests’ room bills.

The appeals court ruled that the election by hoteliers was invalid under the California Constitution because hotel landowners and lessees are not “qualified electors” for the city – meaning they are not registered voters as defined by the constitution.

Judges also said the election for the funding district was invalid under the San Diego City Charter, since the charter requires the approval of two-thirds of registered voters for a special tax to be enacted.

The city has held off on collecting the hotel tax because of pending litigation. At least two lawsuits were filed challenging the funding mechanism, and the Aug. 1 ruling by the state’s Fourth District Court of Appeals concerned a suit filed by a group that included local businessman Melvin Shapiro.

The appeals court reversed an earlier ruling by the Superior Court, which had ruled the hotel tax legal. The appeals court decision will likely require local government and convention center leaders to find alternative funding sources for the center expansion.