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Wednesday, April 06, 2005 | This is part three in a five-part series. Read part one, part two, part four, and part five.
Location is important to travelers that make up San Diego’s $5.3 billion industry, and a wide array of places to stay was available to visitors even before the Omni San Diego Hotel opened last year.
But as far as location goes, the 32-story Omni is tough to top. Across Harbor Drive sits a Convention Center often filled with industry executives who require fine lodging. The adjacent Petco Park offers guests a major sports venue just a sky bridge away. Travelers can wine and dine on the company credit card in the nearby Gaslamp Quarter or shop ’til they drop at Horton Plaza or Seaport Village, just farther up the way.
The Omni’s prime location at 675 L St. is a valuable piece of property for being in a city whose fourth-largest industry is tourism: about $139.9 million, according to the county Assessor’s Office.
In 1992, the year before the San Diego City Council, sitting as the city’s Redevelopment Agency, approved the Centre City Development Corp.’s plan to expand the redevelopment area to all of downtown; 675 L St. was assessed by the county at $687,100.
Formerly the home of Frost Hardwood Lumber Co. – a company started downtown in 1911 by Albert Frost and has remained in family control since – the property produced about $7,500 in property taxes, according to County Assessor Greg Smith. JMI Realty, Inc. paid close to $1.54 million on the Omni site last year.
The difference in the taxes paid at the site, known as the tax increment, is the primary way redevelopment projects like the 1,500-acre Centre City Community Planning Area are financed. Of the $1.54 million in property taxes levied on the Omni last year, 99.5 percent was returned to CCDC.
CCDC is then able to use that money to make debt service payments on the tax-allocation bonds sold by the San Diego City Council, which doubles as San Diego’s redevelopment agency. The city sells tax-allocation bonds on a rolling basis to pay for its acquisition of properties in the redevelopment area, either through a good-faith negotiation or through condemnation for the purpose of eminent domain.
Besides making payments to bond holders, CCDC can use the tax increment to build physical infrastructure for the city, but it may not be used for services. For example, CCDC is able to fund the construction of a police station in the Centre City area, but can’t pay to staff it with officers. CCDC has contributed to the design of city-operated, public use projects such as Petco Park ($74 million) and a new downtown main library ($80 million).
The normal collecting entities – the city, county and state – received 675 L St.’s 1992 base tax of $7,500 in 2004, and will continue to receive that amount for the length of the redevelopment project.
Fine, but what does that have to do with fixing the potholes in Mira Mesa?
Some San Diegans believe tax-increment financing puts the city at a disadvantage because it won’t realize a boost in revenue until the project’s completion.
In 1985, former Rep. Jim Bates (D-San Diego) turned his attention from Capitol Hill to Cortez Hill when then-CCDC President W. Daniel Larsen wanted to expand downtown redevelopment from 300 acres to 1,200 acres. Bates, a former city councilman, argued in a letter to the City Council that the redevelopment projects going on at the time – Marina, Columbia and Gaslamp Quarter – were created to catalyze renewal, not to blaze a trail of high-rise condos paid for by tax increment.
“You can argue that downtown was growing, but it would have done that anyway,” he said in a recent interview. “The whole tax increment concept has been abused.”
Mel Shapiro, a resident of the city for 34 years and a frequent critic of CCDC, said he’d rather the tax increment go to priorities he finds more important – storm drains, fire and police departments, and the deficit-ridden employee pension plan.
“Our budget is short on all those necessary items while, at the same time, downtown is flush with property tax money,” Shapiro said. “It doesn’t make sense to me that downtown should have such a priority.”
The redeveloped properties have done more than boost just property tax revenue, CCDC spokesman Derek Danziger said. Centre City projects have attracted a new wave of sales tax and transient occupancy tax, or T.O.T., that go straight to the city’s coffers, to be spent on the priorites Shapiro talked about.
Redevelopment projects have generated $99.7 million in sales taxes and $264.2 million in T.O.T. since 1984, CCDC reported. Last year, the Omni paid $1.68 million in T.O.T. to the city, according to JMI Realty president and CEO John C. Kratzer.
CCDC is required to direct some of its payments to services. In the early 1990s, the California Legislature was worried that schools were being hurt by redevelopment because the amount of property tax directed to the state for schools was not on pace with the growth spurred by the redevelopment projects. More so, the schools weren’t seeing a dime of the tax increment.
A bill, A.B. 1290, was passed in 1993, requiring that a portion of the tax increment is returned to schools and the city’s general fund based on the amount of revenue generated by the increment, CCDC Chief Financial Officer Frank J. Alessi said.
The exact amount, Alessi said, correlates on a sliding scale with the amount generated from tax increment annually.
At the laws inception, CCDC was kicking down about 1.5 percent of its tax increment revenue to the city and county K-12 districts and the San Diego Community College District. Last year, CCDC’s tax sharing payment to schools was about $3.5 million, or 13.1 percent of its revenue.
A community redevelopment plan like Centre City is given 30 years to complete its projects and another 10 years to pay off the bonds sold by the city to acquire properties from their owners for redevelopment. Once the bond debt – which Alessi said stands at about $380 million right now – is paid off, CCDC must pay back the loans it received from the city.
The city’s loan, which was started in the late 1970s after San Diego received a federal Community Development Block Grant for the project, currently amounts to $103 million, Alessi said.
Councilwoman Donna Frye has asked publicly that CCDC pay some of its tab off now to help the city with its dire financial situation. Alessi said such a proposal has not been made formally to CCDC, and that such a request would have to be considered among the corporation’s other priorities. However, Alessi said it is CCDC’s prerogative that the city loan be paid off after all of the tax-allocation bonds are paid off, which signals the end of the Centre City project.
After the loans from the city are paid back, CCDC shuts off its lights and all property taxes from the former Centre City Community Planning Area to the County, who sends the taxes to the state and on to the normal avenues. Alessi estimated that would probably happen between 2032 and 2042.
Coming tomorrow: Who is CCDC?
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