Why Bonds for Proposed Chargers Stadium Are Drawing Critics

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WASHINGTON – San Diego residents will have a chance this fall to vote on a proposed hotel room tax hike that would back bonds for a $1.8 billion professional football stadium-convention center downtown, but some critics question the bond financing.

The plan to raise city hotel taxes to back $1.15 billion of tax-exempt bonds for the proposed joint use stadium-convention center received enough signatures to make it on to the city's November ballot, city clerk Elizabeth Maland confirmed to The Bond Buyer this week.

The Citizens' Initiative plan proposed by the team received 110,786 signatures -- nearly double the 66,447 or 10% of the city's total registered voters last general election -- needed by mid-June for the plan to move forward.

Maland said she will bring the certificate of sufficiency stating the initiative is projected to have enough votes to qualify to the City Council, which will then place the initiative on the November ballot.

The bonds would be backed by a 6% hike in the city's hotel tax. The city's current transient occupancy tax would rise to 16.5% from 10.5%.

The plan would not use any San Diego city or county general funds or any state funding. The hotel tax hike would also be used to fund a new tourism marketing program for San Diego, according to the team.

Of the $1.15 billion in bonds issued by San Diego, $800 million would be issued to finance the acquisition of land for the convention center expansion and $350 million would be issued to fund stadium construction.

The Citizens' Initiative, developed by Chargers chairman Dean Spanos, Chargers special counsel Mark Fabiani and a team of legal, financial and land-use advisors, requires the Chargers to contribute $650 million to the project and sign a 30-year lease with the city. Of the $650 million in private funds, $350 million would be from the Chargers' owner, personal seat licenses and sponsorships and $300 million would be from the National Football League.

Spanos said on Saturday, "We gathered more than 110,000 signatures in less than six weeks, an extraordinary result that demonstrates the high level of community interest in a new multi-use stadium and convention center facility downtown. I would again like to thank all of those who signed the petition along with the fan groups, labor organizations, and businesses large and small that helped with our effort."

Not all local officials were happy, however. Councilman Chris Cate said he can't support a project that would be 64% financed with public funding.

"I am opposed to the Chargers tax measure because it's a bad deal for San Diego. It's a billion-dollar-plus tax increase that ignores our most pressing needs, like repairing our streets, and threatens our tourism economy," Cate said on Tuesday. "We want the Chargers to stay in San Diego but not at any cost. Their plan asks too much of taxpayers."

The use of tax-exempt bonds for professional sports teams has been controversial on a national as well as local level. President Obama, in his fiscal 2016 and 2017 budget requests, proposed prohibiting munis from financing private sports facilities by eliminating the private payment test for them.

Rep. Steve Russell, R-Okla., in March introduced The No Tax Subsidies for Stadiums Act (H.R. 4838), which would prohibit the use of munis to build or subsidize sports stadiums and for-profit entertainment arenas.

Additionally, critics of the proposed hotel tax rate bump to 16.5% warn it could deter tourists from San Diego and put the city more on par with nearby Los Angeles and Anaheim, which have lodging rates of 15.5% and 17%.

Councilmember Scott Sherman, a self-admitted Chargers fan, has been a vocal opponent of the proposed stadium project because it would also be used as a convention center.

In a nine-page report released in May, Sherman analyzed a similarly completed "convadium" -- Lucas Oil Stadium in Indianapolis -- which he said San Diego stadium proponents referenced as a model. The downtown Indianapolis project, completed in 2008, included a new 70,000-seat stadium for the NFL's Indianapolis Colts.

Sherman said in his report that the Indianapolis convadium relies too heavily on its stadium events and does not provide enough convention events and benefits for taxpayers.

He said Lucas Oil Stadium's 29% total occupancy rate for field, exhibit hall, and ancillary space from 2011-2014 was "low" by industry standards, adding that 98% of total attendance was from on-field events.

"If the Chargers want support for the Citizens' Initiative, they will need to demonstrate that the facility will operate more effectively than Lucas Oil Stadium," Sherman wrote. "It would be beneficial to the public if the Chargers could provide a concrete example of where the convadium model can operate as an efficient convention center expansion that caters to actual convention business."

The City Council's role at this point is limited. It is responsible for placing the tax hike initiative on the ballot because new taxes must go to voters for approval under California constitution. San Diego Mayor Kevin Faulconer, a Republican, has not taken a stance on the stadium-convention center proposal.

The stadium would have a permanent seating capacity of up to 65,000, according to plans, with the option to expand to 75,000 to host larger events, including the Super Bowl. The proposal would expand the current convention center to include 385,000 square feet of exhibition hall, ballroom and meeting space.

The proposed location for the stadium is in San Diego's East Village downtown neighborhood, which proponents said would provide new construction and permanent jobs, increase tourism and economic activity, and generate new business for local hotels. Qualcomm Stadium, the team's current home venue, is located roughly ten miles from downtown in Mission Valley.

Whether or not the tax hike will be decided by a simple majority or two-thirds supermajority vote remains to be seen, Gerry Braun, a spokesman for San Diego City Attorney Jan Goldsmith, said Tuesday.

A California appellate court ruled in March that any citizens' initiative could be approved by majority vote, but that ruling is currently under review by the California Supreme Court.

"Absent further court rulings, we plan to return to well-established law requiring two-thirds voter approval," Goldsmith said after the state Supreme Court agreed to consider the appellate court ruling.

Goldsmith has said he will ask the California Supreme Court to take over jurisdiction of the election for the take hike for the San Diego stadium-convention center initiative.

"We plan to bring the San Diego situation to the attention of the [State Supreme] Court and ask that the decision be expedited," Goldsmith said. "It is possible that a vote over 50 percent but less than two-thirds may result in uncertainty until the court acts."

The Chargers released their Citizens' Initiative plan on March 30 after months of speculation involving a potential relocation elsewhere in southern California. Spanos announced in January the Chargers would play their 2016 home games at Qualcomm Stadium, the city-owned and operated stadium the team has played at since 1967.

Another proposal that was put on hold before the 2016 season would relocate the Chargers to Carson, Calif., where they would share a proposed $1.7 billion new stadium with the Oakland Raiders. The future of that proposal became more uncertain after Raiders officials met with the Southern Nevada Tourism Infrastructure Committee this spring to discuss a potential move to a proposed $1.45 billion stadium in Las Vegas.

Should the Chargers' new San Diego stadium not come to fruition, the team has "an option and an agreement" with the Los Angeles Rams to join them in Inglewood, Calif., Spanos said in a January 28 letter to fans.

The Rams announced in January they would relocate to Los Angeles before the upcoming 2016 season. The team will play their home games at Los Angeles Memorial Coliseum before an estimated $2.6 billion stadium in nearby Inglewood is completed before the 2019 season.

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