Mayor pushing public vote this November on convention center expansion

Voters could be asked this November to approve a hike in the hotel room tax to fund a more than $600 million expansion of San Diego’s bayfront convention center, Mayor Kevin Faulconer’s office said Wednesday.

In a presentation to the board of the San Diego Convention Center Corp., mayoral Chief of Staff Stephen Puetz announced for the first time that Faulconer wants to revive an already approved enlargement of the center, despite previous discussions about possibly scaling down the project.

The original $550 million cost, though, has now escalated to between $630 million and $685 million, and delaying a public vote until 2018 would mean having to finance an even costlier project, Puetz said.

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To pay for that project, Faulconer will need a two-thirds majority of voters to endorse raising room taxes by 1 to 3 percentage points, depending on how close or far away individual hotels are from the waterfront center. A smaller portion of the hotel tax revenue generated would go toward road repairs and fighting homelessness, a plan that Faulconer has previously promoted.

The mayor, buoyed by a January court victory that effectively upheld the Coastal Commission’s approval in 2013 of an earlier expansion project, will bring the ballot measure proposal to the City Council’s Rules Committee early next month.

“We just won a court case in January so we are now in a great spot to move forward with a piece of what’s needed, which is financing,” Puetz told the convention center board. “What we’re talking about doing is the full expansion. There have been different discussions over the past year about, does it make sense to do a scaled-down expansion. The answer to that is no. Studies have shown that doing the full expansion will enable us to not have to go back to coastal (commission) for any additional review.”

A boost in the hotel tax, now at 10.5 percent, would provide enough to finance the expansion and initially generate between $17 million and $20 million a year for tackling street repairs and homelessness, Puetz said. On top of the 10.5 percent, visitors who stay at the city’s larger hotels currently pay an additional 2 percent surcharge to fund tourism marketing.

Under Faulconer’s proposal, the maximum total levy for overnight guests would be 15.5 percent, including the marketing surcharge.

An expansion of San Diego’s center has been stalled for several years, ever since a judge ruled in 2014 that the plan to finance it with a hotelier-approved room tax hike was unconstitutional.

City and tourism leaders have been pushing for years to enlarge the center, which they say is no longer big enough to accommodate larger conventions like Comic-Con and lucrative medical meetings, which demand a great deal of exhibit space.

Meanwhile, two of San Diego’s West Coast rivals are pursuing expansions. Anaheim has nearly completed a $190 million expansion, and San Francisco’s Moscone Center is about to embark on a $500 million expansion project.

The San Diego project would enlarge rentable space from the current 816,000 square feet to more than 1.2 million, which includes adding 223,000 more square feet to the exhibit hall, Puetz said.

Time is of the essence, he stressed, because of rapidly rising construction costs, which are going up by as much as $3.6 million a month.

Councilman David Alvarez questioned the rush to hold a special election when he thinks there are many questions that still need to be answered, including how much money would be set aside for infrastructure and homeless issues.

“This requires significant public participation if we’re going to address homelessness,” he said. “You just can’t just throw leftovers to that. On the infrastructure side, we have a multi-billion-dollar problem, and if there’s not a significant enough amount of money to fix our infrastructure then why aren’t we doing this?”

Councilman Chris Ward, who represents the downtown area, was more enthusiastic.

“I'm encouraged by the renewed enthusiasm about the opportunities ahead and look forward to carefully reviewing what comes before the Rules Committee to identify a viable step forward,” he said.

Although many more hotel rooms have been constructed in the last few years, generating considerably many more millions of dollars in room tax revenues, the financing plan will still require a $60 million contribution from the San Diego Unified Port District, Puetz said. That was also a requirement under the earlier funding strategy.

Still a looming issue, though, is control over the waterfront site where the city wants to expand the convention center. A hotel development team known as Fifth Avenue Landing currently has a lease with the Port of San Diego to develop the property and is processing plans for a $300 million hotel complex there.

While the city at one time had control over the 5-acre hotel site, it opted to back out of a deal the Convention Center Corp. consummated in 2010 to acquire the leasehold at a cost of $13.5 million because the expansion project had stalled and no longer had financing.

Just last week, an attorney representing Fifth Avenue Landing sent a letter to Faulconer warning him to stop interfering with his client’s development plans. Longtime port tenants Ray Carpenter and Art Engel currently hold the lease and have teamed with hotel developer Robert Green to build out the property.

Late Tuesday, City Attorney Mara Elliott released a letter her office sent to the developer’s attorney, Vincent Bartolotta Jr., reaffirming the city’s right to continue exploring a possible expansion of the convention center.

At the same time, she said the city also recognizes the legal rights of Fifth Avenue Landing to pursue processing of its development plans under its lease.

But that does not preclude the city from moving ahead with planning on an expansion, including a potential ballot measure, Elliott said. She also opened the door for continued talks between the city and the developer, despite Fifth Avenue Landing’s recent dismissal of a proposal by Faulconer to significantly downsize its hotel project, which includes a 44-story high-rise.

“The city requests that (Fifth Avenue Landing) more seriously consider the concepts presented,” she wrote, “and the benefit of working together to achieve the best result for all San Diegans.”

Green said he is willing to hear what the mayor has to say but the development team remains committed to the project it has proposed.

“We’re not trying to be the bad guys here,” Green said. “But the question people should be asking the city and Convention Center Corp. is, if you wanted to do this, why did you default on your payment and give up your land?”

There remains the possibility that the hotel tax hike could be sharing the ballot with the proposed $1 billion SoccerCity project on the Qualcomm Stadium property. Backers of the project began collecting signatures earlier this month in support of their stadium and housing development, and it’s possible they could seek a special election if the council chose not to approve the project.

Staff writer David Garrick contributed to this report.

lori.weisberg@sduniontribune.com

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Twitter: @loriweisberg

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