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.
Part 1: 110 Pages of Gobbledygook
John Lawrence
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You are correct,the language that matters is in the contract between Wall Street and the city.
Though debt is Wall Street’s opium, they’re not as eager to underwrite convention centers as they are new NFL stadiums. This hybrid, Frankenstein’s monster may cause consternation and result in a less than favorable, closed-door deal with the city.
Contempt is the only thing we should give to The Big Convadium.
Raising rates for hotel rooms nearest this grotesque proposal by 18.5% will surely leave many of those rooms empty. Next, the Bolts will be arguing that market economics don’t apply.
Who goes to Chargers games? More and more, it’s people with deep pockets. I wonder how many tailgaters understand they won’t have a parking lot to grill the burgers, and that they’ll have to pay $8 or $10 per beer, without the burger, in the Big Convadium. Voting for the The Big Con isn’t going to get them to the stadium any more than Donald Trump is going to make America great again.
And how does one drive to this stadium to get there on time? And where does that one person park?
The Spanos stadium plan is a hustle related to the subprime mortgage scam, which required a taxpayer bailout to the banks for worthless promises that these were, after all, mortgages. It’s the Republican idea of how to get the money without any harm when the project is unable to pay for itself.
“$8 or $10per beer”???? Isn’t it already $12 at Petco?
John: The county’s TOT is 8% and applies only in the unincorporated parts of the county, not in the city.
You are forgiven, of course, for not being able to figure out what the city’s current TOT rate is because the hoteliers and policians have been talking out of both sides of their mouths. The nominal TOT is 10.5%, but the real TOT is 12.5% because that’s what tourists pay for the privilege of staying in a city hotel.
(The Chargers’ proposal does eliminate the 2% hocus-pocus “self-assessment” (read: hotel-guest surcharge) that the hoteliers and pols say is not a tax, which puts the real TOT back at 10.5%. But then the team would bump it to 16.5% for the convadium and some tourism marketing and possibly some gen-fund money.)
Thanks, Cory, for setting me straight. This is the website for the City’s TOT tax. I should have read your article first which explains in great detail the history of the 2% TMD tax (which has been declared to be illegal) which is added to the 10.5% TOT tax. For the local media to report that the Chargers’ proposal raises the TOT tax from 12.5% to 16.5% is completely inaccurate.
John:
The current 2% TMD tax is the subject of litigation. My client hasn’t won that one yet. What my client did win is the lawsuit over the 3-2-1% Convention Center tax. So the effective TOT rate for tourists is 12.5%.
The Chargers would eliminate the 2% TMD tax (putting the effective TOT rate back at 10.5%) and then raise the TOT to 16.5% (with money shared by hoteliers and the convadium, and whatever’s left over would go to the general fund).
Cory:
I have searched the Chargers’ proposal online and I can’t find that it says anywhere that the TMD 2% self-assessment tax would be eliminated. Therefore, if your client is unsuccessful in getting it eliminated in court, the Chargers’ proposal, if successful, would just raise the TOT+TMD tax to 18.5%, not 16.5%.
What say you?
Chargers’ proposal, Section 61.2528 (No Levies for San Diego Tourism Marketing District Assessments): “* * * no assessment [under the TMD ordinance] may be levied, imposed or collected pursuant to such an ordinance or resolution.”
No wonder I couldn’t find it. The insert in the Union that supposedly had the full Chargers’ proposal only went up to Section 61.2526! I also checked the online version which also goes up to Section 61.2526. They must have revised their proposal to be what you’ve written above. I suppose they have the right to revise their proposal, but wouldn’t you think they would have to republish it?
You can ask the city clerk for a copy of the certificate of publication. That will show exactly and full what was published in the newspaper; sometimes the notices carry over to another page, and readers inadvertently miss them.
Well, following Section 61.2526 is the “Statement of Reasons” which I believe concludes the proposal. Same for both the insert and the online version. The online version ends on page 119. So I don’t believe that Section 61.2528 was ever included.
So we trade Comic-con for Convadium-con? Convadium is a “Two-ndoogle,” i.e., two-boondoggles-in-one: an uber-expensive stadium that hi-jacks public funds to benefit Spanos (No Fanos of Spanos!) and a Convention Center expansion that isn’t and doesn’t attract any new conventions. Sorry, I couldn’t resist the cheezy word-play. John, thanks again for undertaking this excellent analysis.
“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’.” Wrong. The Citizen’s Plan Initiative writing by Cory Briggs and Donna Frye explicitly prohibits the city from spending any tax money on a new convention center expansion at its current bayfront site. Do your homework.
Well, not quite all accounts. i don’t know how the average voter, who will probably do less homework than I did, is supposed to figure all this out.
No need to get nasty Don. John’s statement is consistent with the existence Briggs/Frye/JMI initiative as the reasonable reader interprets it as a generalization pertaining primarily to functionality as a convention center. Your point, though you have extensively commented on the subject is harder to understand. You hate the 4-7 story residential development in East Village so you support something far more devastating to the downtown urban environment (Not to mention the gross diversion of public funds, property, and other resources)?
Bill:
How do you think a “reasonable reader” of the Citizens; Plan interprets it with regard to a non-contiguous convention center on Tailgate Park?
Cory I don’t understand the call of your question.
When intelligent human beings like Lawrence, Briggs and Wood below cannot make sense on their own and to each other they’re dealing with flawed and, probably, phony material. From a stone-dumb onlooker’s viewpoint the debate over The Big Con sounds like people talking past each other because the facts are weak.