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Financing biggest issue in convention center expansion

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Most everyone can agree that the San Diego Convention Center needs to be expanded. The more difficult question is how will it be financed.

A citizen's task force, convened by Mayor Jerry Sanders in January, has been investigating and debating that very issue.

The task force has reviewed 10-12 financing options available, looking at how other regions funded their convention centers.

"Other cities probably have not been in the kind of financial constraints that we are, either by the time in our economy or the issues that San Diego has been dealing with," said Cheryl Kendrick, task force co-chair and former chair of the San Diego Convention Center board. "This isn't a time when people are building a whole lot of large buildings."

Some of the financing options include an income tax, a property tax, an on-site hotel or the creation of a tourism marketing district.

One option that isn't on the table, however, is the use of city operating funds.

"I think it's going to have to be people who have a vested interest in the convention center," said Phil Rath, Mayor Sanders' deputy director of policy, adding, "Business is hard right now, so if you asked them today, I don't know what they'd say."

The Center City Development Corp., whose district borders the convention center, could be asked to contribute to an expansion.

"It's technically outside of their area, but it'd be pretty hard to argue that that the convention center doesn't create a whole lot of value and wealth in property tax revenues," Rath said. "That's hot property down there, and the convention center helps."

The Port of San Diego is another stakeholder whose property value would benefit from a larger convention center.

Perhaps the most viable option for funding the expansion is through an increased transient occupancy tax (TOT), which is a tax on hotel room stays.

"There's a clear nexus between hotel room night stays in downtown and the convention center," Rath said.

The task force also has looked at a restaurant tax, likely localized to a zone around downtown.

"It's wrestling with those issues of fairness, equity and nexus that are really the trick to the whole financing scheme," Rath said. "But I think it's going to take a combination of all the sources to get it done."

The cost of expansion is estimated to be $700 million. It would add 1 million square feet of space, including 200,000 square feet of exhibit space. The current facility is 2.6 million square feet with 615,701 square feet of exhibit space. That figure includes 90,000 square feet of exhibit space in the sail pavilion on the top floor.

The convention center opened in 1989 and was expanded in 2001. It has hosted more than 4,000 events and generated $17 billion in economic impact.

Last year alone, the convention center had a $1.8 billion economic impact to the region and paid nearly $31 million in tax revenue to the city.

"We wouldn't be here if we didn't have the market demand to build an expansion," said Steven Johnson, vice president of public affairs for the San Diego Convention Center. "We turn away a year's worth of business (now). It shows how strong San Diego has become as a convention and meeting center."

The facility also supports 12,000 jobs, directly and indirectly.

"I think there is a sense that an expanded convention center would be an economic boon to the city and to the region," Kendrick said. "And that not expanding would be very costly in terms of revenue to the city and to the region."

Officials who host the biggest annual convention in San Diego are already feeling pinched for space.

Comic-Con International, which has been in San Diego since its inception in 1970, drew approximately 125,000 people to the convention center last month.

The group is signed up to be at the San Diego Convention Center through 2012, but then could be free to leave.

"That'd be a huge economic loss to the region" if Comic-Con left, according to Johnson. "Those four days are the highest occupancy days in the county of San Diego."

Sanders would really like to see the convention center expansion happen. The task force was scheduled to meet twice in August and is expected to present its recommendations to the mayor by September.

"The convention center is one of the few assets we have that pumps out money," said Rath. "We run a lot of things that are financial losers. That's okay, but we need a few engines, too, and that one makes money."

The convention center expansion could eventually make its way to the ballot box, depending on what type of tax is required. It could be a restrictive vote just for local businesses or a citywide vote, Rath said.

Once financing gets solved, the permit process could be the next challenge. The California Coastal Commission will have to weigh in on any expansion, but Rath is confident something can be worked out.

"To me, and this is my own personal opinion, the business case for whether to build the expansion is as simple as they come," he said. "We have a kind of unending demand for space here. Orthopedic surgeons, Comic-Con, whoever you are, you want to come to San Diego. You don't want to go to Buffalo or Seattle."

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