The Morning Report
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You might have seen the commercial last fall. It opens with a man, worried. “How do we get the voters to approve this new tax?” he asks his colleagues.
A woman very slowly suggests an idea: “What if we call it a fee?”
You can almost see the light bulb ignite. The first man, who’s now smiling, concludes: “Voters never need to know.”
The camera returns to the guy who was worried about getting voters to pass a tax. The idea to instead call it a fee now has him positively beaming. “I just love fees!”
The ad was for Proposition 26. The California Chamber of Commerce sponsored the commercial and spent nearly $4 million on the campaign for the initiative, which required fees that look and smell like taxes to be approved by voters “just like taxes are now.” It does have a number of exemptions. The state and cities can still charge a fee for a permit or to enter a state park, for instance. But the exemptions are listed out pretty clearly. It merely closed a loophole, proponents claimed.
Proposition 26 passed. In the process, it may have seriously crippled San Diego’s attempt to build a new Convention Center. A tax without voter approval is exactly what city officials are eyeing to fund a good part of the $700 million Convention Center expansion.
To get that expansion, boosters want to extend and potentially increase a 2008 hike in the tax visitors pay when they stay in San Diego hotel rooms. When someone stays at a local hotel, they pay the city 10.5 percent of their bill plus another 2 percent toward what is called the Tourism Marketing District. It provides funds mostly to the San Diego Convention and Visitors Bureau.
This little surprise on a visitor’s hotel room bill is scheduled to expire at the end of 2012. Extending it, and adding another boost, is exactly what Mayor Jerry Sanders and others hope will fund a good part of the new Convention Center construction.
Now, their creative effort is trapped trying to find a way around Proposition 26. It’s not easy.
San Diego City Attorney Jan Goldsmith formed a working group of his attorneys to evaluate Prop. 26’s effects. Goldsmith told me Tuesday that his team will offer a formal opinion within a week.
“Some parts of Prop. 26 are unclear and eventually there are going to be appellate court decisions about it. We would like for the city not to be a party in those decisions,” he said.
Steve Cushman, the man Mayor Jerry Sanders tapped to put together a financing plan for the new Convention Center, told me supporters of the project were trying to figure out what Prop. 26 means for the effort. It definitely meant something.
“I think it was hastily written. And if something like that is hastily written, then it becomes up to interpretation,” Cushman said.
Proponents of Prop. 26 spent more than $18 million on it. Seems unlikely they were too sloppy.
I called the California Chamber of Commerce, who referred me to Loren Kaye, the president of the California Foundation for Commerce and Education, which is affiliated with the Chamber.
Kaye said that if something was legal before Prop. 26, it should be legal now.
So the issue may not be whether it is legal to increase the city’s hotel room tax — its transient occupancy tax, or TOT — without a vote now that Prop. 26 has passed. The issue might be whether it was ever legal to raise that tax at all.
“If it’s a TOT, or a tax, or charge or levy that’s assessed against a hotel visitor, it’s a tax. It would require a vote,” Kaye said.
In other words, the city’s now three-year-old experiment of letting hoteliers assess a private tax without a vote of the public is illegal?
Kaye said he didn’t know enough of about the local situation to comment. The question comes down to whether the local 2 percent fee for the Tourism Marketing District was actually a hotel room tax increase. Is the city’s hotel-room tax actually 12.5 percent and not 10.5 percent?
The hoteliers say it is.
A May 13, 2010 presentation called Keeping San Diego Tourism Competitive, to the Citizens Revenue Review and Economic Competitiveness Commission, the Lodging Industry Association concluded the city’s “effective” hotel-room tax was 12.5 percent. Voters never, of course, approved of the increase from 10.5 percent to 12.5 percent.
How important is raising this fee even further, or just keeping it alive? Very. The other day, the mayor reiterated that support from hotels — through this tax on their visitors — was vital to the Convention Center dream.
Both he and Cushman told the Union-Tribune that further taxes on visitors staying in hotel rooms was the key to building the Convention Center.
As the city attorney tries to figure out how they can raise the city’s hotel room tax without a vote of the people in light of Proposition 26, will he find that they should have never done it even before that initiative?
Correction: It was not the city of San Diego that claimed that 12.5 percent was the effective hotel-room tax in the city as stated in the original version of this article. That was a presentation actually made by the hotel group, the Lodging Industry Association. This post has been updated. I regret the error.