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Who Runs San Diego?

Who Runs San Diego? The City’s Dubious Partnership with Sea World

By Linda Perine

San Diego taxpayers find ourselves as mainly unwitting, possibly unwilling and almost certainly undercompensated partners with a corporation in a Sea World of hurt.  From Wall Street to Austin City Limits, Washington to Sacramento, Hollywood to Lindbergh Field Sea World is under attack for its treatment of Orcas (that’s Shamu to you and me)

In July, 2013 the documentary Blackfish about the 2010 death of a Sea World trainer finally caught the public’s attention after decades of challenges to Cetacean captivity.  The 2009 Academy Award winning documentary The Cove also raised questions about the possibility that Sea World obtained dolphins from the horrific Taiji dolphin drive.

Sea World vehemently denied the assertions of both documentaries.  However, Sea World stock prices have been cut in half since the Blackfish premier.  Sea World is now the target of shareholder class action lawsuits involving at least 6 law firms specializing in securities fraud for initially denying that Blackfish negatively affected attendance and for misrepresentation about its treatment of Orcas in its prospectus when it went public in 2013.

SEaWorld AdBlackstone Group, the private equity firm that took Sea World public in 2013 is dramatically reducing its holdings as are othersignificant institutional investors.  Southwest Airlines has terminated its 26 year-long mutual promotion relationship with Sea World, as has Taco Bell.  Entertainers from Bare Naked Ladies to Willie Nelson have cancelled performances at Sea World venues in protest of their treatment of orcas

OSHA has told Sea World it must stop putting trainers in tanks during Shamu performances.  In 2015, the California Assembly will address AB2140,  a bill to ban holding orcas in captivity for performance or entertainment purposes in California and to end captive breeding programs.  The bill has the support of 1.2 million folk with more signing up every day.

In addition to the structural problem of a business model that is deeply unpopular and may soon become illegal, Sea World is in debt up to its flippers.

And I should care because……?

For better or worse, San Diego is closely tied to Sea World.

In 1964 the city leased land and water in Mission Bay Park giving “Sea World advantages that few if any theme parks in the region had. It specified a certain rate of return on profits to the city, guaranteed long-term access to valuable city real estate [on Mission Bay], and left open a door to future expansion of the theme park. Sea World has used this door often, expanding its original allocation to more than 150 acres.”

We, the citizens of San Diego, are Sea World’s landlord.  More accurately, we are business partners.

We, the citizens of San Diego, are Sea World’s landlord.  More accurately, we are business partners.

The lease provides that the city is paid varying percentages of the income Sea World receives from things like admission charges, parking and the sale of those cute stuffed Shamu dolls.  Last year Sea World paid the city  $14 million dollars,a figure that critics say should be much higher given the valuable city assets Sea World has obtained from the city.  Sea World also paid about $5 million in taxes last year on property valued at $425 million.

In addition to real estate and transportation concessions, we allocate millions of our public tax dollars each year to promote this private enterprise .

Shamu and Sea World have been a huge part of tourism promotion and city identity for 50 years.  This is why more and more citizens are concerned that changes in the way the world views the captivity and commercial exploitation of highly intelligent, social mammals will injure our city’s image as well as our city coffers.

From Enron by the Sea to the recent Balboa Park Centennial fiasco to the take down of Bob Filner we have suffered a number of body blows to our city’s public image.  Civic leaders need to address the image crisis and the looming fiscal crisis Sea World’s flawed corporate strategy represents.

The Silly, Silly Whale in the Room

Blackfish has been a publicity nightmare for Sea World and Sea World clearly has a growing image problem.

At the AB2140 hearings in Sacramento Scott Welsh, the lobbyist for Sea World, called AB2140 a “silly, silly bill.”  He went on to threaten that Sea World would simply move the orcas out of San Diego to another state if the bill advanced. SeaWorld San Diego President John Reilly bluntly claimed the bill was simply “animal rights rhetoric and bias.”

When SeaWorld ENTERTAINMENT Inc. went public almost a year ago, it bragged: “We won’t be a taxpayer for several years to come,” SeaWorld President and Chief Executive Officer Jim Atchison told prospective investors shortly before the company went public. “That’s a great advantage for us.”

Keep in mind the multiple lawsuits arising from Sea World’s misleading assertion that Blackfish did not impact attendance.

Peta SEaworld AdGiven the smarter business plan of “phasing out shows, placing its female killer whales on oral contraception, & leading the way on coastal sanctuaries” SeaWorld pompously announces more captivity, more pools, more breeding, and international expansion.

Immediately after the precipitous plummet of its stock price Sea World announced with great fanfare the “Blue World Project”: SeaWorld would spend millions to build a 50×350 foot pool.  Mayor Kevin Faulconer and Councilmember Todd Gloria were on hand to assure us this would address the captivity issues of a 30 foot long 8 ton mammal designed by nature to swim 100 miles a day and dive 1000 feet into its deep wild ocean habitat.

Gloria was “grateful to SeaWorld for the investment in these new facilities.” CEO Jim Atchinson told The Today Show August 15 “We make no apologies for what we do and how we do it.”

The arrogance is simply staggering.

It’s Not Just Love that Means Never Having to Say You’re Sorry

Being very well connected and making a lot of contributions to politicians allows a business a fair amount of leeway, especially in San Diego.

As Voice of San Diego pointed out in one of its somewhat boosterish articles Sea World By the Numbers  Sea World employs up to 4,500 people, albeit many are temporary positions and minimum wage.

As was mentioned before, Sea World pays a percentage of its income as rent on a lease to the City that some view as extraordinarily favorable to Sea World.  While putting $14 million into the public coffers may be an attention getter, it is nowhere near what it ought to be.

…it is the mutual back scratching benefit of interlocking boards and contributions to politicians that allows our Mayor and City Council to be so unquestioning in their support of this morally and fiscally compromised corporation.

Sea World is deeply imbedded in the San Diego conservative hierarchy.  It is a heavy contributor to the PACs of the Lincoln Club,the California Restaurant Association’s local chapter and the San Diego Regional Chamber of Commerce.   Sea World has a presence on the board of many local organizations like San Diego County Taxpayers Association, Equinox, San Diego Tourism Authority, the Chamber and many others.

Yes, that is the same Lincoln Club, Taxpayers Association, Chamber and Mayor who oppose increasing the minimum wage so that the workers at Sea World can afford to feed their kids.  So, no, they are not going to get all misty eyed over some “black fish”.

In the interconnected world of Who Runs San Diego it is the mutual back scratching benefit of interlocking boards and contributions to politicians that allows our Mayor and City Council to be so unquestioning in their support of this morally and fiscally compromised corporation.

Sea World is imbedded. It’s a player.  As its Prez said – they make no apologies.  And we are to be grateful?

What’s a Shamu Loving, Regular Taxpayer Who is Tired of Giving Away the Farm to People Behaving Badly To Do?

Surprising as it may seem, we are not without resources.

  1. Let your councilmember know this sucking up to bad corporate behavior displeases you and you vote.
  2. Encourage the city council to enforce the lease.   As I read the lease it requires that the City Council approve Activities other than operating an Aquarium “as may from time to time be deemed desirable to serve the patrons of” the then Marine Life Exhibit.  Good luck with that, but it does seem to suggest that the City is entitled by the lease to take a more active role in the Sea World decision making process.  It is our bay, our water, our 170 acres.  Maybe we could encourage them to take a look at ways of making money that are not so Shamu-centric.
  3. Enforce the City Charter.  Some folks think that Sea World sits on Pueblo Land and the City Charterdisallows leases of longer than 15 years for those lands.  It is certainly worth discussing.
  4. The SEC may be taking a long look at Sea World for a variety of reasons: some less than forthcoming disclosures about the “problem with Tilikum”; misleading the public about Blackfish’s negative effects on admissions; a possible takeover bid by a theme park not wedded to the captivity of cetaceans.  The City might play a role in those conversations.
  5. If the “Blue World Project” was more than smoke and mirrors, Sea World will need to dredge Mission Bay, do an EIR, get Coastal Commission approval and amend the lease.  This is a wonderful opportunity for some negotiating on lease payments and the treatment of Shamu.

Orca in a bowlThe first article I wrote about Sea World got over 2,200 likes.  It was tweeted nearly 500 times.  I am not widely known, nor is SDFP the NYT.  That means there are a LOT of people committed to the idea that the cessation of cetacean captivity is an idea whose time has come.  Hopefully, some of those people are also committed to the idea that San Diego needs to stop giving away our beaches and bays and other precious resources to the well connected and the big contributors.

Here are the e-mail addresses for the city council and the mayor.  Maybe we should talk to them.

District 1
Council President Pro Tem Sherri Lightner
Email: sherrilightner@sandiego.gov

District 2
Councilmember Ed Harris
Email: edharris@sandiego.gov

District 3 
Council President Todd Gloria
Email: toddgloria@sandiego.gov

District 4
Councilmember Myrtle Cole
Email: myrtlecole@sandiego.gov

District 5 
Councilmember Mark Kersey
Email: markkersey@sandiego.gov

District 6
Councilmember Lorie Zapf
Email: loriezapf@sandiego.gov

District 7
Councilmember Scott Sherman
Email: scottsherman@sandiego.gov

District 8 
Councilmember David Alvarez
Email: davidalvarez@sandiego.gov

District 9
Councilmember Marti Emerald
Email: martiemerald@sandiego.gov

Mayor Kevin Faulconer
Email: kevinfaulconer@sandiego.gov

Linda Perine is the President of the Democratic Woman’s Club. She was chair of the LGBT Redistricting task Force in 2011 and served as Mayor Filner’s Director of Community Outreach.


This article first appeared in the San Diego Free Press October 3, 2014.

Categories
Who Runs San Diego?

Who Runs San Diego? Deals Like the One Proposed for Belmont Park Amount to a War on Taxpayers

Guest column by Councilmember Ed Harris

Recently, the City Council was asked to grant an extension to the lease at Belmont Park in Mission Beach. Pacifica, a local developer and current leaseholder of the park’s commercial buildings, wanted the Council to approve a deal that would extend its current lease to 55 years.  Pacifica has held the lease for two years.

After reviewing the proposed lease, I asked the Independent Budget Analyst (IBA) to determine whether it was consistent with best practices of other cities, and whether a longer-term lease would be in the City’s long-term economic interests.

The IBA concluded that the 50 year term of the proposed extension is longer than the average municipal ground lease, and that its rental rates seemed lower than the percentage-rent average of comparable municipal leases in other California cities.

I was also told by the City’s Real Estate Assets Department (READ) that the City has collected a total in net rent of $1,639,166 from the Belmont Park lease since 1988.

This actually looked like a bad deal, and you never double down on a bad deal.

It is important to note the following.  First, if a lease extension is not granted to Pacifica, 23 years will still remain on that lease.  Second, the estimated cost to repair the Plunge is $6 million dollars, and will be paid entirely by the taxpayers in the form of rent credits.

For 26 years, the City gave millions of dollars in rent credits to the former leasee to maintain the facility, including the Plunge.  That maintenance did not occur.

With this knowledge, extending the lease didn’t seem like a good deal for the taxpayers.  This actually looked like a bad deal, and you never double down on a bad deal.

belmont-parkWhile Pacifica was negotiating this lease extension with READ for over a year, my office was never a part of any of those negotiations.  I became aware of this issue in late July.

When the matter finally came to Council on September 22, I had real concerns: The projected revenues; the insistence on a 55-year lease; and the lack of accountability to the City to maintain the property over time.  Furthermore, the lease numbers I had been provided kept changing: The total amount of square footage; the total revenue Pacifica had already invested into the property; and the amount of revenue the City would realize.

The proposed new lease also called for valet parking at Belmont Park.  Since when do we encourage paid parking at the beach? That’s a slippery slope that will undermine the character of our beach communities, and the ability for residents of all income levels to enjoy access to the public seashore.

At the Council hearing when I asked how this was a good deal for the City, I never received a good explanation.  It’s my job on the Council to hold our private sector partners and myself accountable for the good of San Diego’s taxpayers.

Why would we not want to ask questions and work harder to get a better deal for the City and for the taxpayers?

While it’s important to have a lean budget, we must always be looking at the other side of the ledger to see how we can best leverage the City’s assets for revenue to pay for basic City services.  Let me be clear.  I’m not opposed to partnering with the private sector to lease City property.

In fact, earlier this month I asked Mayor Faulconer to prioritize lease extensions on City-owned property in the Sports Arena area.  These leases have varying expiration dates and certain tenants whose leases expire in 2015 have been trying to obtain extensions from the City for almost two years.  Furthermore, the Black Angus building has been vacant for years and has fallen into disrepair, and the City has lost valuable revenue because of this.

Crucially, by ensuring that we are able to lease these properties, we will be better positioned to help fund neighborhood services such as libraries, code enforcement, and police officers.

If this Belmont Park matter is any indication of business as usual, it looks to me like there’s actually a war on taxpayers and small business owners in San Diego.

Apart from the particulars of the Belmont park lease proposal, I’m struck by a larger point.  Why would we notwant to ask questions and work harder to get a better deal for the City and for the taxpayers?  Which of my constituents does not want that?

I’ve heard a mantra lately on how there’s a “war on business” in San Diego.

If this Belmont Park matter is any indication of business as usual, it looks to me like there’s actually a war on taxpayers and small business owners in San Diego. Deals like the Belmont Park lease further shrink our middle class in an era when it’s under siege.

By not making the most of our City’s assets, we come up with cost shortfalls that we pass along to taxpayers.  That results in small businesses having to hire private security because we don’t have enough police officers, and for Business Improvement Districts having to self-fund the upkeep and beautification of their neighborhoods.

At the end of the Council meeting, the Belmont Park lease matter was continued for 60 days.  I am optimistic all stakeholders can return to the table during that time to address the concerns raised, and come up with a deal that’s mutually beneficial to Pacifica and to the City.

Actively addressing quality of life issues has been my priority since I took office five months ago.  As a Marine veteran, a City lifeguard for 25 years, and now as the councilmember for District Two, I am more mindful than ever that democracy should always require vigilance, transparency, and accountability.

Ed Harris is the City Councilman representing District 2, which includes the Belmont Park property.


This article first appeared in the San Diego Free Press September 26, 2014.

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Who Runs San Diego?

Who Runs San Diego? How Do You Solve a Problem like Sea World?

By Linda Perine

For most of us it has been a slow, painful process to understand that our love affair with cute, cuddly, smiley Shamu has made us participants in a cold-blooded business that imprisons and mistreats sentient, social creatures in ways that turn the stomach and shock the conscience.

Concerned environmentalist and civic leaders have been telling us for years that the capture of orcas was nasty and brutal involving bombs and machine guns, the violent separation of babies from their mothers and resulting in injury and death to many orcas in the wild. Books and PBS presentations criticizing the Sea World business model and its exploitation of captive whales and dolphins just did not register.

We didn’t know, or didn’t care, that the magnificent mammal jumping and breaching and smiling and being petted for some tossed fish and our applause has a brain capable of complex language, dialects and generational transfers of knowledge. 

We didn’t concern ourselves that caging a 30 foot long 8 ton mammal, built to range 100 miles a day in deep wild ocean, in enclosures less than one ten-thousandth of one percent the size of the species’ natural home range, was akin to putting a human in solitary confinement in a closet for life. 

Killer whales live in a complex matriarchal society, in which sons and daughters live with their mother throughout their lives, even after they have offspring of their own, creating “matrilines that combine into pods with which they share unique dialects and then interact with other pods to form clans.  We failed to acknowledge that, as Jean-Michel Cousteau said, “we have outgrown the need to keep such wild, enormous, complex, intelligent and free-ranging animals in captivity”.

If we felt uneasy or that something wasn’t quite right, the excited squeals of the children splashed by the final orca breach, or the cute stuffed animal or t-shirt, or the myriad corporate images of a happy Shamu made us put such thoughts aside.

But in 2010 a beautiful young trainer at Sea World Orlando was killed by an orca named Tilikum. This was the third human death associated with Tilikum who has sired 21 calves.  Gabriela Cowperthwaite began to examine in earnest the business of using Cetaceans for entertainment and corporate profit.  In 2013, the resulting documentary Blackfish made it impossible for people like you and me to ignore the ugly truth about what we are doing to Shamu.

PETA-ORCA-INJURED-SEAWORLD-570San Diego, We Have a Problem

For those of us in San Diego, this sudden and disquieting awareness has far reaching implications.

The City of San Diego is Sea World’s landlord.  Since the money the city receives is tied to how much money Sea World makes, we are more than just consumers who can stop going to Sea World as a manifestation of our disapproval of their business.

If you think what Sea World is doing to Shamu is a crime, we are accessories before and after the fact.

We are business partners with Sea World.  If you think what Sea World is doing to Shamu is a crime, we are accessories before and after the fact.  If it is morally wrong, we are passive enablers.  If we are in the business of making money off the imprisonment and mistreatment of sentient beings, then we are profiteers.

But even if you are not personally moved by the overwhelming evidence Cetaceans should not be held in captivity for entertainment and profit, a lot of people are.  Willie Nelson, the Beach Boys, HeartSouthwest AirlinesTaco BellVirgin Airlines and, of course, the stock market have all voiced their displeasure with the Sea World business model.  So whether your motivation is compassionate or materialistic: San Diego, we have a problem.

Southwest-ShamuSea World’s Corporate Situation

Sea World (SEAS on the NYSE) is a company with some serious problems.  Blackstone Group LP (BX), the world’s largest private-equity firm, owns 22 percent of SeaWorld shares. The New York-based firm bought SeaWorld from Anheuser-Bush Cos. in 2009. On April 19, 2013 Blackstone took Sea World public on the NYSE.  Perhaps ironically, stock values seem to have hit their highest point of nearly $39 in mid July 2013, just around the July 19, 2013 official New York release of the documentary Blackfish.

…for most of us, Sea World is Shamu.  This is a deep structural issue for the company.

Independent of the Blackfish public relations nightmare, Sea World was brought public in a leveraged buyout and is massively indebted.  Some analysts see SEAS as overvaluedfor a company of its maturity and compared to peers with less forward-looking risks.

But for most of us, Sea World is Shamu.  This is a deep structural issue for the company.  60+% of revenues come from admissions.  Admissions are driven by– Shamu the Killer Whale and the dolphins.  This makes the Sea World business model extremely vulnerable to the issues surrounding cetacean captivity.

Sea World initially denied that concerns about its treatment of the orcas was impacting its business. But on August 13 shares of SeaWorld Entertainment plunged 33% after the company’s earnings missed Wall Street expectations.  Share prices have dropped from roughly $39, when Blackfish was released, to $20.

Large hedge funds may be losing faith in Sea World’s business model.  Southwest Airlines has ended a 26 year relationship with Sea World.  Blackstone appears to be sharply reducing its stake in the company it took public and is increasing its stake in competitor Merlin.

Sea World  has dropped an appeal of OSHA citations it received after the 2010 drowning that inspired Blackfish, ending any chance of trainers ever again swimming with orcas during shows.

While the “Blackfish Bill” introduced in April, 2014 to make it illegal to “hold in captivity, or use, a wild-caught or captive-bred orca for performance of entertainment purposes” died in committee, it will almost certainly be brought up again in the CA legislature.  The fact that  1.2 million people signed a petition in favor of the bill does not bode well for the future of orca performances.

On Sept 9, 2014 shareholders filed suit in San Diego against Sea World.  The suit alleges that SeaWorld failed to disclose it had improperly cared for its orca population and continued to feature and breed a whale that had killed and injured numerous trainers.

SeaWorld has refused to recognize the growing movement for more humane and ethical treatment of animals by corporations worldwide. From cruelty-free cosmetics, toiletries and household products (animal testing for these products is now banned in the European Union)  to 2008 Proposition 2 providing more humane captivity conditions for farm animals,concern for animal welfare is reshaping the bottom line for many industries.

South Carolina banned dolphin and porpoise shows in 1992 and extended this ban in 2011 to whales (all cetaceans). There hasn’t been a captive cetacean show in the UK since 1993.

In 2013, India became the first country to acknowledge that cetaceans’ high level of intelligence grants them the status of “non-human persons”.  It also joined three other countries Chile, Costa Rica and Hungary in banning cetacean shows.

As you can see, Sea World is being battered from many angles.  It is simply on the wrong side of the powerful and growing realization that humans have a moral obligation to treat fairly and  kindly with other living beings and this ethical failure has created a financial firestorm.

We will continue this conversation about Sea World and its place in the discussion of Who Runs San Diego?  We will look at its influence in our community and how it ranks as a neighbor to its Mission Bay cohabitants.  We will also look at the very favorable terms of its lease with the City of San Diego and what alternative business practices might help it and San Diego out of an unpleasant financial and public relations problem.

Linda Perine is the President of the Democratic Woman’s Club. She was chair of the LGBT Redistricting task Force in 2011 and served as Mayor Filner’s Director of Community Outreach.


This article first appeared in the San Diego Free Press September 19, 2014.

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Who Runs San Diego?

Who Runs San Diego? Six False Premises for Convention Center Expansion

By Linda Perine

In 2009, then Mayor Jerry Sanders, the hotel industry, the Chamber of Commerce et al. decided that it was a really keen idea to expand the Convention Center.

They guessed that it would cost about $520 million to build and that there was a BIG market for expanded convention centers, and they warned us that Comic-Con would move on if we didn’t expand the Convention Center. They knew they could never convince enough people in San Diego to agree to pay for this idea so they created a special financing district comprised of just hoteliers.

Cory Briggs wrote about this financing scheme last week in our Who Runs San Diego? series. On August 1, 2014 the 4th District Court of Appeal declared the financing district violated both the state constitution and the city charter.

But Kevin Faulconer has said “Expanding the convention center is one of the most important actions we can take to grow our local economy and create thousands of new jobs for San Diegans. This is an opportunity to put this litigation behind us and move forward with a successful plan.”

So while that financing scheme, 6 years, 10 million dollars and a lot of credibility are down the drain, the idea that San Diego should expand its convention center lives on. It’s the Chargers and Doug Manchester’s turn to try to get your money.

We should talk.

Whether one supports the expansion or not, it is bad business, bad policy and bad governance to expend what will surely be more than a billion dollars of public money on premises that are more wishful thinking than hardnosed analysis. The convention center expansion is based on a number of assumptions that are at best questionable and arguably false.

SDCCFalse Premise #1. If you build it they will come.

From the Convention Center Task Force in 2009 to Kevin Faulconer today, the talking points for the boosters of the expansion include the factually challenged assertion that people are lined up at the city borders just waiting to book the additional space in an expanded convention center. This assertion flies in the face of the last 10 years of contraction in the convention center market.

For more than a decade experts at the Brookings Institute (2005), the Cato Institute, the Wall Street Journaland the conservative Manhattan Institute’s City Journal have challenged the assertion that expanding convention centers increase attendance or help local economies.

…the private sector wouldn’t touch such goofy investments.

One writer called the nationwide convention glut “gigantic” and then noted that the private sector wouldn’t touch such goofy investments.

A local activist website has an extensive catalog of articles and documents revealing the history of what it calls “the convention center scam”.

Perhaps the most powerful challenge to the use of public funds to benefit private enterprise in the construction of convention centers is made by one of the nation’s foremost urban development experts, Heywood T. Sanders. In his recently published book Convention Center Follies he gives wide-ranging examples from cities across the country as well as in-depth case studies of Chicago, Atlanta, and St. Louis.

“The question is whether you can get any appreciable increase in business. When the best cases I can find are Las Vegas and Orlando doubling the size of their centers and getting a 10 percent to 15 percent increase in attendance, I don’t think there will be much boost at all for San Diego.” Apparently, says Sanders, “San Diego is building into a perfect storm.”

Writers from BostonNashvilleWashingtonBaltimore, and Indianapolis, have challenged the assumption that just because a convention center expands attendance will increase. Even Las Vegas has seen a decline in the number of conventions since 2004.

Voice of San Diego has raised questions about the expansion in its ongoing Narrative about the Convention Center Expansion.

Don Bauder at The Reader has been particularly merciless in exposing the poor logic of expanding into a glutagain and again.

False Premise #2. Industry Consultants who are paid to say “Build It” are credible when they say what you paid them to say.

Would you take advice from a gaggle of consultants whose forecasts in the past two decades have been off by 50 percent?

The studies that the boosters use to support expansion are written by consultants who ALWAYS find a good reason to build or expand a convention center. It’s their job.

As The Reader’s Don Bauder asks “How Can Convention Centers Be So Dumb”?

“Would you take advice from a gaggle of consultants whose forecasts in the past two decades have been off by 50 percent?

‘Getting half the business [that was projected] is about the norm,’ says Heywood Sanders. [Author of Convention Center Follies] ‘The actual performance is a fraction of what it is supposed to be.’

But such warning signals are not flashed by consultants, who are paid fancy prices by cities. Who are these error-prone consultants? They are units of major accounting firms, such as Pricewaterhouse-Coopers, KPMG, Ernst & Young, and Deloitte & Touche. Then there are private purported research firms such as C.H. Johnson Consulting and CSL International. They crank out so-called studies for cities with the same conclusion: build!

Often they use the same verbiage: “They are remarkably adept at saying exactly the same thing to other cities in exactly the same words. Much of the study for Anaheim was word-for-word from the study for Baltimore,” says Heywood Sanders.”

Three heads in the sandFalse Premise # 3 If you are overly optimistic about a lot of really important numbers no one will notice.

“This is one of the sad things about San Diego: an obvious history of misrepresentation.”

The numbers used by these consultants are, let’s just call it enthusiastically optimistic. Their promises of streams of visitors with open wallets seldom come to fruition. The Independent Budget Analyst and the City Auditor called these consultants out on some whoppers.

The structure of the very complex convention center expansion financing has been declared a violation of both the state constitution and the city charter. But it is useful to examine the veracity of the numbers presented to the public.

The Independent Budget Analyst (IBA) reviewed an AECOM study that estimated an increase in TOT revenue of @$12.7 million. In what can only be described as masterful bureaucratic understatement the IBA stated her “analysis demonstrates some significant variances from the results of the AECOM study.” “The IBA estimates that total incremental City TOT revenue generated by the expansion may be anywhere from $5.2 million to $9.7 million. “

The consultant estimate of revenue was between a third and 2.5 times higher than the IBA’s estimate of revenue. Neither estimate took into consideration extra expenses for police, fire and use of facilities by these hypothetical conventioneers that would further reduce the estimated revenue.

In 2012, in response to allegations of fraud, a City Auditor investigation “determined that SDCCC misstated hotel room-night statistics in its annual reports and AECOM Report…”

Any discrepancy in published figures for attendance and/or hotel room-nights casts doubt on the veracity of all statistics reported.

Don Bauder chronicles the lack of rectitude by expansion backers in a 2011 article entitled The Convention Center Liars and a 2012 article entitled More San Diego Convention Center Lies, and quotes Heywood Sanders, “This is one of the sad things about San Diego: an obvious history of misrepresentation.”

False Premise #4. Calling the expansion an economic engine, when it is more like an economic nudge and not a particularly effective one.

…nearly 60 percent of the newly created jobs will be in industries that pay poverty wages and offer employees few health or other benefits.

Expansion boosters like to claim the convention center would be an “economic engine” for the region, asserting the expansion would create 6,885 new jobs.

Vladimir Kogan, co-author of Paradise Plundered, flatly states that Convention Centers Are Not Economic Engines and points out that if job creation is the goal, there are other far more cost- effective methods to increase employment in the area.

In another analysis, Murtaza Baxamusa says that expansion boosters economic impact report “inflated the numbers in several ways. The report relied on outdated data about spending patterns by convention attendees, overestimating their impact on the local economy by a substantial margin, and incorrectly included economic impacts that will actually be realized outside of the region.

Baxamusa’s more appropriate estimate suggests that the expansion will create only 4,500 permanent jobs in San Diego. Even if one uses the consultant’s own numbers, they show that nearly 60 percent of the newly created jobs will be in industries that pay poverty wages and offer employees few health or other benefits. Indeed, a large share of workers filling these new positions will qualify for taxpayer-funded healthcare and other welfare benefits.”

comic-con2014False Premise #5. Using the Con (Comic-Con) to justify a billion dollar expense.

…it is not at all clear that Comic-Con is a big money maker for the city and certainly not one that economically justifies a billion dollar expense

Everyone loves Comic- Con: the costumes, the fantasy, the celebrities. It is so SoCal cool.

The convention center boosters, who know a thing or two about shaping a message, realized that when bonds and amortizations and tax revenues and TOTs and financing districts are being discussed, most voters tune out. Comic-Con staying = good; Comic-Con going = bad. That’s the extent of the message most folks got.

But when you look at the numbers it is not at all clear that Comic-Con is a big money maker for the city and certainly not one that economically justifies a billion dollar expense.

New York Times article revealed that Large Crowds Spend Little at Comic-Con.

As VOSD pointed out in The Problem With Comic-Con’s Money-Making Numbers, the numbers used by the expansion boosters were –here we go again– overly optimistic.

“Sure, there’s a $178 million figure that’s been floating around, but “it’s based on outdated information. It includes assumptions of visitor spending from events that aren’t anything like Comic-Con. And it counts certain effects on San Diego’s economy twice.”

It is also not clear that size is the determining factor in Comic-Con’s decision. Comic-Con International’s David Glanzer said in a statement, “Any decision to remain in San Diego has always been based on a variety of issues, including hotel room rates, available meeting space and other concerns, none of which necessarily override the other.”

Even at its current size, the San Diego Convention Center dwarfs the venues available in other cities that have made bids, including Los Angeles and Anaheim.

False Premise # 6. This is the best way for the City of San Diego to spend its money.

Who thought this was a fair shake for the taxpayer?

Even if you use the demonstrably overblown, cherry picked, out of date numbers used by expansion boosters, you will see there is a very good reason nobody wanted to take this white elephant to the voters.

Even if you took the best case scenario, it was kind of a sucky deal for the taxpayer.

  • The city’s rate of return of (best case) $12.7 million on $575 million dollars is not anything an investment banker or a hedge fund analyst would write home about.
  • Best case, the city makes $12.7 million, the hoteliers make $121 million. Who thought this was a fair shake for the taxpayer?
  • If things don’t work out as planned, it was the city on the hook to pay off the bonds, not the hoteliers. So most of the benefit, and none of the risk went to the hoteliers. Seven members of the 2012 city council, including self-proclaimed fiscal watchdog Carl DeMaio and soon to be iMayor Todd Gloria, thought this was just fine.
  • Since the hoteliers were going to literally make out like bandits, why didn’t we get concessions: a higher minimum wage for workers at the hotels? Maybe they could have paid for child care for their workers or additional parks or parking or library hours, or security for the additional visitors or in some way, any way, give back to the community that was footing the bill.
  • How accurate is the $520 million dollar cost number? Were there competitive bids, an actual counting the nuts and nails of what it would really cost to build this behemoth. The last convention center expansion had enormous cost overruns.

And there were a couple of unpleasant details we never really talked much about:

    • We still owe $200 million on the last expansion and have $30 million in deferred maintenance on the current convention center. What’s up with that?
    • Even if the convention center didn’t end up underwater financially, there is a real possibility the rising sea level from climate change could put it under water–literally. Is this a risk we should be taking?

 

Credit: Nickolay Lamm. Data: Climate Central

What other options are out there? If we are talking about spending a billion dollars…

  • What if we just raised the TOT by the 3% we were discussing and put that roughly $5.5 million per year into the general fund to use for services like police and firemen and libraries and parks and potholes?
  • If the city borrowed $575++ million dollars and did infrastructure work would that create more, better jobs than housekeepers and cabana boys?

There is a tried and true format that the folks who run San Diego use.

So dear reader, if you are not shaking your head and mumbling to yourself, “Wadda they think we are, idiots?”, I have not done my job, or you have skipped over what you thought were the boring parts. In any event, the answer is yes.

There is a tried and true format that the folks who run San Diego use. It is very clever, very smooth, very predictable and very effective.

First, someone, maybe the Mayor, sets up a blue ribbon panel, task force, exploratory committee, concerned citizen group, what have you. It is populated with some or all of the usual suspects from the relevant non-profits, industry groups, the Chamber, San Diego County Taxpayer Association, Down Town Partnership, Labor, etc. You have not been paying attention if you cannot guess who is not represented at these confabs.

Then some highly scripted “public” meetings convene where the incredibly well spoken and well prepared presenters from the task force introduce glossy brochures and hip videos with enthusiastic talking points, well vetted for marketability, if not veracity.

…wouldn’t it be great if we had folks looking out for us as taxpayers and citizens from the get go, so we didn’t have to rely on the kindness of judges to save us?

There is a very professional website, and the talking points are echoed on the websites of the concerned groups who populate the task force. Certain media is waiting for the call and soon those talking points are on the news. They become the news.

These folk are very good and some variation of this scenario works most of the time. It worked for Proposition B. It worked for Plaza de Panama. It worked for the TMD. It worked on the deconstruction of Bob Filner. And it worked on the convention center expansion. But facts are pesky things, and they keep showing up, and attorneys and activists keep winning lawsuits setting aside bad policy decisions. Whew.

But wouldn’t it be great if we had folks looking out for us as taxpayers and citizens from the get go, so we didn’t have to rely on the kindness of judges to save us?

As we like to say in Texas, the fat lady ain’t sung yet on the convention center. Stay tuned.

Linda Perine is the President of the Democratic Woman’s Club. She was chair of the LGBT Redistricting task Force in 2011 and served as Mayor Filner’s Director of Community Outreach.


This article first appeared in the San Diego Free Press September 12, 2014.

Categories
Events

But Who is Looking Out For The Rest of Us?

The Convention Center Expansion & the Tourism Marketing District

In the last few years some of San Diego’s most precious civic assets – the proceeds of tax collections, land leases and control of Balboa Park – have been turned over to the well to do/well connected by our elected officials.

A number of those decisions were legally questionable yet promoted and approved by our civic leaders.  Later court decision have overturned some of those decisions.  Others are still being challenged in court.

There are troubling questions raised by the actions of our elected officials:

  • Who runs San Diego?
  • Who is Looking Out for the San Diego Taxpayer?
  • How are these Decisions Made?

Our presenters in this 2 part series, who have unique, well-informed perspectives, will try to answer these questions.

cory-briggs_sqCORY BRIGGS – Mr. Briggs practices law in Public-Interest and Government-Accountability Litigation.  He has been involved in several lawsuits against the City, among them the lawsuit that recently resulted in the declaration that Convention Center Expansion Financing District violated the California Constitution and the City Charter.

He currently represents San Diegans for Open Government in their suit against the Tourism Marketing District.


Agenda for the meeting is available here (PDF).

Slides from the meeting are available here (PDF).

We will be voting on the amendments to the bylaws we discussed at the last meeting, and a new secretary.

Please remember that we committed to phone banking for Carol Kim from 5pm to 7pm before the meeting. Carol has been very generous in allowing us to use her office for our meeting. It would be nice if we showed up and supported her!!!

Categories
Who Runs San Diego?

Who Runs San Diego? The Use and Abuse of the Transient Occupancy Tax

By Cory Briggs

TOT – this small word may bring to mind a cute little child, a deep-fried mashed potato, or a dash of your favorite adult beverage. But in San Diego, TOT, an acronym for Transient Occupancy Tax, stands for missed opportunities, fiscal irresponsibility, and a shameful abrogation of civic responsibility to the moneyed interest of hoteliers.

The recent implosion of the convention center expansion and what I hope will be the legal rejection of its elder, uglier stepsister, the Tourism Marketing District (TMD) tax, are primers on how the people who run San Diego seek to use your money to line their pockets with the help of a complicit mayor and city council.

Let’s start with a quick look at the one tax that should be nothing but good news and a blessing for our city coffers. Transient Occupancy Tax is a tax paid mostly by tourists; by definition these are people who are here for a short time, don’t vote, don’t have a voice in how the money they pay is spent, and use fewer city services than residents. In a way, the TOT is an invisible tax. How many times do you ask what the TOT is when booking a hotel for your vacation? For most travelers to big cities, TOT is a foregone conclusion.

This money, collected from non-residents, is meant to flow into the city’s general fund to provide services to city residents: e.g., libraries, parks, fire fighters, lifeguards, street repairs. San Diego’s beautiful coast, proximity to Mexico, and near-perfect year-round climate make us a major tourist destination, and at 10.5% San Diego’s (entirely lawful) TOT is substantially lower than that of many other competing cities.

Even the notoriously tax-averse San Diego voters should like a tax they don’t have to pay but get the benefit of, right? Let’s raise that puppy and get us some more city services or retire some of our debt! (TOT is paid by those relatively few San Diegans who have to stay in a hotel while their homes are being remodeled, fumigated, etc.)

Well, not so fast. As it turns out, nothing is simple in San Diego.

When you are talking about the TOT in California, you also have to talk about Proposition 13. Prop 13 requires that an increase in taxes be put before the voters. If the tax receipts flow into the general fund, then the tax has to pass by a simple majority. If, however, the movers and shakers (read “hoteliers”) want to fund a specific item (e.g., paying for a bigger convention center or to advertise their hotels) then this is a “special” tax that must pass by a 2/3 vote. As you can imagine, it is really hard to get two-thirds of voters to agree on anything. Getting a tax approved by that margin in San Diego is even tougher.

…a proposal to use other people’s money to keep our parks and libraries open and to hire the people to keep them safe was opposed by the San Diego County Taxpayers Association and the Lodging Industry Association.

Back in 2004, the hoteliers tried to pass a special-tax increase of the TOT to give themselves a sizable advertising budget that they would control. They came close: 62%. Later that same year, some civic-minded folks fielded Prop J, an increase in the TOT to put money into the general fund. They thought it would be simple given that the previous special increase had garnered much more than the 50%+ needed to pass a general tax.

But the hoteliers were having none of it. Apparently a tax that put money in the general fund, where paying for advertising to put “heads in beds” would have to compete for funding with firefighters and libraries and police officers and parks, was suddenly economically unwise and would have a “chilling effect” on tourism. Just to be clear:a proposal to use other people’s money to keep our parks and libraries open and to hire the people to keep them safe was opposed by the San Diego County Taxpayers Association and the Lodging Industry Association. This opposition defeated Prop J soundly.

Fast forward to 2009: then Mayor Jerry Sanders, the hotel industry, the Chamber of Commerce et al. decided that it was a really keen idea to expand the Convention Center. They guessed that it would cost about $520 million to build and that there was a big market for expanded convention centers, and they warned us that Comic-Con, which may or may not bring a lot of money to San Diego, might move on if we didn’t expand the Convention Center. (The verisimilitude, or glaring lack thereof, of all these assertions will be the topic of a withering take-down in next week’s Who Runs San Diego).

A logical way to fund the expansion would be to increase the TOT. But no one thought for a split second that 2/3 of the voters of San Diego would approve a tax increase to build this whitest of elephants. As Mike McDowell, head of the Lodging Industry Association, a chairman of the board of the San Diego County Taxpayer Association, and a chief architect of the Convention Center expansion, put it: “a two-thirds vote threshold is too risky. Having learned that lesson and going down that road, would you come back and call me stupid?”

Legal activists,community leaders, regular folks with common sense—all of them said this financing district is bogus. “No, no, it’s not a tax on tourists, it’s a self-assessment we’re imposing on ourselves,” said the hoteliers.

So what do you do if you know you can’t convince folks to vote for a tax increase to fund your grand scheme? Our intrepid expansion boosters had a very creative answer. Create a special financing district comprised of just hoteliers. Have the hotel owners vote, instead of the registered voters of San Diego, to assess themselves (read “the tourists who stay at their hotels”) 3 or 2 or 1% based on proximity to the convention center. Use that special tax to repay the loan that the city will take out and, at the end of the day, will have to pay back from the general fund if these hypothetical increased bookings in an already glutted market don’t pan out. Pay no attention to the wizard behind the curtain.

“Gosh,” you say to yourself, “that sure sounds a lot like something we should all get to vote on.” Don’t feel bad, because the city Attorney thought the plan seemed iffy. The law firm that gets paid millions in legal fees to give opinions about the legality of municipal bond issues refused to vouch for such an untested plan. Legal activists,community leaders, regular folks with common sense—all of them said this financing district is bogus. “No, no, it’s not a tax on tourists, it’s a self-assessment we’re imposing on ourselves,” said the hoteliers.

Seven members of the 2012 city council, including self-proclaimed fiscal watchdog Carl DeMaio and soon to be iMayor Todd Gloria, ignored the legal experts and common-sense and approved the financing district. A big lawsuit ensued, and last month the local Court of Appeal put an end to the madness by finding the financing district violated both the state constitution and the city charter because the tax was not approved by the voters, explicitly rejecting the “superficial” claim that it was a “self-assessment.” Six years, more than $10 million, and some serious political credibility down the drain.

But before we leave the scene of this civic train wreck, let’s spend just a moment looking at why these presumably bright and well informed people would spend so much time and money trying to convince us, as the country song goes, not to “believe our lyin’ eyes.”

For the hoteliers, it’s a no-brainer. The Convention Center expansion was a no-lose situation. By their own reckoning, a successful expansion would increase their gross income by $121 million per year. That is a roughly $60 million increase in profits. According to the financing plan they came up with, they would not be liable for a single penny of the $575 million principal or the interest on the debt incurred to build the expansion.

Comic-Con staying = good; Comic-Con going = bad. That’s the extent of the message most voters got.

The servicing of the debt would come from the “self-assessment” (read “3/2/1% special tax”) paid by the people who stayed at their hotels (supplemented by at least $5.5 million per year from the City and the Port). If things went as planned, the hoteliers made a LOT of money. If things didn’t go as planned, the city was on the hook and the hoteliers would have zero liability. This is great work, if you can get it.

For the council members, it is very difficult to tell the hoteliers “no.” They are wonderful friends and fearsome enemies; just ask Bob Filner. When bonds and amortizations and tax revenues and TOTs and financing districts are being discussed, most voters tune out. Comic-Con staying = good; Comic-Con going = bad. That’s the extent of the message most voters got.

The benefits of reading the fine print can be, at best, theoretical for a council member’s career–especially when term limits mean, Yahweh willing, that one will be in another position by the time the fiscal chickens come home to roost. Kudos to David Alvarez for reading the fine print, standing up for the taxpayers, and voting against this boondoggle.

Tourism Marketing District

Let’s now look at the 2% TMD “tax” on hotels with at least 30 rooms. The word “tax” is in quotes because the hoteliers tell us it isn’t a “tax.” They claim it’s a “self-assessment,” that it’s coming out of their own pockets. The claim is laughable. The mayor, the city council, and the hoteliers agreed on a “management plan” that allows the “self-assessment” to be added to a guest’s bill as long as it is “separately stated from the amount of rent charged and any applicable taxes”—as if separating it on the bill means that the guest is not paying it.

In some ways the TMD tax is even more egregious than the Convention Center tax. The Convention Center tax was at least to pay for a municipal asset.

Because the politicians and the hoteliers decided that the additional 2% “self-assessment” did not have to be paid by the hotel guest, they are taking the position in court that registered voters had no right to vote on the TMD tax and have no right to sue to challenge it, that only hoteliers have “standing” to complain about it. The money is set aside by law for a single purpose—this time to finance advertising and promotional materials that will bring more guests to San Diego’s hotels—and it therefore waddles and quacks like a special tax that requires registered-voter approval.

In some ways the TMD tax is even more egregious than the Convention Center tax. The Convention Center tax was at least to pay for a municipal asset. The TMD tax is being used to pay for advertising to draw guests to San Diego’s hotels. I’m the only one who pays to advertise my business, and I suspect that you’re the only one paying to advertise yours. If the hotels want higher profits from more hotel guests, why don’t they form their own private advertising club with their own private monies?   (Could it be they don’t trust their competitors to pay their fair share of the bill, so they want the government’s help in enforcing the collection of the money?)

The Convention Center tax was to be administered by elected officials. If there had been a problem, taxpayers and voters would have had recourse at the ballot box. That’s not the case for the TMD tax. The hoteliers wrote into the law a provision that gives the private non-profit corporation they formed the exclusive right to administer all the money that comes in each year if the City elects to outsource marketing functions to it. (San Diego Mun. Code § 61.2522.)  Not surprisingly the City has done just that, and now the San Diego Tourism Marketing District Corporation doles out the TMD tax revenues as its board sees fit.

Screenshot Atlas Towne & Country (Click fort Larger Image)

Of course, the board is comprised exclusively of hoteliers including Terry Brown from the Town and County Resort (Atlas Hotels) and Bill Evans from the Bahia Hotel (Evans Hotels), whose online bookings charge a “tax” instead of a “self-assessment.”  Only hoteliers can vote for board members or run for a seat on the board. (San Diego Mun. Code § 61.2521(e).)

What’s worse, the City Council may change the private corporation’s spending plan for the coming year, but it has no legal authority to go after the corporation or its directors if malfeasance is discovered, and no authority to do anything that would impair the flow of money toward a marketing contract that has already been made. ( San Diego Mun. Code § 61.2521(c).)

Screenshot Evans Bahia (Click for Larger Version)

Apologists argue that the 2% TMD tax frees up TOT revenues that the City would otherwise have to spend on promoting itself. But that is simply not true. You see, the hoteliers are really good at making sure the public doesn’t stop subsidizing hotel advertising. That’s why they inserted—and the city council approved—a provision in the TMD law to require the City to continue spending the same amount of TOT revenues promoting the City in addition to the new TMD tax revenues that the private corporation is spending to promote its hotelier members. (San Diego Mun. Code § 61.2518(a).)

When the TMD tax was renewed in 2012, hoteliers estimated that it would make $26-$40 million in new revenues available for additional marketing and promotion of the City. The hoteliers are currently collecting this 2% tax. Every dollar they collect is a dollar that a tourist is willing to pay to enjoy a hotel stay in America’s Finest City. It is a dollar that the hoteliers do not have to shell out of their pockets to pay to advertise their own hotels, and a dollar that is not available for any general municipal services.

When it came to the Convention Center, San Diego’s hotels were hoping to use the City’s credit to pay for improvements that they were unwilling to finance themselves, despite being the primary beneficiaries of the improvements. Now the public is subsidizing one of the largest expenses that any business faces: advertising.

By the hoteliers’ own calculations, their guests would be willing to pay another 5% to enjoy America’s Finest City (i.e., the TMD tax plus the now-dead 3/2/1% special tax). That amounts to $50-$75 million per year that could be spent on any number of the City’s backlogged infrastructure projects or to provide a host of community services. The hoteliers refuse to share any of that—not even a penny—with the public.

If, as I hope, this funding of the TMD tax goes the way of the Convention Center special tax, the City has the opportunity going forward to use any increase of the TOT to benefit the general fund and thus all San Diegans, not just the moneyed few.

The hoteliers, sports franchises, entertainment conglomerates, developers, and construction-related businesses all have very talented, very adept, and handsomely paid professionals to represent their interests at the negotiating table. The taxpayers? Not so much. As we will see going forward, time and time again, assets that belong to the citizens of San Diego – the coasts, the bays, Balboa Park, the downtown waterfront—are used and abused by those who run San Diego.

Author Note: The views expressed above are my own and do not necessarily reflect the views of my clients.
Cory Briggs frequently represent San Diegans for Open Government in litigation against public agencies. Mr. Briggs has represented the plaintiff in lawsuit concerning the convention center tax, the tourism marketing district tax, business improvement district taxes, and other illegal activities by the city’s leaders.  Mr. Briggs’ clients have also filed a number of lawsuits in order to ensure transparency in politicians’ electronic communications, and to ensure that the city was not deleting electronic communications prematurely. Mr. Briggs notes that his clients rarely if ever sue to recover money for themselves; almost always the lawsuits seek to change government conduct. For more information please visit the Briggs Law Corporation website at http://www.briggslawcorp.com.


This article first appeared in the San Diego Free Press September 3, 2014.