So You Wanna Build a Convadium?

Yesterday, the Chargers announced that they were (maybe?) endorsing the Citizens' Plan Initiative and focusing on getting a joint-use convention center/stadium built downtown.   Scott Lewis over at VOSD has a good rundown of the current state of affairs. Everything is still up in the air and things could change, so this might all be moot by next Monday. 

It seems few people understand what has to happen and the crazy process it would be to get that convadium built.  In my last post on this, I explained why I think the whole idea is destined to fail.  I think I got a few things wrong, but in this post I wanted to game out what would actually happen if the Citizens' Plan Initiative passes in November.  I'm probably getting some of this wrong, but this is my best guess at what has to happen to get a convadium built.

  1. Citizens Plan Initiative is approved by the voters.  Once the Plan becomes effective, the Transient Occupancy Tax increases for guests staying in hotels and this money flows from the hotels to the City's General Fund.  Once there, the City can spend it in any way. This amounts to tens of millions of dollars a year until the hotels decide to try and build a convention center and form a new marketing district.
  2. The hoteliers decide they want to take advantage of the offered deduction under the CPI to build a convention center/stadium.  Under the CPI, they can deduct 2% from the TOT they remit to the City up to the amount they are assessed under a Tourism-Financed Improvement District (TFID) by the City.  The deduction is voluntary, but I don't see why they wouldn't want to take it if they are being assessed for a TFID.  The CPI also requires them to spend $15 million on the Port's North Embarcadero Project and $5 million for a River Interpretative Center in Mission Valley if they want a CEQA exemption.  So the price automatically jumps a bit.  None of this money can be spent on the stadium portion.
  3. Before the hotels can take the deduction, they have to form the TFID and impose the assessments.  This is done under a state law incorporated into the CPI.  Under this state law, a group of businesses can petition the City to form the TFID.  The petition has to be submitted by business owners of the proposed district (here, one district for downtown and a second district for the rest of the City) and those owners have to represent more than 50% of the assessments that would be levied.  In other words, there is no "vote" to form the TFID, but a majority of the affected businesses have to support it.  Under the CPI, those petitioning parties have to be hotel owners.   But it also seems that state law requires the TFID to include all businesses that receive a special benefit from building a convention center.  I can't see any way that restaurants, bars, and shops do not get a special benefit from the Convention Center: a bigger convention center means more conventioneers, meaning more patrons.  So those businesses would have to be included and assessed.  Given that they don't get the nice tax deduction, they might not be so happy with forming a TFID and getting hit with assessments for the next 30 years.  The assessments can be weighted based on differing levels of benefit, but it seems the non-hotel businesses would have to be on the hook for at least some assessment.  This will take some negotiating.  Also, the businesses will have to draft a detailed report to figure out who would be assessed and the proportional shares.  That could several months or years to sort out.
  4. Of course, the hotels are going to want to form the TFID only if the resulting assessments can be deducted from their TOT payments.  Otherwise, they are paying the 15.5% TOT and also an additional amount to fund the convention center. And once they agree to impose the TFID assessments and issue bonds, there is no going back until the bonds are paid off.  Whether those deductions are legal is the biggest issue up in the air and will most likely result in a lawsuit.  That could take a few years to resolve.  Unless they are willing to make a big bet, it might be a few years before the hotels are comfortable with forming the TFID and enter into the binding assessments and bonds financed from those assessments.  Of course, if it gets thrown out in court before the TFID is formed, the whole convadium is never built. The good news is that the increased TOT will still be flowing to the City, meaning more money for infrastructure and other essential services. 
  5. Oh, one other wrinkle.  This TFID can only collect assessments for  "special benefits," meaning benefits that provice a particular and distinct benefit only to the assessed businesses and not the city or residents in general.  Any general benefit cannot be paid by the TFID assessment,  Here, that requires an argument that the City and its residents does not benefit from a new convention center, bayside promenade, or river interpretative center.  If the City does receive any general benefit, it has to pay for the share of the improvement that could be considered a "general" benefit out of the general fund.  But the CPI prohibits the City from spending any money on this convention center.  I don't know how anyone reconciles those requirements, but it's a fine needle to thread.
  6. OK, let's say the hoteliers have decided to take on the risk, get the other businesses on board, present the TFID petition to the City Council (which is required to approve it under the CPI), the assessments start coming in, bonds are issued, and the convention center can be built.  Great!  Now let's get to the stadium. 
  7. Under the CPI, the Chargers have to foot the entire bill for the stadium portion.  No public money!  The Chargers could try and float their own companion initiative to allow public funds, but this gets tricky.  The CPI states that it supersedes any other contradictory initiative that gets less votes.  So if the Chargers want public money, they have to campaign in favor of the CPI, but also get more votes for their companion iniatitive.  If they get less, they can't get public money even if it passes.  Since it is likely such an initiative would take a 2/3rds vote, it may be possible, but difficult.  And if they do it without public money, it is their stadium: they have to maintain it, they have to pay for any cost overruns, etc.  It creates a lot of uncertainty.

 

Altogether, I think the Citizens' Plan makes it unlikely we will see a convention center and stadium any time soon.  It's also impossible to ignore that all of this might have to be done under an opposing mayor.  Maybe the Chargers have a secret plan, but there is a lot of uncertainty here.  The other possible explanation is that the Chargers know this is going to fail, but decided it's worthwhile to spend a year rehabilitating their image in San Diego to win back some fans.