Mayor seeks to turn over a new leaf in San Diego governance.
For decades San Diego has been governed by the principle that what’s good for our big corporate employers is good for San Diego as a whole, resulting in an arguably outsized influence by private moneyed interests over our elected officials, often leading to sweetheart deals and diminished public control over public assets.
That characterization manifested itself in last November’s mayoral election. The ballot reflected not only a choice between Carl DeMaio and Bob Filner, Republican and Democrat, last November’s election offered a referendum on the way San Diegans wanted business conducted at City Hall on their behalf. DeMaio represented a move even further toward deference to the Doug Manchesters of the region, while Filner offered a shift in focus toward neighborhood development over corporate development; a middle out approach over top down.
Bob Filner won convincingly, signaling that San Diego was anxious for a change, with the fight over the Tourism and Marketing District reflective of the shift represented by Filner’s election.
Unbalanced Private-Public Partnership
When the TMD was formed, the marketing and promotion of San Diego tourism was placed in the private control of San Diego’s largest hotel interests. Among the first orders of business was to grant themselves the ability to “tax” their customers in order to finance a $520 million expansion of the San Diego Convention Center. In the spring of 2012, they took the additional step of electing to heap an additional two percent charge on guest bills to be collected and put into the private, non-profit TMD Corporation. The TMD would then use the money to promote San Diego as a tourist destination in markets around the country. Other cities are doing it. San Diego should do the same.
Recently a judge tentatively ruled that the assessment for the Convention Center expansion is legal under the guise of a Mello-Roos fee. The two percent surcharge to fund the TMD is likely another story, however, a dispute that pits Filner against the TMD and City Council. Filner contends that the TMD surcharge amounts to an illegal tax since it was never brought to a public vote, a must for any increase in taxes. The TMD and City Council argue that it amounts to a self assessment on the part of the hoteliers, which makes it not a tax.City Attorney Jan Goldsmith
Lawsuits have been filed, and the matter is working its way through the courts, but is unlikely to be decided for over a year or more. In the meantime, the hoteliers have begun collecting the surcharge, and they want access to the funds to start their ad campaigns. All that is required is the mayor’s signature and the approval of the City Council.
“The operating contract provides that it is up to the city council to decide whether and on what terms the funds would be released given the legal challenge. The city council would decide that by resolution, which is subject to mayoral veto,” City Attorney Jan Goldsmith wrote in an email exchange last week.
For Filner this is problematic. The City Council has made it abundantly clear that they fully intend to release the funds immediately upon the contract’s signing. But Filner has concerns about protections for the city’s general fund should the courts eventually rule the TMD assessment an illegal tax. Goldsmith says that the city is protected, but Filner is not so sure, and by Goldsmith’s own admission, the mayor appears to be right.
“We have been working on requiring individual hotels to sign waivers and indemnities and only allow a portion of the funds to be released. Another option would be to continue having all the funds frozen or even a bond. That would be up to the city council and the mayor after the operating contract is signed,” wrote the City Attorney, indicating that the contract as originally written does not provide adequate protections for the city.
At issue is what will happen if the funds are released, spent, and the court ultimately rules against the TMD funding. The TMD itself would be held responsible for repaying the money, but since the funds would have already been spent, it would lack the capacity to do so. The hoteliers, meanwhile, are shielded from any liability, although the City Attorney is currently working on “options that would bind the individual hotels.” The onus, in the interim, would fall upon the city’s general fund.
Filner, in other words, is being asked to sign a binding operating contract that he played no part in negotiating and which fails to adequately protect the city’s taxpayers. Sign the contract and we’ll work on the indemnification later. Trust us.
It gets even murkier: “The current unsigned contract allows the city to freeze all funds if there is litigation. It does not require it, but the mayor can exercise that right,” said Goldsmith. It is thought that the City Council would then have the authority to override via a two thirds vote.
For his part, the mayor has made a good faith effort to settle the matter, while the TMD board has chosen to sue him personally in order to enforce the unsigned agreement. Last week he offered a counterproposal to the TMD board that he says changes less than 600 words in the original pact, yet would alleviate his concerns over the deal.
“What I’m trying to do here today is show that certainly I as mayor am interested in not holding up money for advertising for San Diego in a very competitive tourist market, and that I have offered a counterproposal to the operating agreement. And I hope that they will consider it and either sign my version or continue to talk to me about it,” Filner said at a press conference yesterday. “This is certainly a better alternative method than arguing in court.”
The counterproposal, he says, would release the funds to the TMD immediately so that they can fully embark on their marketing efforts. In return he would require that the TMD take out an insurance policy that would protect the city’s general fund. He also stipulates that the TMD provide $5 million toward the Balboa Park Centennial celebration in 2015, an entirely reasonable request since it would serve to promote tourism in San Diego.
Previously Filner had insisted that the TMD put additional money into the city’s general fund for police, fire, and other services. He had also demanded that the hoteliers be held to the city’s living wage ordinance, but those demands have been dropped in acquiescence to the City Attorney, who said that the city cannot legally require such steps. Instead, Filner has requested in the modified agreement that the TMD “encourage” member hotels to pay their employees a living wage.
“I want the people of San Diego to know I have been trying for months to reach a compromise with the hotel giants to make sure we get a fair deal. I take my responsibility as a caretaker of the City’s financial future very seriously,” said Filner.
Also at issue for Filner are exorbitant salaries being paid to TMD executives. Included in the counterproposal is a prohibition of executive salaries in excess of $160,000 per year. According to tax records, TMD CEO Joe Terzi earned a 2011 salary in excess of $435,000, with two other executives earning more than $200,000 each. “If this was a public function, which I believe it is because it’s a tax, city government would never get away with paying someone that kind of money,” Filner said.
“That’s what Prop B was all about,” he said.
In all, the mayor has gone to rather great lengths to show that he’s willing to be reasonable; the proverbial grown up in the room. But thus far he has been completely rebuffed. The TMD board considered the mayor’s proposal in a closed meeting yesterday, but rejected it in its entirety, instead opting to continue their battle in court.
“The Mayor’s proposal is not only contrary to all of the approvals last year by the San Diego City Council, but we also believe it is illegal,” said TMD Chairman Terry Brown in a statement. “We are disappointed that we have to seek a court order to compel the Mayor to do something we and the City Council believe he is legally obligated to do.”
It seems odd that the mayor should be compelled to sign a contract he played no part in constructing, yet in his judgment places the taxpayers at significant and unnecessary risk. Meanwhile, a viable alternative that would appear to satisfy everyone’s needs is rejected out of hand simply because the hotel interests are unwilling to accept anything less than full authority with zero liability and accountability. while the City Council sits idly by in tacit approval of the district’s bully tactics.
Rodney King must be rolling over in his grave.