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Wednesday, Mar 6 1996
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A mudslide of voter approval is certain to propel Proposition A to victory on Election Day, March 26. The initiative, which calls for financing the $157.5 million, 300,000-square-foot expansion of the Moscone Convention Center with an increase in the hotel tax from 12 percent to 14 percent, is virtually uncontested. The usual crowd of bond-haters -- Quentin Kopp, Joel Ventresca, and San Francisco Tomorrow -- is protesting, but every other power center in the city -- from the supes to the mayors (past, present, and presumably future) to the two major political parties to the unions to the "tourist infrastructure" to the Chamber of Commerce to the dailies -- is foursquare behind Prop. A.

Such unanimity is very un-San Franciscan, and if left unchecked could damage the city's reputation. This, after all, is a place that is world-renowned for placing higher value on process than action. Roberts' Rules of Order, the environmental impact study, and needlepoint weren't invented here, but they could well have been. Proposition A surely deserves more scrutiny.

The simplest explanation for Prop. A's acclaim, of course, is that it satisfies the innate human desire to obtain something for nothing. And as Prop. A's backers claim, the measure is as close to free lunch as you can get. If it passes, local construction workers stand to reap 20-odd months of high-paying employment; also, say the backers, up to 2,000 permanent new jobs in the hotel/restaurant/transportation industry will be created, at no immediate direct cost to San Francisco residents. Then there are the promised "multiplier effects" produced by tens of thousands of new convention visitors who will blow money in restaurants and shops, not to mention the sales taxes they'll pay.

That's the pretty truth. The ugly truth is that Prop. A is a welfare program for the convention industry and the unions that work in it. (Community activist Calvin Welch once called convention center builders "cargo cultists" -- people who believe that if you build these monuments to confabs, the confabulants will descend from the skies.)

And it's a cynical tax. San Francisco voters, who are too cheap to directly subsidize the convention business, are all too happy to export the city's tax liability to folks who can't vote in our elections. (In the old days this was called taxation without representation and caused people to start revolutions.)

To some it may seem only fair to export the convention center tax to the wallets of convention attendees from Albuquerque, Alabama, and Australia. They use the facility, not us. But that's not how the hotel tax works: Instead, it is the everyday business schmoes and working-class vacationers clogging Pier 39 who occupy most of San Francisco's hotel rooms and cover the lion's share of the current subsidy.

Consider: The city's hotels boast an annual capacity of about 11 million room-nights (30,000 rooms times 365 days) and a 70-plus percent occupancy rate (about average in the industry), which means that about 7.7 million room-nights are consumed in San Francisco each year. But according to a study commissioned by the Office of the CAO, only a paltry 750,000 to 800,000 of those room-nights are generated by "Moscone-based meeting groups." Constituting a mere 10 percent of the hotel trade, conventioneers pay only 10 percent of the total hotel tax and hence cover only 10 percent of the convention subsidy.

Talk about freeloaders!
If the current hotel tax is a bad deal for non-convention visitors who make up 90 percent of the hotel clientele, Prop. A only makes it worse. The two percentage points added to the tax by Prop. A will be dedicated solely to the Moscone expansion, which means that non-convention visitors will pay an even higher proportional share to build and maintain a facility they'll never set foot in. (Currently, about 28 percent of hotel tax revenues are spent directly on Moscone Center, Brooks Hall, and the Civic Auditorium. The remaining 72 percent funds the arts, Candlestick Park, tourism promotion, low-income housing, and the General Fund.)

The increase of any tax poses the question: Cuit bono? -- Who benefits? In the case of Prop. A, the campaign disclosure statements filed by a committee called San Franciscans for Proposition A make it patently clear that the San Francisco hotel establishment is convinced it'll benefit. Of the $200,000 raised by the committee in the first 41 days of the year, more than $87,000 was donated by hotels, who will collect the higher toll for the city. Giving $12,500 each were Spectacor Management Group (the Philadelphia company that currently manages Moscone for the city) and FMIC Food and Beverage (a Spectacor subsidiary). The union that represents exhibition workers -- Sign Display & Allied Crafts Union Local 510 -- takes Prop. A so seriously that its 900 members intend to drop $30,000 on the effort, according to Local 510 business manager Mike Hardeman. Even the Yellow Cab Co-op has given $250 to the cause.

The hotels are big on Prop. A because they want to increase their occupancy rates from 70 percent; the existing Moscone buildings aren't much help because they're already 95 percent booked. But how much help will the construction of a $157.5 million hall provide? Under the best-case scenario posited by the CAO-commissioned study, when the new hall becomes fully operational in 2003 it will generate a measly 250,000 new room-nights by additional conventiongoers. That's only a 3 percent increase in total room-nights. It's not much to crow about, but as the hoteliers aren't paying the tax, they're happy to see it levied.

The Prop. A illusion doesn't end there. The CAO study promises the city up to 2,000 new and permanent jobs, and $25 million to $35 million in new incomes. But given the city's current 6.2 percent unemployment, San Francisco is already only apoint or two away from what economists would consider full employment. Won't many of those new jobs go to commuters, who will spend most of their money and pay most of their taxes outside the San Francisco microeconomy? Or will the jobs go to new-comers whose interests the city shouldn't necessarily be looking out for, let alone levying new taxes for? And won't much of the "multiplier effect" of $200 million predicted by the CAO study leak out of the San Francisco economy into Marin, Berkeley, and the Peninsula?

That's the sort of skepticism that Prof. Edwin S. Mills encourages. Mills, who studies the convention center business from his redoubt in the finance department of Northwestern University, writes in a 1991 paper that convention centers are "an unwise investment of tax dollars" when viewed from "a direct costs/direct benefits perspective." In Mills' view, convention centers should be run like any other business, with convention-goers and convention producers covering the costs.

Of course, the reason convention centers aren't run like other businesses is because nearly every city -- major and minor -- is happy to tax itself on behalf of the industry in pursuit of a supposed economic miracle. Following this logic, it makes perfect sense for San Francisco to boost its hotel tax to the levels of the cities of Los Angeles, Anaheim, and Chicago so it can build a new hall to attract conventioneers who will otherwise attend the megahalls in those cities.

Some Prop. A backers believe the city can charge a higher hotel tax and still attract the free-spending hoards because our town is such an irresistible destination. But there is evidence to the contrary. The maximum realistic occupancy rate for hotels, says Prof. George G. Fenich of Fairleigh Dickinson University, is in the high 80s. What that means is that San Francisco, with its average occupancy rate of about 70, may already be feeling the pinch of pricing itself too high. (Currently, San Francisco hotel occupancy peaks at about 80 percent in August, September, and October and dips to about 55 percent in December and January.) An increased hotel tax is not likely to have much of an effect on the 10 percenters whose bosses pay for their San Francisco convention junkets, but what about the other 90 percent? Might they evade our taxes by spending fewer nights here and extra nights in Sonoma? Or Yosemite? Or Monterey? Not to put too sharp of a supply-side edge on it, but an argument could be made that San Francisco already discourages visitors and depresses the tourist economy with its existing 12 percent hotel tax. And that the increase of two percentage points will take money out of the hands of restaurateurs and shop owners and produce no net gain for the city.

New York City, as irresistible a destination as any, learned in the '80s that hotel taxes weren't completely free lunch. After pushing its effective hotel tax to more than 20 percent, the city experienced such a travel crunch that it brought the rate back down to about 15 percent. Only then did the visitors start returning.

Prop. A is based on the notion that the hotel market can absorb a 2 percent price increase with no ill effect to either occupancy or the restaurant/retail market. If that is true, why don't the city's hotels say, "Screw the convention center," go ahead and raise their rates by 2 percent, and pocket the higher revenues themselves?

The hotel tax increase is hyped as cost-free to San Franciscans, but that's only because nobody is studying all the implications. What if the Internet makes convention-going passe? What if an earthquake disrupts or destroys the convention and hotel business? What if the tax inadvertently prices San Francisco hotels out of the tourism and travel markets?

Glad you asked. City taxpayers -- and not tourists -- will be the chumps paying the bill.

About The Author

Jack Shafer

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