A San Diego Superior Court judge says a fee charged to San Diego International Airport rental car customers and others since May 2018 is illegal and unconstitutional, according to a tentative decision issued last month.
The $3.50 fee imposed by the Port of San Diego on airport rental car customers was supposed to remain in place for decades to pay for a new $40 million parking garage planned along the Chula Vista Bayfront, but rental car companies sued, arguing the fee was actually a tax requiring voter approval.
Superior Court Judge Katherine Bacal sided with the plaintiffs Enterprise Rent-A-Car and Hertz Corporation. She said on Dec. 4 that the charge “is not a true user fee and violates the California Constitution.” Bacal also said the Port failed to show users charged would receive value in exchange for payment to qualify for a fee, according to a transcript of the hearing.
At the core of the fight are legal arguments centered on the taxing requirements put in place by Propositions 13, 218 and 26, generally requiring two-thirds voter approval for money collected by governments for a specific purpose – a tax – as opposed to money charged to use something directly – a fee.
A final decision from Bacal is expected in the coming weeks. Bacal has yet to decide the proper remedy for the fees already collected, and who should pay $5 per address to send customers refunds. Arguments from both sides will be filed with the court for consideration.
Refunds may be a long way off, though, because the Port of San Diego is expected to appeal.
Millions of dollars in payments have been collected so far. A related lawsuit filed in June 2019 shows the Port of San Diego had already collected more than $1.2 million from Enterprise and more than $963,000 from Hertz and related rental car companies Dollar and Thrifty from May 2018 through February 2019.
The Port of San Diego said a total of $6.5 million in fees had been collected as of Dec. 4, including rental car companies located at the airport and elsewhere in the port district.
Garage construction has not begun but is planned as part of a 535-acre, $1.13 billion Chula Vista Bayfront residential, retail, hotel, park and convention center project. Port and Chula Vista officials broke ground on the project’s RV resort and bike path and promenade in September. The Port of San Diego estimated the $3.50 fee would bring in $5 million annually to repay debt for a $40 million, 1,600-space parking structure.
Gary Halbert, city manager for Chula Vista, said the court’s decision “may impact the garage itself” but “It will not impact the project overall.”
The garage is contractually the Port’s responsibility.
“Everyone would like the garage constructed at the same time,” as the hotel and convention center, but it is also possible the garage could be built at a later date once litigation ends or another funding source is identified, Halbert said.
Alternate scenarios were contemplated in the latest financing agreement between the Port and Chula Vista signed in the fall, such that the Port of San Diego could pay for the garage itself and get repaid with future community facilities district fees collected in the coming years.
“The question that is still out there is how to fund this parking structure in the short term even if funded by the (community facilities district) in the long term,” Halbert said.
Asked whether bond debt plans will be derailed without the fee revenue, Port spokeswoman Brianne Page said in an email no bond decisions have been made yet.
As for the city, plans to issue roughly $300 million in bond debt backed by future revenues like community facilities district fees, hotel, sales and property taxes to help build the convention center, hotel and bayfront infrastructure are moving ahead, with a bond sale expected in late summer or early fall, Halbert said. The city hopes to break ground on that portion of the project by early fall 2020.
The fee or tax – which remains in place for the time being – was previously collected from 1999 to 2006 to fund a $29 million public parking structure opened in 2005 near the San Diego Convention Center and Petco Park. The Port board reinstated the charge in April 2018.
South Bay leaders argued the legal attacks on the current fee in 2018 could jeopardize the garage and highlighted inequities seen in the South Bay region of the Port district, which extends around San Diego Bay and includes coastal parts of the cities of San Diego, National City, Chula Vista, Imperial Beach and Coronado.
Early on, the San Diego International Airport joined the rental car companies’ legal challenge, but exited the case after settling with the Port in August 2018 in exchange for 30 days’ notice and meet-and-confer rights for future fees and taxes on airport property businesses. The Port also assured the airport the resurrected fee will only pay for the one parking structure and will cease as soon as the structure is paid for.
The airport’s involvement at the time riled Assemblywoman Lorena Gonzalez, who introduced state legislation to fold the airport back into the Port of San Diego, but those plans were later shelved.
This month, news the fee could be struck down as an illegal tax seemed less troubling to Port of San Diego board chair Anne Moore, who represents Chula Vista and previously described the garage project as “integral to the success of a new convention center and related 1,600 hotel rooms that will anchor the Chula Vista Bayfront.”
“We are disappointed with the ruling on the rental car fee, but our commitment to the Chula Vista Bayfront project remains strong. This decision doesn’t stop, change or even slow our forward progress on our redevelopment plans, which have great momentum and strong support in the community. This project remains central to the Port’s mission of increasing public access to California’s coast while providing regional economic and environmental benefits. We will consider how this ruling affects the financing of the parking garage which is only one part of a much larger funding plan. We are evaluating all of our options as we continue to transform the Chula Vista Bayfront into a vibrant destination for visitors and residents to enjoy,” Moore said in a statement.
Airport spokesman Jonathan Heller declined to comment on Bacal’s decision.
The airport’s board chair, April Boling, also declined to comment about the decision, but previously argued in a San Diego Union-Tribune op-ed the legal challenge was appropriate in light of the “Federal Aviation Administration (FAA) revenue laws forbidding fees that fund non-aviation purposes.” In the past, rental car companies were located off airport property, but their move onto airport property in recent years now poses a legal problem, she said. So does the state legislation creating the Airport Authority separate from the Port of San Diego in 2003, which Boling said gave the airport “the exclusive right to levy fees at the airport.”
Efforts to reach the Enterprise and Hertz attorney Ruben Sislyan were not successful.