Reviewing the San Diego Chargers Stadium Citizen's Initiative and Blowback

Well, I suppose that when you put out several stadium plans, you're bound to guess right (or closely) at least once.

As it turns out, this post from last June is the closest I got to the Citizen's Initiative released this week by the Chargers. In that post, I suggested raising the TOT from 10.5% to 14%, and using the extra 3.5% to create a Sports and Convention Fund.

I outlined the reasons then why I liked such a plan, and they're many of the reasons I like the current plan.

So, let's get into some of the details...

What The Plan Actually Does

The current Transient Occupancy Tax (TOT) is 10.5%, along with a 2% Tourism Marketing District fee used for tourism promotion, which results in an overall charge of 12.5%. That fee is currently under challenge in court, and likely to be overturned. On that basis, I will be referring to only the TOT as a 10.5% rate to avoid confusion.

Most of this information was leaked out in the week leading up to the public, but we'll spend some time here to review it, as well as include some other details I found interesting. Page numbers will be cited where appropriate:

• The Chargers want to build their stadium and convention center combination facility in East Village, between 12th Ave on the West, K St on the North, 16th St on the East, and Imperial Ave on the South. This initiative would allow for the rezoning of this land for that purpose (Pg 5).
• Designed to protect any historical structures in the area (such as the Wonder Bread Building), either by incorporating them into the structure or providing for their removal and relocation (Pg 22).
• Keeps both an archaeologist and paleontologist on site during excavation and grading in the event artifacts or fossils are discovered on the property (Pgs 22-23).
• Allows for daytime uses not necessarily tied to use of the stadium or convention center elements, which include restaurants, bars, a hall-of-fame, and public tours (Pg 48).
• Specifically calls for 1,300 parking spaces, to replace the loss of Tailgate Park (Pg 57). Gwynntelligence had a post about this issue. My speculation at this point is that since the City controls all non-NFL revenue, they could carry over any agreement with the Padres pertaining to Tailgate Park.
• Raises the TOT from 10.5% to 16.5% to cover the public cost of the project, which roughly breaks down as follows:

• Of the total 6% increase, 5% of the increase goes into a Convention Center Expansion and Stadium Fund. This fund allocates the public's $350 million stadium contribution, as well as the $600 million for the Convention Center and the $200 million for land acquisition (Pg 86).
• Of the total 6% increase, 1% of the increase goes directly to a San Diego Tourism and Marketing Fund. This would replace the contested TMD fee.
• The tax sunsets down to 13% when whichever of these happens first: 50 years, full repayment of Bonds or other Financial Agreements/Costs, or the termination of a team playing at Qualcomm Stadium for more than 2 years before the completion of the new stadium - for reasons other than an "act of God" type event. (Pg 86).
• The team may not use any money in the Convention Center and Stadium fund until they have signed a minimum 30 year lease with non-relocation agreement (Pg 88).
• Any money remaining in the Fund after all financing costs have been repaid may be used by the City towards any new or existing Convention Center facilities (Pg 91).
• Outside of the initial $350 million, the City is prohibited from paying any stadium construction costs, or stadium cost overruns (Pg 94).
• Determining final cost allocations for the Stadium versus Convention Center cannot be made until at least 80% of all construction documents are completed (Pg 98).

So, essentially, we're left with this. The TOT increase covers the public share of stadium costs, convention center, land, and annual maintenance or capital improvements,

The simple question is whether this increase sufficiently covers all those costs. If you use the FY2015 and FY2016 TOT numbers from the City, the extra 5% for the Fund provides a range of range of about $84 - $91 million annually, and a range of about $2.52 - $2.73 billion over 30 years.

That should be more than enough to cover a $1.2 billion public outlay, plus annual maintenance over 30 years. Barring a severe economic downturn, or the collapse of San Diego's tourist industry, there will almost certainly be extra money available for both Tourism Marketing and the General Fund.

I hate this plan! I hate taxes! Everything is not awesome!

After the plan was released, there was no shortage of officials (either elected or prominent) criticizing the plan. Among them were Ray Ellis, candidate for San Diego City Council (SDCC), Chris Cate, current SDCC member, and Tony Manolatos, former Spokesman of the Citizen's Stadium Advisory Group (CSAG).

Unfortunately, none of their criticisms were what I'd call "well-reasoned." They were a bunch of blather dressed in populist rhetoric. So, I'm going to answer their rhetoric with some counter-rhetoric of my own, and hopefully some better logic.

But before I do, I want to make two points completely clear...

I have no objection to people who oppose the project on the grounds that there should be no public subsidy for the Chargers, with the understanding that the team will move to Los Angeles without getting one in some form or another. If you're OK with the Chargers leaving, then the "no public subsidy" argument is perfectly legitimate in my view.

I will also stipulate the Chargers' contribution of $350 million will largely be made up with revenue streams such as naming rights and sale of PSLs.

That said, let's dig through this garbage, starting with Mr. Ellis:

'We must put the priorities of our 1.4 million residents ahead of the interests of billionaires seeking taxpayer subsidies. I do not support using public money for a Chargers stadium, especially while our struggles to maintain our roads and staff our police department."

"We don't want to lose any of our visitors with a hastily prepared plan that does not meet the demands of our largest conventions, and a tax increase that puts San Diego at a competitive disadvantage with other travel destinations. Along with raising taxes, the Chargers plan and the Citizen's Plan would reduce the funds used to market San Diego, and we've seen the negative impacts that has on our tourism economy."

Now, Mr. Cate:

"Counting on a significant tax increase to fund the construction of this plan, while also reducing marketing and promotional investments, will affect our ability to compete with other markets for tourists and conventions. Realistically, as the third largest source of revenue for out City, any potential negative impact to this funding source, no matter our minimal, could impact our ability to pay for police services or pave our streets."

Finally, Mr. Manolatos:

"If you're gonna raise the hotel tax you should raise it for things the city needs."

So let's get into this business.

1. The Mayor and other elected officials had an opportunity to get the Chargers on board with Mission Valley. The Chargers indicated they needed an additional $200 million in public financing. Whatever the reasoning, the City elected not to pursue that path. When you consider the ability to include a land sale element to cover those costs, and the ability to secure downtown for the contiguous Convention Center expansion, it's hard for me to believe this wasn't a mistake on the Mayor's part.
2. As I've said before, I'm not the biggest fan of the Convention Center annex element of the plan - I'd prefer a joint use arena+stadium and replace the Sports Arena. However, at the risk of beating a dead horse worse than Mongo in the formerly peaceful town of Rock Ridge, the proponents of a contiguous Convention Center expansion still have no way to pay for it, still face a lawsuit regarding coastal access, and need to reacquire land along the waterfront which is currently slated for a 44 story hotel. Solve those 3 problems, then push the pro-contiguous expansion plan. Until then, I'll settle for the half-loaf of an annex.
3. Contrary to what many say, the Convention Center hasn't outright rejected the Annex option. It's not their preference, true, but the study put together at the behest of the Convention Center last year found that an annex would still generate additional revenue for the City. And nothing in this plan (as opposed to the Citizen's Plan) precludes the City from continuing to pursue a contiguous Convention Center expansion.
4. I love people saying this plan may negatively impact the City's ability to pay for roads and police. How so? This is a TAX INCREASE. First, the extra 6 cents on each dollar does not currently exist. Money can't be spent or reallocated with an unassessed tax. Also, 5 of those potential 6 cents is specifically designated to go to the project, precisely to avoid impacting any other public services. Additionally, this plan allows for the possibility of additional revenue going to the General Fund in the event of a TOT revenue surplus (i.e. more money than is needed to pay down bonds for the project) which according to SDUT columnist Dan McSwain is a distinct possibility (Pg 89-90).
5. This does not negatively impact tourism marketing. The current Tourism Marketing District Fee is facing an active lawsuit. The plan specifically creates a trust fund for tourism marketing, with a guaranteed 1 cent of the new 6, again with the possibility of additional revenue going to the Tourism and Marketing Fund in the event of a TOT revenue surplus (Pg 89-90).
6. About people saying tax increases should go to City services, and not a stadium. That's a wonderful idea! Where has the Citizen's initiative been which would propose raising the TOT to pay for infrastructure, or police, or schools, or whatever? Oh, that's right. I haven't seen them either. That means all of these VERY. CONCERNED. CITIZENS. who only want taxes to go to City services also couldn't be bothered to put forward (or even suggest) such a plan, until the exact moment when it was too late.
7. Going back to CSAG's financing plan, it relied exclusively on capitalizing existing assets to raise revenue for a new stadium. True, this approach avoided a tax increase, but (at the very least) it also carried an "opportunity cost" in that using existing assets for a Mission Valley stadium meant those assets - wait for it - couldn't be used for "things the City needs."
8. Regarding the competitive disadvantage which will result if San Diego raises the TOT to 16.5%, this slideshow in the San Diego Union-Tribune shows that San Diego moves into the top tier of TOT rates nationally. As of May 1st this year, San Diego would trail Chicago (17.4%), Houston and San Antonio (17%), match Philadelphia, Seattle (16.5%), and be within 1% of San Francisco (16.25%), Atlanta (16%), and Los Angeles (15.5%). Yes, it's higher. Is it still competitive with other major cities? Pretty much. By the way, I'm still waiting for the study proving a majority of Conventions and Tourists choose San Diego over other destinations exclusively (or primarily) because of the lower TOT.
9. Lastly, this is for Mr. Ellis, who clearly objects to taxpayer subsides for billionaires...

"I do not support using public money for a Chargers stadium ..." -- @RayEllis_SD on record. But he wouldn't say that about mayor's old plan.

— Scott Lewis (@vosdscott) March 30, 2016

...except when it's $200 million in Lease Revenue Bonds from the City and $150 million in cash from the County reserves.

Wrapping Up

People in San Diego should take their due diligence and examine this Citizen's Initiative over the next several months. In my opinion, there's a lot in the plan to like. I advocated for a similar approach last summer, and I'd be remiss if I didn't stand behind that idea now.

If citizens of a community want something badly enough, they should be willing to raise taxes to offset the cost. And in this case, the tax selected happens to have a limited possibility of impacting me or most San Diegans I know, and a better than good chance of actually covering all construction and maintenance costs.

I can also appreciate, and respect those who are willing to let the Chargers leave San Diego because they object to public subsides of any kind for professional sports. That's a fair and reasonable perspective.

However, it will be extremely important for people to identify when public figures / officials are making ill-considered statements in opposition to a project when they clearly haven't read the entire proposal, are regurgitating talking points, and are unprepared to engage the plan based on it's terms.