Now that a hotel tax hike San Diego voters approved in 2020 is on firm legal ground, the city is preparing to start spending millions of dollars on some key civic initiatives this fiscal year — fixing up its aging convention center and addressing homelessness.
Although the city began collecting the added tax revenue authorized by Measure C in May, it held back on releasing the money until after the last of several legal challenges spanning four years finally ended late last year.
It is now estimated that nearly $77 million in revenue will be generated this fiscal year, with $45.4 million set aside for convention center expenditures and $31.5 million for homeless programs, according to Mayor Todd Gloria’s office.
Measure C raises the city’s previous transient occupancy tax rate of 10.5% to a maximum of 13.75% for guests staying in downtown properties, closest to the convention center. For hotels in mid-range locations, the rate is 12.75%, while those farthest away from downtown charge guests a rate of 11.75%.
While one of the main objectives of Measure C was to finance a long-planned expansion of the city’s convention center, moving forward on such a costly project, at least in the near term, remains tenuous, largely because costs have escalated tremendously since it was first conceived. As a result, there would not be enough funds from the hotel tax increase to pay for it.
In the meantime, more urgently needed improvements, like a replacement of the center’s central plant that houses the center’s entire cooling and heating system, should be undertaken, said Steve Cushman, special assistant to Gloria for the convention center expansion. He says that the measure’s reference to “modernization” of the center legally permits the city to use the revenue for infrastructure upgrades while it continues to explore an enlarged center.
Cushman has proposed expenditures of $21.4 million this fiscal year and a total of $118.7 million over five years, but those will need to go before the City Council for approval before they can be spent on the convention center upgrades, he said.
“I would anticipate that the expenditures would commence in this fiscal year,” he added.
Toward that end, the council did a bit of legislative housekeeping on Tuesday to reset new implementation dates and deadlines, given the years-long delay in legally confirming that the 2020 ballot measure had passed with a simple majority as opposed to a two-thirds threshold that voters were originally told was the requirement for special tax initiatives.
The new set of Measure C dates that the council approved Tuesday is meant “to fulfill the expectations of voters,” said City Treasurer Elizabeth Correia.
As an example, the new effective date for the measure is now May 1, 2025.
One of the provisions of Measure C is to allocate revenue from the hotel tax boost in varying percentages, depending on the use. The largest share — 59% — goes to the convention center, but for the first 5 1/2 years, homelessness programs will get 41% of the funds before decreasing later on to 31%. The smallest portion of the tax money is reserved for street repairs, at 10%.
Under the measure’s original timeline, the increased funding for homeless services was to end in 2024. With the new dates approved by the council, it will extend through Oct. 31, 2030, and street repair funds will now kick in on Nov. 1, 2030.
To monitor how the tax revenue is being spent, periodic audits for each of the three categories of uses will be required, with the first of those due in 2029.
Councilmember Marni von Wilpert said she was especially relieved to see that there will finally be taxpayer money available to address longstanding maintenance issues and the modernization of the convention center.
In an update provided last year by the Convention Center Corporation, council members learned that the facility is facing $200 million in deferred repair work over the next five years, plus $200 million more over the next 20 years.
“Every year, we hear from our leaders at the convention center that it has significant needs for maintenance, and we as the city of San Diego cannot fill all those needs (from the budget),” von Wilpert said.
She noted that the Measure C money could be used to support the issuance of an infrastructure bond to provide long-term funding for the convention center.
“I want the convention center to think about this because this is one of the biggest revenue generators in our region,” she said. “We shouldn’t let this chance go because every year I’m hearing more and more about the needs for maintenance in our convention center.”
Cushman’s proposed expenditure plan, assuming it gets the approval of the council, would be to spend $7.5 million this year on a new roof for the western portion of the center, which opened in 1989. More than $9.5 million has been budgeted for the first phase of a central plant overhaul.
Last year, Convention Center Corp. Chief Operating Officer Corey Albright told council members that the No. 1 question from clients is whether the city is investing in its center. “It is weighing on booking decisions choosing San Diego as a destination,” he said at the time. “The answer simply cannot be, year over year, no significant capital investment.”
In addition to higher costs, a convention center expansion is also hamstrung by the city’s lack of control over a key waterfront parcel that would be needed to complete the project.
Fifth Avenue Landing currently holds a lease for that parcel, which expires in mid-2027. The city and San Diego Convention Center Corp. worked with Fifth Avenue Landing off and on for years to work out an agreement to regain control of the leasehold, and ultimately, a settlement agreement was reached in 2018, although it was conditioned on what was expected to be a November 2019 public vote. That didn’t happen until March of the following year, and it was believed at the time that Measure C had failed.
That agreement, however, remains in place, and it is preventing city officials from talking openly about the expansion project or taking steps to move forward with some kind of plan until 2027. Cushman, however, remains optimistic, but considerable work needs to be done.
“In light of the settlement agreement with (Fifth Avenue Landing), in 2026, we cannot do anything to plan for the project,” Cushman said. “However, I anticipate by January of 2027, when we can start working on the expansion part of the project, I will be looking for additional sources of funding.”
In addition to updating Measure C’s timeline, the council also agreed Tuesday to set up a special citizens advisory committee to the mayor and council on how to best spend the money set aside for homelessness programs, as required by the initiative.
David Rolland, spokesperson for the Mayor’s Office, explained that the money budgeted for this year will help fund existing homelessness programs, including those that provide more than 2,600 shelter options, including what he described as traditional beds, safe parking and safe sleeping.
“I am absolutely delighted that this long dream of providing enough money to help with our homeless is finally over,” said Councilmember Jennifer Campbell. “This time has given us a lot of space to learn what is working and what is not. So the oversight of this committee hopefully won’t be too difficult, and they’ll be able to see from the auditing of the funding that things are going in the right direction.”
