"City of San Diego Proposition C: the Chargers' San Diego Integrated Convention Center Expansion/ Stadium and Tourism Initiative" - San Diego County, California

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707 Broadway, Suite 905, San Diego, CA 92101
P: (619) 234-6423 • F: (619) 234-7403 •
www.sdcta.org
CITY OF SAN DIEGO PROPOSITION C:
THE CHARGERS’ “SAN DIEGO INTEGRATED CONVENTION CENTER
EXPANSION/ STADIUM AND TOURISM INITIATIVE”
August 2016
SDCTA Position:
OPPOSE
Rationale for Position:
Even with optimistic and likely unrealistic assumptions and projections, overall revenue
would fall significantly short of the estimated $1.15 billion, not including interest on public
debt, needed by the City of San Diego to construct this integrated facility. The City of San
Diego would likely have to service debt from the General Fund, which funds street repairs,
programs for citizens, and other public services, in order to maintain its credit ratings and
avoid higher financing charges for future debt.
Title: Proposition C - San Diego Integrated Convention Center Expansion/ Stadium and
Tourism Initiative
Jurisdiction: City of San Diego
Type: Transient Occupancy Tax (TOT or hotel tax), dedicated to specific purpose
Vote: Two-thirds of Voters in the City of San Diego
Status: On the November 8, 2016 General Election Ballot
Issue: Tourism and Recreation
Description: A 6% increase in the TOT to fund a new tourism marketing district (1%)
and a new “Convention Center Expansion and Stadium Fund” (5%).
Fiscal Impact: Even with optimistic and likely unrealistic assumptions and projections,
overall revenue would fall short of the estimated $1.15 billion, not including interest,
needed by the City of San Diego to construct this integrated facility. The City of San
Diego would likely have to service debt from the General Fund, which pays for a wide
range of public services, in order to maintain its credit ratings and avoid higher financing
charges for future debt.
Page 1 of 36
707 Broadway, Suite 905, San Diego, CA 92101
P: (619) 234-6423 • F: (619) 234-7403 •
www.sdcta.org
CITY OF SAN DIEGO PROPOSITION C:
THE CHARGERS’ “SAN DIEGO INTEGRATED CONVENTION CENTER
EXPANSION/ STADIUM AND TOURISM INITIATIVE”
August 2016
SDCTA Position:
OPPOSE
Rationale for Position:
Even with optimistic and likely unrealistic assumptions and projections, overall revenue
would fall significantly short of the estimated $1.15 billion, not including interest on public
debt, needed by the City of San Diego to construct this integrated facility. The City of San
Diego would likely have to service debt from the General Fund, which funds street repairs,
programs for citizens, and other public services, in order to maintain its credit ratings and
avoid higher financing charges for future debt.
Title: Proposition C - San Diego Integrated Convention Center Expansion/ Stadium and
Tourism Initiative
Jurisdiction: City of San Diego
Type: Transient Occupancy Tax (TOT or hotel tax), dedicated to specific purpose
Vote: Two-thirds of Voters in the City of San Diego
Status: On the November 8, 2016 General Election Ballot
Issue: Tourism and Recreation
Description: A 6% increase in the TOT to fund a new tourism marketing district (1%)
and a new “Convention Center Expansion and Stadium Fund” (5%).
Fiscal Impact: Even with optimistic and likely unrealistic assumptions and projections,
overall revenue would fall short of the estimated $1.15 billion, not including interest,
needed by the City of San Diego to construct this integrated facility. The City of San
Diego would likely have to service debt from the General Fund, which pays for a wide
range of public services, in order to maintain its credit ratings and avoid higher financing
charges for future debt.
Page 1 of 36
707 Broadway, Suite 905, San Diego, CA 92101
P: (619) 234-6423 • F: (619) 234-7403 •
www.sdcta.org
Introduction and Background
The Chargers, a professional football team based in San Diego since 1961, have proposed a
ballot initiative entitled the “San Diego Integrated Convention Center Expansion/ Stadium
and Tourism Initiative” that will go before City of San Diego voters in the November 2016
General Election. This initiative proposes, in general, an increase of 6% to the City of San
Diego Transient Occupancy Tax (TOT or hotel tax) to fund a new “San Diego Tourism and
Marketing Fund” and the construction of a convention center annex integrated with a
stadium for a professional football team in the East Village neighborhood of downtown San
Diego.
Estimated by the proponents to cost in aggregate approximately $1.8 billion, not including
interest on bond issuances, the proposal calls for the joint funding of this combined facility.
The City of San Diego would be responsible for (1) a $350 million contribution to the
construction of the stadium—specifically the architectural component that integrates the
stadium and convention center annex—and (2) the construction of the convention center
annex. The “primary lessee” of the stadium facility—the Chargers—with the National
Football League (NFL) would be responsible for a contribution of $650 million toward the
construction of the stadium and any overruns associated with the stadium.
The construction of this combined facility would be financed through revenue bonds issued
by the City of San Diego against the anticipated General Fund revenue increases through the
proposed increase to the TOT. TOT is currently 10.5%, but effectively 12.5% with the
existing San Diego Tourism Marketing District (SDTMD) established in municipal code in
2008. This proposal replaces the SDTMD by replacing relevant sections of the municipal
code, and it raises TOT from its existing level of 10.5% to 16.5%. Of the 6% increment, 1%
would be dedicated to the SDTMD replacement in the proposal entitled the “San Diego
Tourism and Marketing Fund” and the remaining 5% would be dedicated to the new
“Convention Center Expansion and Stadium Fund” (CCES).
History of the Relationship Between the Chargers and the City of San Diego
The Chargers have been a part of the fabric of San Diego since they moved from Los
Angeles in 1961. They have competed in the National Football League (NFL) since the
NFL’s merger with the American Football League in 1970, and until the NFL’s recent
approval allowing the Rams to move to the Los Angeles metro area, the Chargers were the
only professional football team in Southern California. The Chargers have played once in
the Super Bowl.
When they moved to San Diego after one season in Los Angeles, the Chargers played in
Balboa Stadium in Balboa Park. Balboa Stadium had been built in 1914 as part of the 1915
Panama-California Expo. The stadium had been built primarily through private
contributions to the exposition.
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The Chargers have played their home games in what is now Qualcomm Stadium since 1967
(of note, Qualcomm Stadium was originally called San Diego Stadium and later Jack Murphy
Stadium). The City of San Diego built this stadium and covered the entirety of the $27.75
million ($197 million in 2016 dollars) cost of construction. The Chargers had used this
facility in conjunction with the Padres, San Diego’s professional baseball team, until the
Padres moved to Petco Park at the turn of the century. In 1984, the City of San Diego
expanded Qualcomm Stadium at a cost of $9.1 million, and in 1997, the City of San Diego
renovated and expanded the stadium again, at the Chargers request, at a cost of $68 million.
The Chargers and the City of San Diego have periodically renegotiated lease terms, and from
the mid-1990s to 2004, the City of San Diego guaranteed the Chargers a minimum of 60,000
tickets per game. If minimums were not met, the City of San Diego had to pay the
difference to the Chargers. In aggregate, the City of San Diego has paid the Chargers $36
million for this ticket guarantee.
Since the mid-2000s, the Chargers have publicly expressed a desire for a modernized facility
and in 2006, considered a plan to place on the ballot an initiative to transfer city-owned land
at the existing Qualcomm Stadium site in exchange for their building a new stadium. While
the Chargers did not move forward with a ballot initiative due to the troubled financial status
of the city at the time, this interaction—sometimes caustic between the Chargers and the
City Attorney at the time—led to earnest discussions amongst the Chargers, then-Mayor
Jerry Sanders, and numerous other elected leaders to study and consider other sites for a new
stadium for the Chargers. At that time, leaders from Escondido and Chula Vista had even
intimated making potential offers to the Chargers so they would remain in the San Diego
region. Ultimately, however, the Chargers renegotiated lease terms with the City of San
Diego and agreed to remain until 2020, though their interest in a newer facility did not wane.
In the meantime, the relationship between the City of San Diego and the Chargers continued
to strain. The City Auditor issued in May 2009 an audit report entitled “The City of San
Diego Faces Unique Operational and Administrative Challenges in Maintaining Qualcomm
Stadium” and pointed out that the City of San Diego pays the Chargers year-to-year to play
in Qualcomm Stadium. The 1997 renovation of Qualcomm Stadium failed to comply with
the Americans with Disabilities Act, and the City of San Diego agreed through settlement to
pay the Chargers for the lost revenue due to the reduction in seat capacity after the
installation of wheelchair ramps. These public payments have been in excess of $10 million
since. Additionally, the lease agreement between the City of San Diego and the Chargers has
credited the Chargers for concessionary activity and property taxes, in addition to the
settlement to make Qualcomm Stadium ADA compliant. Since 2007, the City of San Diego
has owed the Chargers money after every season.
The long-term lease agreement between the Chargers and the City of San Diego also gave
the Chargers a window to terminate their lease between 1 February and 1 May of every year
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through 2020. This early termination option results in a termination fee intended to pay
down the debt that financed the stadium’s renovation in 1997. This termination fee
schedule created significant exposure for the city, as after 2010, the termination fee would
not be adequate to cover the remaining debt.
In 2011, the Chargers began suggesting that East Village would be ideal for a new site, and
then-Mayor Jerry Sanders and the Chargers seemed optimistic about utilizing redevelopment
to finance such a site. Statewide changes to redevelopment, however, stopped any of these
ideas from coming to fruition, and the explorations to finance a new stadium for the
Chargers essentially stopped during the 2012 election season.
In 2013, the questioning of the legal viability of the SDTMD and its funding of an on-site
expansion of the Convention Center opened an opportunity to further pursue ideas for an
East Village stadium. Then-Mayor Bob Filner and the Chargers spokesperson Mark Fabiani
began speaking publicly in support of a combined convention center and stadium complex
in East Village. The California Coastal Commission approved plans in late 2013 to expand
the existing Convention Center contiguously, along the waterfront, though the Chargers
stated they might still proceed with their new East Village plans.
Then in 2014 and 2015, a flurry of activities again strained the relationship between the City
of San Diego and the Chargers. Soon after the resignation of then-Mayor Bob Filner over
allegations of sexual harassment and subsequent election of now Mayor Kevin Faulconer,
the Chargers announced their intention to pursue the East Village idea and criticized the City
for its inability to maintain Qualcomm Stadium effectively. Mayor Faulconer then
established a Citizens’ Stadium Advisory Group (CSAG) to propose a site and draft
supporting financing framework for a new stadium. CSAG recommended pursuing Mission
Valley as the site for a new stadium. The Mayor and County Supervisor Ron Roberts
proposed $350 million of public funds without increasing taxes ($150 million from the
county and $200 million from the city) to pursue this idea. But the Chargers did not support
this concept and ceased discussions with the City/County negotiating team. During this
time, the City of San Diego conducted an expedited environmental impact review of the
Mission Valley site to demonstrate the city’s commitment to building a new stadium.
Also at this time, the Chargers were finalizing plans to build a stadium in Los Angeles with
the Oakland Raiders. This plan, however, competed with an alternative plan by the St. Louis
Rams, and mistrust continued to build between the Chargers and San Diego as the Chargers
filed for the “Los Angeles Chargers” trademark. The NFL ultimately approved the Rams’
proposal, by a 30-2 vote of team owners, and the Chargers were given the option to join in a
lease with the Rams in future years.
The Chargers decided to remain in San Diego an additional season and sought an additional
$200 million from the City and County to move forward with their Mission Valley stadium
proposal. When Mayor Faulconer and Supervisor Roberts balked, the Chargers turned their
Page 4 of 36
707 Broadway, Suite 905, San Diego, CA 92101
P: (619) 234-6423 • F: (619) 234-7403 •
www.sdcta.org
attention back to East Village. The Chargers developed a ballot initiative for a joint-use
stadium and convention center annex and successfully qualified it for the ballot with an
adequate number of signatures. The San Diego City Council formally approved its
placement on the November 2016 ballot in July 2016, and as of the writing of this paper,
Mayor Kevin Faulconer has neither indicated support nor opposition to the Chargers
measure.
History of SDCTA on Convention Centers and Professional Sports in San Diego
While Appendix A provides a fuller account of SDCTA’s history and past positions on the
original San Diego, later Jack Murphy, and now Qualcomm Stadium, Petco Park, the
waterfront convention center and expansion, and the existing SDTMD, SDCTA has
historically and consistently stood by these principles during previous proposals of
professional sports facilities and the building and expansion of convention centers:
• SDCTA supports economic development so long as the anticipated marginal
revenue from a tax increase covers the marginal costs of a proposed investment.
That was why SDCTA supported the original San Diego Stadium and the building of
the Convention Center along the waterfront.
• When a public and private entity jointly take on risk, SDCTA supports that financial
risks be shared commensurate with potential financial benefits. If the public is
taking on significant financial risk, the resources of the private partner should
guarantee a reduction and preferably an elimination of that liability. This is why
SDCTA advocated during the discussions on Petco Park that should revenue not
meet goals, the team should be responsible for covering shortfalls—and the public
could even seize the assets of the team if revenues were inadequate to cover debt and
maintenance.
• SDCTA opposes financing methods where the length of the debt service does not
match the expected useful life of the asset. This is why in the development of the
Petco Park deal, SDCTA supported that the Padres’ lease would have to coincide
with the length of the debt used to build the park.
Fiscal Impact of the Chargers’ Proposal
Potential Revenue and Benefits to the City of San Diego
1. Revenue from usage of a new stadium during the off-season
The proposal gives the City of San Diego the opportunity to utilize the stadium during the
off-season. SDCTA cannot estimate the likely revenue to be generated as there are no
comparable facilities with sufficient historical data. The only benchmark by which SDCTA
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