Two Transient Occupancy Tax Increases on the Table

The Santa Cruz Lodging Association introduced a proposal Tuesday night of raising the tax by one percent and lifting the city's obligation to pay into the Conference and Visitors Council fund.

Where one ballot measure recommendation was set for discussion, two came out of Tuesday's Santa Cruz City Council meeting.

The city is considering placing a Transient Occupancy Tax (TOT) increase on the November 6 ballot. According to coucilman Ryan Coonerty, who sits on the Ad Hoc Revenue Task Force that's working on a tax proposal, the purpose of a tax increase is to address economic development in the city, specifically job recruitment and retention.

The initial proposal was to raise the tax by two percent, bringing the city's hotel and motel tax rate to 12 percent.

However, the local lodging industry has another idea.

"We are aware the lodging industry has a new proposal they want to throw in the mix for our consideration," said Mayor Don Lane during Tuesday's meeting.

The proposal, brought forth by representatives from the Santa Cruz Lodging Association, including association president Dilip Patel, is to raise the TOT by one percent and to sever the city's obligation to pay into the Conference and Visitors Council (CVC).

"It would really be a win-win for the city because they would get to keep the one percent revenue from the TOT and it would be lifting the obligation of funding for CVC," Patel said.

According to city finance director Marc Pimentel, the city pays $330,511 into the CVC’s fund annually.

A 12 percent rate would simply take Santa Cruz hotels out of the competition for visitors and tourists, sending them to Monterey hotels instead, Patel and Chris Ferrante, owner of the Beach Street Inn, told the council.

However, according to the meeting's agenda packet, a 12 percent rate would raise approximately $880,000 annually for the city's general fund. An 11 percent rate would raise approximately $440,000 annually, Pimentel said.

Patel said an 11 percent TOT rate is on par with the national average for locales like Santa Cruz.

Councilwoman Katherine Biers expressed concern that while the current association is fine with relinquishing CVC money, without a written agreement, future members could come back to the council demanding funding.

Lane too said that while the he is open to the one percent tax increase, without a promise not to seek CVC funding officially on the books, the proposal would be a hard sell to the council.

Patel said the CVC is ready and willing to take the cut and has a solution to keep the hotel industry funded.

"We would solve the CVC funding shortfall with internal taxing," he explained. "A healthy CVC means healthy hotels, which means the city is healthy. It's a domino effect."

The council unanimously motioned to ask staff to draft two separate proposals for consideration during its July 24 meeting. While most councilmembers expressed openness to the hoteliers’ proposal, they wanted to be sure that if the 11 percent rate falls flat or is met with insurmountable opposition, a back up plan is in place.

Take our to voice your opinion for or against one (or both) TOT proposals.


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