LOS ANGELES — San Diego’s proposed $520 million convention center expansion cleared its final regulatory hurdle Thursday when it was unanimously approved by the California Coastal Commission.
The approval — the last permitting requirement for the convention center expansion to move forward — was far from a sure bet.
In the weeks leading up to the coast commission vote, the San Diego Chargers football team pushed forward an alternative plan that includes a new stadium, and the coastal commission staff released a report opposing approval of the expansion.
The project will add 225,000 square feet of exhibit space creating the largest contiguous exhibit hall on the West Coast and a five-acre rooftop park with 360-degree views of the San Diego Bay.
The coastal commission staff recommended denying the project, saying it blocks views of the San Diego Bay and makes it harder for people to get to the water on the other side of the building. They also said a rooftop park on top of the Convention Center expansion is not an adequate substitution for a waterfront park that will be eliminated.
Staff wanted the project to include a pedestrian bridge from the Gaslamp Quarter over Harbor Drive to the Convention Center, but city leaders said they can’t afford the additional cost. The coastal commission approved the plan with the caveat that the city of San Diego use $500,000 from the $520 million construction bond to pay for “additional access features” that direct pedestrians to the rooftop park.
“Today’s approval is the result of a five-year collaboration between the corporation, the City of San Diego, the Port of San Diego, hotel developers and the community,” said Phil Blair, chair of the San Diego Convention Center Corporation Board of Directors. “This is a win for all San Diegans and will ensure we remain a top meeting and convention destination.”
The city still has to resolve an appeal on the validation lawsuit it filed to get a judge’s approval on the hotel tax to begin construction as planned in late 2014.
The financial plan approved by the City Council for the convention center expansion in October 2012 involves issuing $549.5 million of debt. The bonds would be repaid by a 1% to 3% tax on local hotels with the amount paid by the individual hotels depending on proximity to the convention center.
A judge ruled in support of the hotel tax in March in a validation suit brought by City Attorney Jan Goldsmith. But Attorney Cory Briggs, who represents San Diegans for Open Government, filed an appeal.
Detractors claimed the vote on the tax put only to the hotel owners, who would pay the tax, was unconstitutional, because it didn’t go to vote of the entire electorate. Hoteliers approved the tax by 92% on May 7, 2012.
Although the council approved the financial plan, the city’s debt management team will come back to the city for approval of bond disclosure agreements on short-term notes and long-term bonds. Goldman, Sachs & Co. and Citi were selected as underwriters on a $40 million short-term note offering that will fund 18 months of design, pre-construction and roadwork.
The hotel tax, expected to raise nearly $30 million annually, would be used to pay off the construction bonds. The $520 million project would require $549.5 million bond proceeds, according to the plan, which calls for the issuance of $333 million of 30-year revenue bonds backed by the special-district hotel taxes and $3 million port district support payments.
The second bond issuance would consist of $175.5 million of 30-year supplemental lease-revenue bonds, leveraging the excess revenue above the actual debt service combined with incremental city-hotel bed taxes of up to $3.5 million diverted from the city’s general fund.
San Diego would be the conduit issuer of the primary bonds. The supplemental debt would be issued using a lease revenue bond structure through a joint-powers authority making use of the original convention center property as the subject of the lease.
The supplemental bond would need to be backed by the city’s general fund credit with the revenue allocated to cover debt service limited to $3.5 million annually from incremental hotel bed taxes.