Opinion

Uh, We Don’t Have to Vote on Taxes Anymore

Uh, We Don’t Have to Vote on Taxes Anymore

Photo by Sam Hodgson

Hotels on San Diego's downtown waterfront

 

Let San Diego never be accused of being short on innovation: In order to build the things we want, we may have just figured out a way to raise taxes without a vote of the people, despite long-standing laws to the contrary.

A judge tentatively ruled Monday that the city could increase taxes on hotel-room stays to fund the Convention Center expansion. It was a blow to activists suing the city and to the Chargers, who hoped to be able to pick up where this tax failed and try to build a stadium that might satisfy the need.

But the judge might have opened a window for the Chargers — one that would forever flip our understanding of taxes and government on its head. Business groups of all kinds could now conceivably impose their own sales taxes on consumers and use the money to build whatever they want.

All they need, apparently, is the go-ahead from the City Council.

Let me explain.

Unlike the much-discussed Tourism Marketing District, which has caused a fight between the mayor and the hotel industry, nobody disputes that the Convention Center tax hike is an actual tax hike.

“To be clear, this IS a tax,” City Attorney Jan Goldsmith wrote in a Feb. 1, 2012, statement.

The state’s requirement that taxes be approved by voters therefore came into play. This is where the city’s innovation comes in: Who exactly are the voters needed to approve this tax?

The city attorney and city decided the voters were hotel owners. You see, this was an increase to their property taxes. That those hotel owners were going to pass it along directly, as a line-item, to the bills of their customers, just like the city’s hotel room tax, didn’t matter. It also didn’t matter that unlike any other property taxes, this would be levied not on the value of the property, but on how much revenue these hotels got.

Nor did it matter that many of the hotel owners didn’t actually own the property on which they operated.

We were the first city to try this. San Jose did something similar but different in key ways. And now the judge has said that he doesn’t see a problem. This is not an increase to the city’s hotel room tax, he wrote, because it’s not an increase to the city’s hotel room tax.

Got it?

OK, here was the judge’s actual point (via KPBS) about why this was not the same as the city’s Transient Occupancy Tax, the 10.5 percent tax it charges visitors on hotel room stays, the increase of which voters twice rejected in 2004:

With respect to Shapiro’s contention that the special tax is a transient occupancy tax (“TOT”), the Court notes that the special tax differs from a TOT in several respects. More specifically, unlike a TOT, it is a tax and creates a lien (Gov. Code §53321(d)) against real property and makes real property subject to foreclosure.

The tax has been structured as though all hotels in the city were actually in a neighborhood together and were deciding to raise their taxes to build themselves a rec center their children could play in. Like the taxing program known as Mello Roos.

And that’s where this gets interesting: What other businesses could seize on this idea and impose a tax on their customers to build something they want?

What’s most interesting about this is not even a majority of hotels had to impose the tax on their customers. Only a majority of the money did. As we discovered last year, one company — one company — represented between 16 percent and 24 percent of the vote in the Convention Center tax hike.

Imagine if one of your neighbors could raise the property tax for your whole block.

We don’t know how each hotels voted because, even though this is a tax imposed on hotel room bills, it’s apparently a big secret. We are not allowed to know who supported it.

A minority of hotel owners was able to impose the tax on the majority for the Tourism Marketing District precisely because it made more money.

So what other roads could we take this down?

What if all the biggest restaurant chains decided to impose a tax on restaurant bills in San Diego — a tax that would fund a meat distribution plant for all of the biggest restaurants?

What if the biggest-revenue bike shops got together, voted to raise sales taxes on bikes and used the money to build a new bike path that connected people to all the biggest bike stores?

The Chargers may be bummed that their plan to try to save Convention Center dreams with a football stadium looks like it’s dead.

But maybe they could rally big beer retailers to impose a tax on all retail beer sales to support a new stadium. Lots of drinking goes on during NFL Sundays.

“If this holds up, it really would open up the floodgates for special assessments that benefit the public at large,” Chargers special counsel Mark Fabiani told NBC 7. “Very interesting stuff.”

Very interesting, indeed. Maybe this is good. The people who patronize these establishments can pay for the things these establishments need. Those who don’t drink beer wouldn’t have to pay for a stadium.

But make no mistake, this is a big precedent. It’s privatization of taxing authority. The power to tax is being removed from the people and handed to big business colluding to raise costs for an industry goal.

Maybe we’ll see an explosion of these tax hikes — ironically, a result of the unique restrictions on tax hikes this state has. After all, when Texas built a new football stadium for its beloved Cowboys, it only needed 50 percent of the vote to raise taxes.

Here, that would take 66.7 percent of the vote.

Or maybe it doesn’t need any votes of the public at all.

Maybe it just needs a few closely aligned businesses. This is what the city decided. And the court has tentatively agreed.

I’m Scott Lewis, the CEO of Voice of San Diego. Please contact me if you’d like at scott.lewis@voiceofsandiego.org or 619.325.0527 and follow me on Twitter (it’s a blast!):

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Scott Lewis

Scott Lewis

I'm Scott Lewis, the CEO of Voice of San Diego. Please contact me if you'd like at scott.lewis@voiceofsandiego.org or 619.325.0527 and follow me on Twitter (it's a blast!): @vosdscott.

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66 comments
Peter Johnson
Peter Johnson subscribermember

Talk about the world turned upside down,

Pete J
Pete J

Talk about the world turned upside down,

Robert Cohen
Robert Cohen subscriber

ore restrictive and less subject to potential abuse. Reminds me of what happened when the city got redevelopment money extended and then there was a backlash that ended up repealing the whole redevelopment scheme.

RobSD
RobSD

ore restrictive and less subject to potential abuse. Reminds me of what happened when the city got redevelopment money extended and then there was a backlash that ended up repealing the whole redevelopment scheme.

7405190c-9015-11e2-9950-10604ba09cc0
7405190c-9015-11e2-9950-10604ba09cc0

Excellent piece. What is disappointing is that the City Attorney should have been on the side of the taxpayers. What bothers me about the Republicans is that they oppose taxes but here is a clear case where they are willing to spend taxes so long as they get the economic profits. This is not the stuff of which what democracies are made. Rather than have City officials on the side of the public they took the side of the special interests. A lonely lawyer and his brave client are the only ones who stepped forward. Labor fought it but once the proponents share the takings with them they dropped the suit. We all owe Scott a debt of gratitude for seeing the danger of this unfortunate legal rulings. Hopefully our appellate courts will do the right thing. Selfish politics in San Diego is our undoing.

Bill Paul
Bill Paul subscriber

Having watched San Diego's judicial system for years, I have noticed that many of these initial rulings like this one by a local judge sympathetic to a certain cause seem to get overturned on appeal. When the dust settles, this one will be no exception. I wonder if VOS would be interested in exposing how often this occurs so the public can see just how out of touch (or corrupt) our local judges are. The cost of these unnecessary appeals to the public should be of interest

SirVivor
SirVivor

Having watched San Diego's judicial system for years, I have noticed that many of these initial rulings like this one by a local judge sympathetic to a certain cause seem to get overturned on appeal. When the dust settles, this one will be no exception. I wonder if VOS would be interested in exposing how often this occurs so the public can see just how out of touch (or corrupt) our local judges are. The cost of these unnecessary appeals to the public should be of interest

Derek Hofmann
Derek Hofmann subscribermember

If the hotels assess a fee and it isn't enough, they also can't send taxpayers the bill. Therefore, the example of an HOA is still valid.

Derek
Derek

If the hotels assess a fee and it isn't enough, they also can't send taxpayers the bill. Therefore, the example of an HOA is still valid.

Joe Jones
Joe Jones subscriber

That would be "Scott Lewis" in my previous post, not Peters. Apologies.

jad555
jad555

That would be "Scott Lewis" in my previous post, not Peters. Apologies.

Joe Jones
Joe Jones subscriber

I'm also more than a bit amused that the same people who hailed the Plaza de Panama ruling as a wise exercise of local judicial authority are now doing their finest Chicken Little impressions. Let the process work, folks. In both cases, appeals court may erase your anguish--or double it.

jad555
jad555

I'm also more than a bit amused that the same people who hailed the Plaza de Panama ruling as a wise exercise of local judicial authority are now doing their finest Chicken Little impressions. Let the process work, folks. In both cases, appeals court may erase your anguish--or double it.

Richard Ross
Richard Ross subscribermember

As usual Don Wood sums up my thoughts. All I would add is this city has a track record of corrupt or stupid judges. There are a few exceptions. The problem is most voters know little or nothing about them when they are running for election. It is after they elected that ones like Judge Ronald Prager reveal themselves. I guess in his eyes it was O.K. for the hotels that benefit the most to get three votes by merely passing on three times as much "fee" to their customers. Oh and its O.K. to stick it to the public (General Fund) any shortfall on the convention center expansion. Face it each of the major cities hotelers are sitting at a poker table raising the stakes with taxpayers dollars to enlarge and promote their convention facilities and pocketing the winnings for themselves.

Activist
Activist

As usual Don Wood sums up my thoughts. All I would add is this city has a track record of corrupt or stupid judges. There are a few exceptions. The problem is most voters know little or nothing about them when they are running for election. It is after they elected that ones like Judge Ronald Prager reveal themselves. I guess in his eyes it was O.K. for the hotels that benefit the most to get three votes by merely passing on three times as much "fee" to their customers. Oh and its O.K. to stick it to the public (General Fund) any shortfall on the convention center expansion. Face it each of the major cities hotelers are sitting at a poker table raising the stakes with taxpayers dollars to enlarge and promote their convention facilities and pocketing the winnings for themselves.

Janet Shelton
Janet Shelton subscriber

The example of an HOA does not work. If they assess a fee and it isn't enough, they can't send taxpayers the bill. Also, a big part of the allocated votes go to hotels that don't own real property because the hotels are on the tidelands. In effect, some of the renters are getting to set the HOA rates.

myearth
myearth

The example of an HOA does not work. If they assess a fee and it isn't enough, they can't send taxpayers the bill. Also, a big part of the allocated votes go to hotels that don't own real property because the hotels are on the tidelands. In effect, some of the renters are getting to set the HOA rates.

joe vargo
joe vargo subscriber

Thanks, I'll take that into consideration. But the judge, politics local, is a, is a, a hack.

joev
joev

Thanks, I'll take that into consideration. But the judge, politics local, is a, is a, a hack.

joe vargo
joe vargo subscriber

The chargers could raise their price and spend it rolls-royces if they wanted to, much more a stadium.

joev
joev

The chargers could raise their price and spend it rolls-royces if they wanted to, much more a stadium.

joe vargo
joe vargo subscriber

Nooner, a monopoly? Hotel guests are American citizens. Sounds like your micromanaging the constitution. Seems pretty slippery to me. I value my rights.

joev
joev

Nooner, a monopoly? Hotel guests are American citizens. Sounds like your micromanaging the constitution. Seems pretty slippery to me. I value my rights.

3209e7b4-8b6d-11e2-ac0d-5314829003ee
3209e7b4-8b6d-11e2-ac0d-5314829003ee

The judge who issued this rediculous tentative ruling is Ronald Prager, and apparently he doesn't read VOSD, or else he would realize what a Pandora's Box he's trying to open. It's amazing that local right wing politicians and residents who usually hate taxes appear to be fine with this judge overturning Prop 13 and Prop 26, which require the voters, not special interests, to decide when to raise municipal taxes. Looks like this judge is so focused on remaining a member in good standing in the downtown old boys club that he's willing to repeal state laws which have protected us from taxes without representation for decades. Hopefully the voters will remember Ronald Prager when he comes up for reelection and vote him out of office. Maybe he can get a job in the city attorney's office, since you don't have to know the law to work there.

Augmented Ballot
Augmented Ballot subscriber

Different because the hotels that voted against the charge (which is most of them) will nevertheless have to impose the charge because the hoteliers as a group are using the City for enforcement. It'd be like the Chargers placing a $5 surcharge on game tickets and movie tickets for a new stadium.

Augmented Ballot
Augmented Ballot

Different because the hotels that voted against the charge (which is most of them) will nevertheless have to impose the charge because the hoteliers as a group are using the City for enforcement. It'd be like the Chargers placing a $5 surcharge on game tickets and movie tickets for a new stadium.

Bill Bradshaw
Bill Bradshaw subscribermember

This ruling, as others have said, is subject to appeal, so I wouldn't lose any sleep on it at this point. What I WOULD suggest people worry about is the 2/3 Democrat majority in both houses of the California legislature with Gov. Moonbeam siting there, his pen quivering.

toulon
toulon

This ruling, as others have said, is subject to appeal, so I wouldn't lose any sleep on it at this point. What I WOULD suggest people worry about is the 2/3 Democrat majority in both houses of the California legislature with Gov. Moonbeam siting there, his pen quivering.

David Cohen
David Cohen subscriber

For all I know, there are also corporate income tax advantages if the hotels can set these charges up as taxes..

fryefan
fryefan

For all I know, there are also corporate income tax advantages if the hotels can set these charges up as taxes..

Robert Cohen
Robert Cohen subscriber

The Chargers probably can add a surcharge on the price of a ticket because the new stadium is actually being used by the ticket buyers. Visitors staying at the hotels aren't necessarily, and in most cases, won't be using the convention center.

RobSD
RobSD

The Chargers probably can add a surcharge on the price of a ticket because the new stadium is actually being used by the ticket buyers. Visitors staying at the hotels aren't necessarily, and in most cases, won't be using the convention center.

Robert Cohen
Robert Cohen subscriber

As I understand it there is no cap on the city's general fund for potential cost overruns or other unforeseen expenses. That was a controversy that was discussed at the time the city council voted on the project. While "assurances" were made that the city's contribution would be limited to a certain amount it was not put in writing and as far as I know is open-ended.

RobSD
RobSD

As I understand it there is no cap on the city's general fund for potential cost overruns or other unforeseen expenses. That was a controversy that was discussed at the time the city council voted on the project. While "assurances" were made that the city's contribution would be limited to a certain amount it was not put in writing and as far as I know is open-ended.

BVBailey
BVBailey subscribermember

As an avid VOSD supporter, I'm ashamed to admit that I had to look this fact up on the U-T site. Shouldn't ANY story about a court's ruling always name the judge?

BVBailey
BVBailey

As an avid VOSD supporter, I'm ashamed to admit that I had to look this fact up on the U-T site. Shouldn't ANY story about a court's ruling always name the judge?

William Hamilton
William Hamilton subscriber

Ok... really trying to grasp this. How is this different than the Chargers placing a $5.00 surcharge on the price of game tickets to help finance a new stadium?

williaminsd
williaminsd

Ok... really trying to grasp this. How is this different than the Chargers placing a $5.00 surcharge on the price of game tickets to help finance a new stadium?

Augmented Ballot
Augmented Ballot subscriber

Any statement from the San Diego County Taxpayers Association? Surely they have a position on if and when taxes should be created without a public vote?

Augmented Ballot
Augmented Ballot

Any statement from the San Diego County Taxpayers Association? Surely they have a position on if and when taxes should be created without a public vote?

shawn fox
shawn fox subscriber

Do YOU ever travel? Do you think that other cities will tax you in a similar way? Also what happens if the convention center bonds can't be paid because the projected revenues from the tax don't meet expectations? To suggest that the convention center financing poses no risk to city taxpayers is obviously preposterous! The hotels don't own the convention center. I'd like to know if taxpayers are legally on the hook for any of the risks associated with the construction.

shawn1874
shawn1874

Do YOU ever travel? Do you think that other cities will tax you in a similar way? Also what happens if the convention center bonds can't be paid because the projected revenues from the tax don't meet expectations? To suggest that the convention center financing poses no risk to city taxpayers is obviously preposterous! The hotels don't own the convention center. I'd like to know if taxpayers are legally on the hook for any of the risks associated with the construction.

shawn fox
shawn fox subscriber

The party of no more taxes generally seemed to support it Rob. The only real party of smaller government and less taxes is the libertarian party. Unforutantely, that party is too dysfunctional and small to be effective at anything.

shawn1874
shawn1874

The party of no more taxes generally seemed to support it Rob. The only real party of smaller government and less taxes is the libertarian party. Unforutantely, that party is too dysfunctional and small to be effective at anything.

shawn fox
shawn fox subscriber

I still think that Scott is missing the biggest problem with this. Who pays for the bonds if the taxes aren't enough? How do we know that the tax will cover the cost? My understanding is that the financing will be done via bonds. Who is on the hook to cover that if the cost goes up? Will hotels have to raise taxes again or is the city's general fund at risk?

shawn1874
shawn1874

I still think that Scott is missing the biggest problem with this. Who pays for the bonds if the taxes aren't enough? How do we know that the tax will cover the cost? My understanding is that the financing will be done via bonds. Who is on the hook to cover that if the cost goes up? Will hotels have to raise taxes again or is the city's general fund at risk?

Robert Cohen
Robert Cohen subscriber

Will the party of "no more taxes" protest this decision? It's always interesting to see how business people who claim that government gets in the way and that taxes are killing the economy seek to use government and taxation to further their own causes. Will the local GOP respond to this "taxation without apparent representation" money grab?

RobSD
RobSD

Will the party of "no more taxes" protest this decision? It's always interesting to see how business people who claim that government gets in the way and that taxes are killing the economy seek to use government and taxation to further their own causes. Will the local GOP respond to this "taxation without apparent representation" money grab?