What's Next For San Diego Convention Center Expansion?

MAUREEN CAVANAUGH: Our top story on Midday Edition, the next move on the convention center expansion plan is up to the San Diego City Council. The idea to finance construction by creating a special hotel district which would assess a higher hotel room fee was struck down by an appeals court on Friday. The court said the fee is a tax, and state law requires a public vote to raise the tax. That is the very argument attorney Cory Briggs made from the start of his case against the financing plan. I would like to welcome attorney Cory Briggs back to the show. Steven Johnson is Vice President for Public Affairs with the San Diego Convention Center, welcome to the show. Cory, could you remind us in more detail about how the city proposed to finance the convention center expansion? CORY BRIGGS: The city in the hoteliers came up with the mechanism where they were going to assess hotels and visitors at hotels at a 1%, 2%, or 3% depending on how close to downtown the hotel was. In order to get that approved, the city decided to have the hotels vote on it instead of the human beings who are registered to vote. The hoteliers overwhelmingly supported it, however, the city attorney Jan Goldsmith had some concerns about the legality of doing that, and recommended go to court, said that a judge could prove it. The city filed a lawsuit and sued the public generally. Al Shapiro represented by Craig Sherman, and San Diegans for open government, represented by my office, became defendants in that case. We argued that it should be voted on by the flesh and blood folks. The trial court disagreed, but we took it on appeal. MAUREEN CAVANAUGH: Right, as you mentioned, this passed a muster with the trial court last year. Why did the appellate court reverse that? CORY BRIGGS: There were a lot of reasons the appellate court gave, it's a fifty-three page opinion. MAUREEN CAVANAUGH: Is there a nugget there? Did they actually agree with the central question you posed? CORY BRIGGS: The central issue is whether the word elected in the Constitution means whoever the city decides get to vote this to vote, or whether it means flesh and blood human beings are registered to vote by the voters. The court agreed that based on many years of constitutional history, many years of case president and just as a matter of economic logic, when you have taxes where you cannot be sure where the benefits and burdens fall, you put that to a vote of the people and not just to businesses who supported. MAUREEN CAVANAUGH: Isn't there a relatively new state law, proposition twenty-six that supports this idea? CORY BRIGGS: There is. The interesting thing about this case, we were arguing prop twenty-six because this issue was so clear that we can base it on precedent from before prop twenty-six. MAUREEN CAVANAUGH: The appellate court said the issues clear, but as you mentioned right off the bat, Jan Goldsmith said this plan was legally questionable. It was not clear whether or not it would actually clear the legal hurdles. Why do you think the city move forward on a plan that was so questionable legally? CORY BRIGGS: You would have to ask the politicians. We told them not to do it, Mister Goldsmith recommended against it, and they did it anyways. You would have to ask them what they were thinking. MAUREEN CAVANAUGH: Steven, I will ask you to tell us about the proposed expansion of the convention center. As I understand it, the price tag is usually quoted us about $120 million. How would this expansion actually change the appearance of the convention center? STEVEN JOHNSON: We would put a 5 acre rooftop park on the backside of the convention center, and it would set a top the 80,000 ft.≤ ballroom with panoramic views of the San Diego Bay, and blow it would be another 100,000 ft.≤ of meeting rooms, and below that would be about 220,000 ft.≤ of exhibit space, making it 750,000 ft.≤ of exhibit space in San Diego, the largest contiguous exhibit hall in the West Coast. MAUREEN CAVANAUGH: Why do you think we need the largest exhibit hall in the West Coast? STEVEN JOHNSON: Our clients tell us they needed to be able to continue to have a rotation into San Diego. I think a lot of media attention has been given to Comic-Con, and rightly so. They are a large and very visible group that comes here every year. We just had BIO in our building, and they just told us very clearly that they need expansion to continue their rotation, and that industry is huge in San Diego. Would be a real loss to the city and to that industry to not have BIO in San Diego once every three or four years. The National Association of Realtors is another group that needs an expansion. And then there are groups that have outgrown us already, like HIMSS. That's Health Information Management Systems Society. They have already outgrown us. They were last here in 2006. Really from a client perspective, some clients have told us that they need this. It is a response to the marketplace we exist in, to be competitive. MAUREEN CAVANAUGH: Is it clear that the hotel tax would have generated enough to pay for the convention center expansion? CORY BRIGGS: No, and there are two parts to that answer. First is what is the cost? The city said it would be $520 million. When I was on the show last time, we talked about how it was probably underestimated by $30-$40 million. We recently have been able to confirm at least provisionally that the actual cost to do everything as promised is actually closer to $700 million. And then of course, it there is about a $30 million of deferred maintenance that the city is on the hook for. We have to figure out what the cost is. On top of that, the city was honest in its paperwork for the tax, where it said even if we approve this, Wall Street will have to do an independent study to confirm that we will generate enough money to cover the debt service, and as a hedge, the city went to the court and got a commitment of $20 million, and the city itself committed $3.5 million in the event there was not enough to cover the debt service. I'm not sure it was clear that the tax would have covered the debt service anyway. MAUREEN CAVANAUGH: Were you convinced the hotel room tax hotel room tax would be enough to generate enough income to pay for this expansion? STEVEN JOHNSON: Based on the initial budget of the expansion at $520 million, yes, in part because the hotel rate used to base the tax revenue was a rate that was never escalated. It stayed at the same rate over the life of the bonds, and we all know living in San Diego you will not pay the same rate for a hotel room thirty years from now that you did in 2008. To the degree that the prices have escalated is in part due to those delays. I don't think anybody knows right now the true impact of the cost. I'm not sure where Cory is coming up with 700 million, it's a number I've never heard. MAUREEN CAVANAUGH: Cory, let me ask you something about the financing plan that the appellate court said does not work with state law. A lot of people are saying it was comparable to the Mello Roos districts, where those are additional taxes that homeowners pay in many communities. Why is this assessment district different, why is it made up of hotel owners? CORY BRIGGS: The city did not do Mello Roos here. They did something like Mello Roos. They incorporated into the local municipal code provisions that appeared to be helpful. But the essential provision about the term electorate, which is what you have to satisfy in the Constitution, that term has a certain meaning under Mello Roos, but they were not creating a Mello Roos district. When you factor in all of the differences here, compared to what you get in a normal Mello Roos, they had to have the hoteliers voting on it. At the same time, they acknowledge that this was a tax, and proposition thirteen was very clear about special taxes, and prop 218 just emphasized it, when it said taxes are to be approved by the electorate. The history of that term is flesh and blood voters over the age of eighteen, citizens of the United States go to the registrar of voters and register to vote, that is what we mean by electorate. MAUREEN CAVANAUGH: Steven, the city has a few days to decide if it will appeal this decision to the state Supreme Court. But if this ruling stands, does it move the expansion plans back to square one? STEVEN JOHNSON: Know, we have put years and years of work into this, and we have been out in the public, we have shared these plans, and it went all the way through the California Coastal Commission, we are waiting for a financing plan that will pass legal muster. I think that is a decision that the Mayor and the city council will have to make about what the final steps are. One thing I want to emphasize, the building that we currently occupy has been up since 1989, it is coming up on its twenty-fifth anniversary. I don't think anybody can look at the downtown revitalization and the success of the facility and not see a need to continue to build on that success. I think Cory will probably agree with that. CORY BRIGGS: I think most people will say the city has a problem, namely that the convention center is not as big enough to accommodate the business they would like to bring in. Whether you like the convention center or not, I think reasonable people share that premise. The problem is that the treatment was worse than the disease. We all have to take a step back and recognize what we have in common. We want the city to succeed. There is an opportunity for everyone to take a deep breath, look at other alternatives, talk about other financing mechanisms. We have to mention that the Chargers may be part of the mix. Some people don't like them, some people don't love them, regardless of how you feel they are part of San Diego and we all succeed, the city is better off when we all succeed. I think we all need to talk about what the best ways are doing something that benefits everybody. The hoteliers are now not going to get 100% of what they wanted. The question is whether getting 90% or 80%, but giving other constituents in the public 90% or 80% of what they wanted, it's something we can all sign on to. I think those are the conversations that we will have in the coming weeks. MAUREEN CAVANAUGH: When Cory talks about alternatives, he was talking about some of those other plans a we heard about to expand the convention center, merging it with multiuse a Chargers Stadium. STEVEN JOHNSON: You say plan, there is no plan on the table. There has never been and to this day is not any plan on the table from any other entity around the expansion of the convention center or a joint use Stadium. It is hard to react to something that is not there. MAUREEN CAVANAUGH: There is a rendering of what it might look like. STEVEN JOHNSON: Close your eyes. MAUREEN CAVANAUGH: The point I was trying to make, is that since this particular expansion plan has gone through and jumped over all of the hurdles of the coastal commission and the Port commission, are you wedded to this plan? With the convention center open up and take another look at these other proposals that have been out there? STEVEN JOHNSON: We bought a plan four based on the market demand that we got in feedback from clients about the kind of product they want. They want a contiguous exhibit hall. We would have to look at what it alternatives were put forward, we will have to go back to the marketplace and talk to clients about those things and get that kind of feedback. At this point in time, we're looking at a way to finance the current plan. MAUREEN CAVANAUGH: Trying to find a way to finance the current plan might be a way to put a vote before the San Diego people and see whether or not they would approve an increase in tax in order to pay for that. What you think the chances are that would be preferred by two thirds majority? STEVEN JOHNSON: That is one opportunity that would have to go by the Mayor and the city council. I think the general public in San Diego largely supports an expansion of the convention center and I think that is probably why you have heard the Chargers talk about a joint use convention center facility whether or not it would pass two thirds is anybody's guess, and that's a hard threshold. As Cory says, we can all come together and put together a plan that is largely and broadly supported, I think we can move the ball down the court. MAUREEN CAVANAUGH: Cory, one can argue one of the reasons this plan was put into place to begin with was to avoid having to put this before the people, to try to get a two thirds vote to approve a tax for an expansion of the convention center. CORY BRIGGS: You wouldn't have to argue very hard, even the hoteliers would agree that is the reason they put it this way. Nobody thinks they will get a two thirds vote, I am not a family man, but my strong suspicion is that you could not get a two thirds vote even with a lot of public support. Folks also have to remember that we challenge this not on just a financing, but whether it is proper to put it on the waterfront. That Coastal Commission lawsuit as well, they remain pending and have not been decided. They will make their way through the courts. If everybody wants to get something going sooner than later, everyone will have to acknowledge they will not get 100% of what they want. That means Steve may have to say to clients, look, we would like A, but we can only afford to do B. People have to make those policy decisions all of the time. I don't know what B is yet. There is no formal plan. There are drawings out there, I have presented something to the coastal commission, there was other stuff that will probably come out in the near future to show ideas and alternatives. The reality is, all of this is to be looked at. Are we at square one? Absolutely not. The definition of insanity is doing the same thing over and over and expecting at different result. I think folks should say we're not likely to get exactly what we wanted going into this, what is the next best thing, I think there's probably some productive conversation on that topic. MAUREEN CAVANAUGH: I want to ask you about filing lawsuits against city projects. You have another pending lawsuit against financing over the structure repair bonds. Why do you think the issue of how public projects are financed is important to San Diegans? CORY BRIGGS: Because of the rules that regulate how cities raise money and are money are in the Constitution. The Constitution trumps everything else. I realize in some cases there are policy arguments and it would be good to be able to do something, but in a civilized society we made a deal long ago, every generation reaffirms it, and that is we will they down the rules in the Constitution to follow as opposed to just doing things willy-nilly every time we think something is good. That is why democracy lasts, it is the great thing about this country, people have the right to vote. These challenges are raising serious constitutional issues. MAUREEN CAVANAUGH: When it comes to the convention center expansion, is the next move the city's? STEVEN JOHNSON: Absolutely. I think it is a combination of leadership at of the Mayor's office and City Council, Todd Gloria, the Council President, as well as the industry talking to each other about what we do, and where we go from here. MAUREEN CAVANAUGH: I have to end it there.