The San Diego Chargers Convadium – Part 1: 110 Pages of Gobbledygook

By John Lawrence

On Saturday, April 2, the Chargers published a whole section of the San Diego Union-Tribune devoted to their proposal to build a football stadium for the Chargers combined with a non-contiguous expansion of the Convention Center.

The title of this section was “Notice of Intent to Circulate Petition.” Right off the bat I found several things wrong with this proposal. But before I go into that I want to discuss the MAJOR thing wrong with this proposal.

You see the Chargers think combining a Convention Center Expansion with a new stadium will make it more palatable to San Diego voters especially if the tax that will be raised to pay for it will be a tax on visitors not on locals.

This will make it possible to wring money out of hotel tax increases to pay for a third of their stadium. But not only that, the $1.15 billion in bonds that the City (actually a subsidiary of the City – a Stadium Authority) will issue will pay the entire cost of the convention center annex. I don’t think a better combination of a football stadium with $600 million of affordable housing ever even crossed their minds.

With This Kind of Money You Could Build a Contiguous Convention Center Expansion

However, with this kind of money coming from increased indebtedness by the city, why not go ahead and just build the convention center addition where the Mayor and others want it built – right next to and contiguous to the present Convention Center. This makes a lot more sense than building an architectural monstrosity of a stadium on top of or next to what amounts to a mini-convention center which is not integrated with the present convention center and has little relationship to a football stadium.

And the question must be asked if the City can borrow $1.15 billion dollars by raising the TOT taxes, why not use the money half for a convention center annex right next to the present facilities and half for infrastructure including affordable housing? The Chargers then can issue their own bonds of indebtedness for the remaining $350 million they’re trying to get from the City really under false pretenses, the false pretenses being taxing visitors for something that will mostly be used by locals. This is tantamount to taxing one constituency for the benefit of another constituency. And when it comes right down to it, the City’s General Fund will still be on the hook.

So now on with the “Notice of Intent …” Right off the bat in Section 2 it states “The people of the City of San Diego Find and Declare the following:” This amounts to outright lying because the People of the City of San Diego had nothing whatsoever to do with this proposal. It was generated and perpetuated entirely by the Chargers organization. It goes on to say “The People of San Diego desire” this and “The people of San Diego” desire that. Nonsense. The proposal is disingenuous from the start. The proposal does not even mention the Chargers. Yet they are the sole initiators of it.

Under item #7 it says “In order for the … Project to be undertaken in a financially sound manner, the Initiative increases the existing Transient Occupancy Tax [TOT], which is paid for by persons staying in hotels, motels and other lodging establishments in the City, and establishes a … Fund to pay for the development and construction of the Convention Center Expansion and to pay certain incremental costs of the Stadium resulting from an integrated Convention Center Expansion and Stadium Project …

Item #7 is a mouthful. Here’s the first point: the TOT tax is not only to be paid by persons staying in the high end hotels but persons staying in motels many of which are fairly low end, (that is, that’s where poor people stay). Not only that but the TOT tax will be paid by persons staying in “other lodging establishments in the City.” Hmmm, wonder what those could be – AirBnB perhaps?

The Perfect Solution: Visitors Not Locals Will Pay for the Stadium

And what could those “certain incremental costs of the Stadium resulting from an integrated Convention Center Expansion and Stadium Project” be? Is this a way to fleece the public ostensibly because a football stadium is being commingled with a mishmash of a convention center? Basically, the Chargers propose to create an architectural monstrosity, something which is neither fish nor fowl, and get the public to pay for it out of gratitude for the Chargers including a convention center addition in the mix. Oh, and they promise to stay here for 30 years. Riiiight.

The following item #8 is the clincher though, and I quote: “As provided in this Initiative, the Transient Occupancy Tax is increased by an additional six percent (6%) and the new revenues are dedicated to special trust funds, the Convention Center Expansion and Stadium Fund and the San Diego Tourism and Marketing Fund, as provided by this initiative.”

Trying to slip in a fast one on us, are ya? All the publicity on this proposal and I mean all says that the TOT taxes are to be raised 4% not 6 %, from 12.5% to 16.5%. Was this just a typo? If so, a very significant one. My feeling is that there must be a lot more of these “typos” buried in this abstruse document. I’m still on the first page. Crafty lawyering, I presume.

The elephant in the room of this Chargers proposal is the $1.15 billion in bonds that the City is supposed to be on the hook for. Of course, the implication is that they will get the money from Wall Street which must be salivating at the thought because underwriting fees, legal fees and interest will certainly add another couple of billion to the indebtedness of the City of San Diego which will try to sidestep its indebtedness by creating a Fund which is supposedly distinct from the General Fund. Wall Street will get tremendous upfront fees, and this will drain the “collateral” represented by the TOT taxes. The taxpayers will still be holding the bag. Wait till the final legalese is written – especially with Wall Street – regarding the loan.

San Diego Taxpayers Will Still Be on the Hook

But when it comes right down to it, this will not be a non-recourse loan. The taxpayers of the City of San Diego will be liable if everything does not go as planned. If there’s a downturn in the economy, if the TOT taxes don’t come in as planned because Comic-Con and other large conventions go elsewhere, if the managers of this Fund engage in interest rate swaps or other derivatives, the only beneficiary here would be Wall Street, and this looming debacle could make the pension fund shortfall seem like a child’s game in comparison.

And the big conventions will go elsewhere where they’ll get a better deal on TOT taxes. That leaves the hoteliers in the position of lowering their room rates in order to attract the high rollers. This will decrease their profits, and, I’m sure, this is not what they had in mind when first they considered a Convention Center Expansion.

Finally, it’s a travesty that the City should take on over a billion dollars in bonded debt while the homeless are sleeping on the streets, in cars and couch surfing so that a few ultra rich people can have skyboxes in downtown San Diego. Why not use the money or money that’s already in other City “Funds” to build affordable housing, repair and replace infrastructure, improve poor neighborhoods, repair potholes and increase teacher and police salaries instead of catering to a concussion-producing football team. Let them use private money to build their own stadium for which they will have to pay the operating and maintenance costs, not the City. The City is still paying for Qualcomm stadium. In fact we the taxpayers of San Diego still owe $50 million on improvements to Qualcomm which the Chargers insisted they needed in order to stay competitive.

Better to Build Affordable Housing

Harbor-side contiguous Convention Center expansion rendering – banned under JMI-Briggs “Citizens Plan” – image from San Diego Convention Center Corp.

Affordable housing bonds can be issued as non-recourse loans because HUD will back them up. In addition to that, why give Wall Street 2 or 3 billion dollars in interest on a 30-year loan when the City of San Diego could start a public bank as they have in the state of North Dakota and bring all that interest home to be used on other local projects like infrastructure and affordable housing. And buyer beware of those interest rate swaps Wall Street is sure to sell to whatever hapless bloke ends up managing this Stadium and Convention Expansion agency.

I’ll have to get to the rest of this petition/proposal at a later date. But let’s not rush to go into debt to build a deformed monstrosity of a convadium, one that would be an architectural blight on the City of San Diego. It would be better to build the Convention Center addition contiguously with the present Convention Center and finance it by creating a public bank rather than going further into debt to Wall Street. With a public bank like the state of North Dakota has, the interest would accrue back to the San Diego General Fund so that infrastructure could be rebuilt. With bonds issued by Wall Street it would be like throwing money out the hotel windows.