The San Diego Convention Corp.
exceeded its authority by spending close to $8 million on a planned contiguous
expansion of the facility that is now in limbo, according to a San Diego County
grand jury report.
The grand jury said in the
report released Tuesday that the city’s management agreement with the
Convention Center Corp. did not include funding an expansion as one of its
responsibilities.
The Convention Center Corp.’s
funding of preliminary expenses for a Phase 3 expansion depleted its reserves
and prompted a delay of some maintenance projects, the panel determined.
"The city of San Diego
allowed this to happen," the grand jury concluded.
“The city was aware the
corporation was using its own funds to initiate the expansion, but did not
acknowledge this by putting a new agreement in writing or by amending the
existing management agreement,” the grand jury said.
The management agreement
requires the corporation to manage, operate, market and promote the center.
Of the approximately $8 million
spent by the Convention Center Corp. criticized by the grand jury, $5.4 million
went toward acquiring the leasehold on five acres on the bay side of the
facility. That land is seen as key to a contiguous expansion.
Another $2.3 million was spent
on contracts for entitlement, design and planning for the expansion.
The city has not reimbursed the
Convention Center Corp., and expansion is on hold.
Mayor Kevin Faulconer did not
respond to a request for comment by late Tuesday afternoon.
Faulconer took office in March
2014, two years after the financing plan for the expansion project had been
approved and several years after the Convention Center Corp. had acquired the
leasehold to the land for the project.
Steven Johnson, a spokesman for
the Convention Center Corp., defended its spending on the planned expansion
despite the city’s silence on the management agreement.
“This was not a unilateral
decision by the corporation,” Johnson said. “It was done in complete
cooperation with then-mayor Jerry Sanders and at his direction.”
As for the impact the expansion
spending had on the Convention Center's reserves, the grand jury found the
reserves went from more than $8 million in fiscal year 2008 to zero by fiscal
year 2011.
Johnson said the corporation's
reserves are projected to be back up to $3.5 million by the end of the current
fiscal year and should reach the corporation's target of $4.5 million in 2016.
He also said the Convention
Center Corp. does not expect to be reimbursed by the city for the funds it
expended toward a Phase 3 expansion because the financing mechanism proposed to
pay for the expansion —- a special hotel tax —- was struck down by an appeals
court in August 2014.
The grand jury has recommended
that the city amend its agreement with the Convention Center Corp. to make
clear which expenditures each entity is responsible for, especially spending on
an expansion.
The city and the Convention
Center Corp. have been given until August 17 to respond to the report's
recommendations.
The grand jury's report comes
after a recent setback to plans for a contiguous expansion of the convention
center to accommodate larger events.
Earlier this month, the
corporation defaulted on a $13.8 million obligation due to Fifth Avenue Landing LLC for the
leasehold for the land needed for the expansion.
Johnson said the Convention
Center did not have the funds to make the payment because of the ruling
striking down the financing mechanism for the expansion.
“There was not an alternate
funding stream to pay for the acquisition of the land,” Johnson said.
He also said efforts with the
mayor’s office to extend the lease were unsuccessful.
The Convention Center Corp. is
having an outside group conduct a $90,000 study to evaluate two expansion
options: a scaled-back contiguous expansion or a campus-style expansion.
May 19, 2015
The
Daily Transcript
By
Lyle Moran
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