By John Lawrence
Section 35.0109 Additional Tax Imposed
The Chargers want the City to create a separate Fund, the Convention Center Expansion and Stadium Fund, which will borrow money from Wall Street in the form of Bonds and be firewalled off from the City’s General Fund. So it’s like a separate entity for which the City is not responsible at all, but the City has to create it. The BIG question is, “Will Wall Street go along with this?” The monies flowing into this fund come solely from an increase in the Tax On Transiency (TOT) of 4% (or is it 6% as stated in the proposal?).
If these monies aren’t sufficient to make the payments on the $1.15 billion in bonds that this “entity” (not the City, mind you) is responsible for, then what happens? Who’s left holding the bag? Not the Chargers, that’s for sure. The Chargers will not own the Stadium. They will lease it from the City. Will Wall Street want to foreclose on the Stadium? Probably not. So who will be ultimately responsible? You guessed it — the taxpayers. Wall Street would not have it any other way. The taxpayers will be left holding the bag as they’ve been so often in all the other deals involving Wall Street. Did I mention that the taxpayers are still holding the bag on $50 million still owed on Qualcomm Stadium at the same time the Chargers are demanding that the City borrow $1.15 billion more for a new stadium?
In Section 35.0109 it says, “The issuance of Bonds or execution of Financing Agreements shall not directly, indirectly, or contingently obligate the City to levy or pledge any form of taxation other than the tax imposed pursuant to Section 35.0109.”
Who says? Or rather who has the final say — the Chargers or Wall Street? That Section states, “Notwithstanding the tax imposed by any other Section of this Division and in addition thereto, for the privilege of Occupancy in any Hotel, any Recreational Vehicle Park, or any Campground, each Transient is subject to and shall pay an additional tax in the amount of six percent (6%) of the Rent charged by the Operator commencing January 1, 2017.”
There is some confusion regarding the increase in TOT tax. According to the San Diego County Treasurer-Tax Collector’s website, “TOT is currently computed at the rate of 8% of the Rent and must be collected by the Operator from the guest at the time of payment.” According to the San Diego Union, “The Chargers will ask San Diego voters in November to raise taxes on hotel stays to 16.5 percent from today’s 12.5 percent rate to help build a $1.8 billion hybrid stadium and convention center…”.
According to the Chargers proposal the TOT taxes will be raised 6%. If today the TOT tax is 12.5%, TOT taxes would be raised to 18.5% not 16.5%. Wouldn’t you think that this would be made absolutely clear by the San Diego media? But then the Chargers are great at obfuscation. Or is the Treasurer-Tax Collector’s website out of date?
It says that the increase in TOT taxes is “in addition to” taxes imposed by any other section. What they might be, I have no idea. Interesting that the tax applies not only to hotels but RV parks and campgrounds as well. And the word “Transient” applies to transients of the high class variety with money to spend, not the transients that sleep on the sidewalks every night. The tax evidently does apply to AirBnB rentals as it applies to all short term rentals.
The other thing to make clear about the above quote is that it’s the Chargers saying that the City will not be obligated to levy any other form of taxation — it’s not Wall Street. They might have a different idea and the contract regarding the bonds might state things differently. That’s the only “fine print” that really counts. The Chargers saying that the City shall not be obligated does not make it so!
Chargers Could Leave City Still Owing Bond Payments for 10 Years
Section 35.0142, item (c): “Bonds authorized by this Section shall be issued and shall mature at such time or times not to exceed forty (40) years, bear interest at such fixed or variable rate or rates approved by the City but not to exceed the maximum rate permitted by law.”
There are several things wrong with this. First, the Chargers are only committed to staying in San Diego and performing at this Stadium for 30 years according to the proposal. They could leave and the City would still be on the hook for another 10 years. Furthermore, what would the City do with a Stadium they own after the Chargers split? It would be worthless except as a bargaining chip for the Chargers who would be complaining that it wasn’t up to snuff and would be demanding that the City build them a new Stadium in just the same way that they’re demanding a new stadium with the City still owing money on Qualcomm Stadium at which they don’t want to play any more. In fact they are threatening to take their football and move to LA if they don’t get their way. Wahhhh!
And then regarding those “variable interest rates,” a lot of cities have approved them, then gotten into financial trouble and gone bankrupt. And if the City indulges in derivatives like interest rate swaps, like so many other cities have, they could end up owing several times the $1.15 billion they are borrowing. Many other cities have been bankrupted from ending up on the losing end of interest rate swaps. Do the tax payers really need to subject ourselves to the vagaries and whims of the financial markets and the sophisticated machinations of Wall Street financiers. At any rate regardless of what the Chargers’ verbiage says, it’s only so much hot air. Wall Street’s contract with the City is what counts.
If the taxpayers of San Diego swallow this hogwash and vote for the Chargers’ plan on the November ballot, they are voting for a pig in a poke. They are authorizing the City to go into debt for $1.15 billion without knowing the final terms and the small print in the contract with Wall Street for the bonds. They aren’t privy to the negotiations between Wall Street and the City. Despite the fact that the proposal states that there will be a firewall between the City’s General Fund and the Fund that pays the interest and principal on the bonds, Wall Street might have a different idea and then the City would have to go along with it or be sued by the Chargers if the voters approve of this proposal.
The variable rates on the bonds could come into play in a disastrous way for the City which could be in the position of obligating itself to what amounts to Capital Appreciation Bonds that left Poway and San Ysidro owing huge amounts of money and being in debt far into the future. The TOT taxes might eventually have to be paid ad infinitum long after the Chargers 30 year commitment to San Diego is up, long after present day politicians have gone.
What About the Homeless?
Finally, what about the homeless? In light of the City’s trying to remove them from the proposed area of the Chargers stadium in order that the All-Star game at Petco Park not have them littering up the streets, what would happen to them if a new Stadium was built right in the area where they all congregate? What mitigation is in this proposal for them? They are totally ignored although their impact on another stadium downtown would be crucial. What’s in this proposal for them? Nothing. They never even crossed the Chargers’ minds.
The City would end up owning a white elephant of a stadium potentially long after the Chargers have left town. The hoteliers and the campground operators would be saddled with a huge TOT tax which would be obligated to pay off bonds far into the future; the City would be at the behest of Wall Street variable interest rates and other high finance shenanigans which have bankrupted many other cities including Birmingham, AL, Detroit, MI, San Bernardino, CA, Stockton, CA, Orange County, CA, Milan, Italy and many others.
In this proposal the Chargers dictate to the City of San Diego on their terms. The City of San Diego would be better served instead by dictating to the Chargers on its terms. A much more reasonable solution would be to redevelop the site in Mission Valley where Qualcomm Stadium is presently located. That redevelopment could take different approaches depending on whether or not the Chargers decided to stay or leave. The City should not be at the Chargers’ behest; the Chargers should be at the City’s behest.
The City should decide when or how to expand the Convention Center as a separate issue. A contiguous expansion would be preferable by all accounts except the Chargers’. Lastly, any Bond issue should also create affordable housing for the homeless using the Housing First model. Getting the homeless off the streets would do a lot not only for the homeless, but would be the most important thing that could be done for tourism as well.
Editor Note: TOT rates are confusing as the author has noted. For further clarification, see the comment by Cory Briggs below, City of San Diego information here and an extensive article on the topic of Transit Occupancy Tax by Cory Briggs here.