San Diego’s contested Measure C hotel tax hike clears important legal hurdle

The hotel tax hike already imposed by the city of San Diego, and considered by voters more than five years ago, remains on solid legal ground, a state appellate court has determined.

Friday, California’s Fourth District Court of Appeal upheld a San Diego Superior Court judge’s August 2024 decision confirming the success of what’s known as Measure C at the ballot box in March 2020.

The measure was intended to raise the city’s hotel tax rate to finance a long-sought expansion of the San Diego Convention Center, as well as fund services for the homeless and street repairs.

“This ruling is a win for San Diego — and for the voters who overwhelmingly said yes to this back in 2020. It finally allows us to move forward with long-overdue improvements to our convention center, stronger investments to reduce homelessness and real dollars to fix our streets,” San Diego Mayor Todd Gloria said in a statement. “This decision clears the way for progress that benefits everyone — our workers, our businesses, and our city’s future.”

With the appellate court decision, San Diego City Council will introduce and pass an implementation ordinance, as laid out in the ballot measure but with new dates associated with the collection and allocation of the additional tax dollars, the city said in a press release.

However, the protracted legal battle may not be over.

Attorney Cory Briggs, who represents plaintiff California Taxpayers Action Network, or CTAN, said his client is considering how to move forward. The group can request a rehearing from the state appellate court or petition the state Supreme Court to take the case.

“(It’s) too soon to say for sure, but I’d expect a petition to the Supreme Court,” Briggs said.

Measure C asked city of San Diego voters to increase the transient occupancy tax rate that hotel guests pay to raise, over a 42-year period, what was estimated at the time to be $4 billion for a convention center expansion project, $2.1 billion for homeless initiatives and $650 million for road repairs. The March 2020 initiative, backed by the Yes! For a Better San Diego coalition, garnered 65.24% support.

At the time, Measure C appeared to fail, coming up short of a two-thirds, supermajority threshold that voters were told was the requirement for special tax initiatives. Since then, multiple court decisions have concluded a simple majority approval is adequate when a tax hike is placed on the ballot by citizens. Because of the legal ambiguity, San Diego City Council members waited until April 2021 to formally declare victory.

The measure has been contested in court ever since with conflicting decisions.

The biggest legal question has been whether Measure C was, in fact, a citizens’ initiative. The challengers maintain that the measure was a city-sponsored initiative that required a two-thirds vote to pass.

Last year, a trial court judge ruled that the measure was a citizens’ initiative, and thus duly passed by San Diego voters. The decision gave the city the legal validation it needed to begin collection of the higher tax rate. And, in May, at Gloria’s direction, the city imposed the new transient occupancy tax rates.

The rate, previously 10.5%, is now 13.75% for guests staying in hotels nearest the convention center. Guests staying in hotels in mid-range locations are charged 12.75%, while those farthest away from the convention center pay a rate of 11.75%. The effective rate for all visitors, though, is two percentage points higher because of an existing 2% room surcharge that goes specifically for tourism marketing.

The city’s decision to collect the higher rates was made in spite of the just-decided appellate court challenge, which was lodged in October 2024 by CTAN, former Councilmember Donna Frye and Project for Open Government. To date, proceeds from the higher rates have been set aside pending the court ruling, a spokesperson for the mayor said.

CTAN sought a reversal of the lower court’s decision, arguing that the court erred in determining the measure was a citizens’ initiative and that it did not have the authority to rule on other issues. The appellate court rejected the group’s claim that the San Diego Convention Center Corp. is an arm of the city, and that members of organization’s board officially sponsored Measure C.

“We conclude that the trial court correctly found that CTAN did not carry its burden to show that the city had ‘substantial control’ over Measure C,” Justice Terry O’Rourke wrote in three-judge panel decision, affirming the Superior Court judgment. Justices Judith McConnell and Truc Do concurred with the opinion.

The city said in a press release that it can immediately begin to secure financing — as in, issue bonds based on projected tax proceeds — to pay for upgrades to the Convention Center, with the San Diego Convention Center Corp. currently evaluating its needs.

However, San Diego cannot pursue an expansion until after 2026, the release said, because of a settlement agreement with Fifth Avenue Landing, the current leaseholder of the waterfront parcel where the expansion is slated to go. An expansion may be also be financially out of reach given that the project cost is likely exponentially greater than when first envisioned.

The city said earlier this year that it expects to generate roughly $82 million from higher hotel taxes in the current fiscal year. During the first 10 years, ballot measure-related proceeds are expected to yield more than $1 billion in additional revenue, with most of it reserved for the convention center and city initiatives to address homelessness, the city said at the time.