In 1964, a mistrustful San Diego hotel industry watched as city officials passed the first Transient Occupancy Tax. The 4 percent bed tax charged to visitors was to help fund a convention center and promote tourism. An effort to defeat it at the polls in February 1965 lost, and since then the tax has grown to 10.5 percent with its proceeds ingrained in the city budget.

Some 40 years later, many of the fears have come to pass of those who fretted the city would find irresistible spending the money on non-tourism uses. In fiscal 2006, San Diego collected a record $137 million from folks who paid to stay in one of the 40,181 hotel rooms within city limits. Of that, just $8.5 million, or 6.2 percent, went to the San Diego Convention & Visitors Bureau, the agency originally slated to get the lion’s share of the moolah. By comparison, Orlando has embarked on a program to spend $68 million over two years on television promotions.

Now, after five years of pratfalls and political miscalculations, the tourism industry is closing in on a way to spend more money marketing the region’s third largest industry: taxing itself.

Following a formula perfected by the local Business Improvement Districts, the proposed Tourism Marketing District calls for hoteliers to collect an additional 2 percent fee of room- night fees. The tax initially would bring in $25 million to $27 million annually, with the money overseen by a nine-member panel in a new organization formed by the hotel industry. The group would take over city funding of ConVis, and, at least for the first year, of the $1.37 million in TOT monies that now go to Accessible San Diego ($53,327), California State Games ($15,427), Elite Racing/Rock ’N Roll Marathon ($19,519), Pacific Life Holiday Bowl ($391,137), Crew Classic ($4,648), San Diego Film Commission ($661,817), San Diego Hall of Champions ($79,008) and San Diego International Sports Council ($145,800). After a year, those groups would have to apply for funds, and justify their request with data on how they attract hotel-staying visitors to San Diego.

What’s in it for the city? An extra $10 million a year for starters. And as the hotel industry grows, even more.

What’s in it for the visitor industry? A stable supply of marketing dollars. As proposed, 60 percent would be spent for destination marketing. ConVis would get the largest chunk — 50 percent, about $13 million initially — and San Diego North ConVis 10 percent.

The real shame is it has come to this.

Tourism provides more than 130,000 jobs. Its biggest players contribute enormously to the local tax base. For example, not only do Doug Manchester’s Hyatt and Marriott hotels adjacent to the San Diego Convention Center drop millions in the TOT fund, they also put the profit into the Port District, the hotels’ landlord. So it is quite reasonable for Manchester and others to wonder why they must pay even more for regional marketing.

The answer is, because. Because City Hall’s finances are a mess. Because voters are in no mood to support new taxes and because politicians already have made more cuts, and turned down more requests, than they can bear. City Hall needs that $10 million.

The tourism industry itself deserves scads of blame for finding itself in this situation.

Back in the late 1980s the industry adroitly negotiated a TOT increase with then-Mayor Maureen O’Connor to help fund the lavish Faberge Egg display at Balboa Park. The deal included guarantees the city would not soon propose more hikes and also that a large chunk of the new funds would be spent on marketing. In retrospect, it seems so civilized.

Now flash forward to the early 2000s. City finances are in trouble as the pension underfunding begins to manifest itself. In the scramble for dollars, some on the council look to raising the TOT. But the hotel industry, which is enjoying a sweet upward trajectory in room occupancy and rates, digs in: “No deal,” despite the longest run since 1964 with no bed tax boost. Eventually a break-away group led my Mission Valley hoteliers concocts with firefighters a plan to raise rates 2 percent with the proceeds funding public safety and a quasi-independent group that would dole out the new dollars. The city, and more importantly the politicians, essentially get nothing. The measure goes to the ballot and is whacked by voters, leaving in its wake no new money and wounded feelings. Industry upheaval then hastens the end of a ConVis chief’s job and results in major convention planning operations unceremoniously being taken from ConVis and given to the Convention Center Corp. to be overseen by Carol Wallace, the most savvy public hospitality official in San Diego.

In the coming weeks and months, the drama over this issue is only going to build. If the wheels come off, Mayor Sanders’ budget will have a hole much larger than what he says the city can’t afford to pay in a raise to firefighters.

There’s also great risk for all sides. For example, the San Diego Film Commission is quite comfortable in explaining to the city its need for TOT. How will its act play with a nine-member TMD board composed of hotel executives who are the most charming species in public and the toughest business folks behind closed doors. So, Cathy Anderson, how many hotel rooms did you fill last year? And prove it.

The hotel industry also must cross its fingers that a year or three down the line, City Hall doesn’t decide to raise the TOT. Maybe a grumbling public finally has decided it wants greener and better equipped parks. Out of town visitors are a juicy target. And while Mayor Sanders has told tourism executives he won’t propose or support such a tax, would he actively campaign against one if it came from the community?

Much remains to be done and the process already is behind schedule; i.e. the first City Council hearing was supposed to be in February, not May. For now, the council likely will nervously let things move forward. The industry needs to get its plan in order by mid-June and have gathered on petitions the signatures of owners or representatives who favor the TMD. The total, weighted by room-night revenue in the last 12 months, must exceed 50 percent to proceed. The City Attorney’s office needs to sign off on all the documents and then the council must approve a formal vote and its results.

Opportunities for failure will be plentiful, as will unforeseen problems if it passes. But what are the choices? It is naïve to insist San Diego’s sunny weather alone can sufficiently nurture our third largest industry. Other cities, too, are great places to visit, and they let people know. San Diego needs to stay in the game.