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HomeMy WebLinkAbout03/05/1991, 1 - INCREASE IN TRANSIENT OCCUPANCY TAX RATE 0pjGngAL AGagDA Y IU Fffl4 2/19/91 CGUNC:. I E[s']'Il'r MEETING DATE: city of San 1UIS OBISp0 2 i COUNCIL AGENDA REPORT ITEM NUMBER: ff FROM: John Dunn, City Administrative Officer<:Z� William C. Statler, Director of Finance Prepared by: Linda Asprion, Revenue Manager SUBJECT: INCREASE IN TRANSIENT OCCUPANCY TAX RATE CAO RECOMMENDATION Adopt an Ordinance increasing the Transient Occupancy Tax Rate from six percent (6%) to nine percent (9%) effective May 1, 1991. DISCUSSION Background The Transient Occupancy Tax (TOT) was originally implemented in 1968 at a five percent (5%) rate. Only one rate increase has occurred since then; in 1976, the TOT rate was increased by one percent (1%) to the current rate of six percent (6%). The need to address a rate increase in the TOT has been under serious discussion since 1987 when the City's long-term financial health was identified as a major objective during the 1987-89 Financial Plan process. In response to this objective, a Comprehensive Financial Management Plan (CFMP) was prepared, which addresses the City's financial needs through the year 2000. Increasing the TOT rate from six percent (6%) to nine percent (9%) was identified in the CFMP as a key source of new revenue to support the City's long-term financial health. In January 1990, the Council identified the need for citizen participation and involvement in developing programs to ensure the City's long-term financial health. The Citizens' Advisory Committee (CAC) was assigned this task and they have completed their extensive review and evaluation of the City's long-term financial needs. The CAC's report, which was submitted to Council at their February 5, 1991 meeting, points out that the goals of the City toward "quality-of-life" and "economic development" must be viewed as parallel and complimentary objectives to achieve a 'balance" in our commitment to financial health and a strong General Fund. Implementing the increase in the TOT rate from six percent (6%) to nine percent (9%) was recommended in CACs report as being consistent with this commitment. How Do We Compare With Other Cities? In March, 1989, the League of California Cities surveyed the cities throughout the state requesting their transient occupancy tax rates for fiscal years 1984 through 1988. Using this survey, the staff has chosen cities of similar size (greater than 25,000 but less than 100,000 population) with a college and/or tourism environment similar to San Luis Obispo for comparison. Although these TOT rates are for fiscal year 1987-88, the staff has confirmed with each of the following cities that the rates have remained the same. MY Of San tuts OBISPO COUNCIL AGENDA REPORT Transient Occupancy Tax Rates for Similar Cities City Population Rate Davis 419368 10% Monterey 30,000 10% Napa 56,000 105% Santa Barbara 789957 10% Ventura 889741 10% Chico 39,000 9% Santa Cruz 509000 9.5% Claremont 36,000 10% As noted above, the TOT rates range from 9% to 108%. The average rate of the eight cities listed is 9.9% for fiscal year 1987-88. For comparison purposes, the following is a summary of TOT rates for local area cities: Transient Occupany Tax Rates for Local Agenciess City Population Rate Morro Bay 9,975 8% Pismo Beach 79102 7% Santa Maria 52,955 8% Lompoc 32,333 10% Solvang 4,500 8% Other SLO County cities and the County 6% Who Pays Transient Occupancy Taxes? TOT revenues are paid by the visitors to our community; it is not paid by local residents or businesses. Placing this tax on our visitors appropriately recognizes that they receive municipal services during their stay, and as such, they should share in the cost of providing them. What Will Be the Impact on the Local Economy and Tourism? Based on information developed as part of the City's 1983 Strategic Planning Program, it is estimated that tourism represents approximately 20% of the economic industry to the City. Since the increase in TOT rate will be paid by the visitors staying in accommodations within the City limits, it is important to keep the dollar impact in perspective. Increasing the TOT rate to 9% would mean a $3.00 increase on a $100.00 per night room; $2.10 on a $70.00 per night room; and $1.50 on a $50.00 per night room. It is difficult to fully quantify the impact of this rate increase in the local tourist economy. However, since the 9% TOT rate is comparable with other tourist destinations, and the incremental cost to visitors is nominal ($1.00 to $3.00 per night), it is doubtful 1 -Z; ����►�►►I�IIIII���I����►I��U�II city of san Luis osi spo UNGs COUNCIL AGENDA REPORT that there would be any serious ramifications. However, any negative impacts can be offset by a continued City commitment to supporting our local tourist economy. How Does the City Promote Tourism? The City actively and financially participates in attracting tourism. In June 1970, the City Council established a seven member Promotional Coordinating Committee (PCC). The long-range goals of the PCC are to: (1) improve the quality of life available to all residents and visitors; and (2) promote the development of the City as a regional trade, recreational, and tourst center. The budget allocation for PCC Operating Programs for 1990-91 is $279,800, which is funded in total by the General Fund through its formal allocation of 20% of TOT revenues to this program. To accomplish their goals, the PCC established a Promotional Program which consists of the following. 1. AdverdsfiV. An advertising contract in the amount of $75,700 is in place for the purpose of developing an advertising campaign that encourages overnight travel to the City from other parts of California. Overnight tourism has been a focal point of the campaign for many years because of its relationship to the TOT. 2. Visitor Promotion. The Chamber of Commerce holds two contracts, one for visitor services and one for promotional services. The combined total of the two contracts is $77,100. The visitor services contract represents the City's contribution toward the operation of a full service Visitors Center which is open to the public seven days a week. Staff at the Visitors Center provide tourists with information about the City, respond to written and telephone inquiries, distribute maps and promotional literature, and maintains information on the local economy, recreational facilities and cultural events in the City. The Chamber typically responds to over 200,000 inquiries regarding the City a year. The Chamber's promotional contract is used to cultivate long-term relationships with the media. The success of this program is measured by the PCC through the number of articles and editorials on the City that appear in popular travel magazines. 3. Vc*or & Confmmce BW=4 - A contract in the amount of $46,000 is held with the San Luis Obispo County Visitor's & Conference Bureau. This contract represents the City's contribution toward an overall marketing of the central coast as a tourist destination. This is accomplished through a combination of direct advertising and promotion. 4. Activity Grants. Various activites are sponsored and financially supported each year by the City to attract visitors from through-out the State. For 1990-91, $75,000 has been allocated for this purpose. 111iu►►1IIIIJJWIJJN city of san tuts oBispo ia; COUNCIL AGENDA REPORT 5. Public An. The involvement of the PCC in the Public Art program allows for active solicitation for continued improvement of the aesthetic environment of the City. During 1989-90, $50,000 was budgeted for a matching public art program, and $5,000 was budgeted in 1990-91 for on-going support of public art programs. In addition to the PCC, the City assists in financially sponsoring many other activities which benefit the local tourist industry. For example, Farmer's Market Thursday night activites, which the City partially subsidizes, often brings visitors in one night earlier for their week-end; and the new trolley service, which has been paid for in total from the General Fund, services the local motels for the Thursday night activities as well as creating a downtown amenity for visitors. The City also supports a wide variety of special events such as Mardi Gras, Mozart Festival, LaFiesta, Christmas Parade, and other activities in Mission Plaza and the downtown. With all of the funding for these activites coming directly from the General Fund, an increase in the TOT rate will favorably effect the amount of funding which can be allocated to promote tourism. The PCC willl be meeting on February 13, 1991, and the proposed TOT rate increase will be discussed with them at that time. Do We Need Additional Revenues? As discussed in the CFMP and the CACs report submitted to the Council on February 5, 1991, the City's current financial condition is very strong by state and national standards. The City has enjoyed a strong local economy since World War 11, which has contributed significantly to our fiscal success. However, there are many communities that have financial resources equal or greater than our own, but nonetheless have experienced serious financial difficulties. Although our strong local economy has enabled us to deliver an excellent program of municipal services, the City's current financial health is primarily attributable to the City's past and current financial management policies and practices that reflect our commitment to fiscal responsibility. Although the City is in good financial condition today, continuing our committment to an excellent program of municipal services and achieving our public facility goals will require new revenues. The CAC's report identified $5.7 million in annual costs required to support new programs or projects that have already been adopted by Council. These expenditure needs only increase if other projects currently under consideration, but not yet adopted, are also considered. An excerpt from this report summarizing these projects is provided in Attachment A. Increasing the TOT revenues is one component of an overall strategy to maintain our financial health - now and in the future. Has the Business Community Been Involved? During the past four years there has been extensive discussion between the City and the business community regarding the issue of increasing the TOT. The following is a summary of concerns expressed to date from various elements of the local business community regarding the proposed rate increase. city of san Luis osispo COUNCIL AGENDA REPORT Chamber of Commme Based on previous discussions, the Chamber is not necessarily in opposition to increasing the TOT rates, assuming that the City continues to maintain its strong support and financial commitment to community advertising and promotional efforts. San Kris Obispo HoWlMotel Association This group has previously expressed their opposition to the increase, and correspondence opposing the increase has been received directly from two hotel operators. Vubm and Conference Bureau (VCB) Similar to the Chamber of Commerce, the VCB is not necessarily opposed to the increase, but they are concerned that the City recognize the importance and benefits of the local tourist economy, and that the City will continue its support of community advertising and promotional efforts. A meeting between City staff and the Chamber of Commerce, VCB, and Hotel/Motel Association has been scheduled for Monday, February 11, 1991 to further solicit their opinions and discuss their concerns. Staff will provide a supplemental memorandum to Council summarizing this meeting by February 15, 1991. When Will the Increase Be Implemented? The increase in the TOT rate could be implemented immediately upon Council adoption. However, in order to ensure adequate time for a smooth transition for both City staff and the hotel operators, it is recommended that the increase be effective May 1, 1991. FISCAL IMPACT At a six percent (6%) rate, TOT revenues for 1989-90 were $1,427,768. Accordingly, the three percent (3%) increase in the TOT rate should generate approximately $700,000 annually in new General Fund revenues. Since TOT is a General Fund revenue source, it is available to support any general municipal purpose. By policy, the Council may allocate this revenue as they deem appropriate. Since 1970, the City's policy has been to allocate 20% of TOT revenues to community promotion activities. ALTERNATIVES There are three basic alternatives available to the Council: ■ Approve Less than a 9% Transient Occupancy Tax Rate The Council could approve either a one percent (1%) or a two percent (2%) rate increase rather than the recommended three percent (3%) rate increase. A one percent (1%) increase will equate to approximately $230,000 annually; and a two percent (2%) increase will equate to approximately $460,000 annually. However, taking into consideration the rate in other comparable cities as well as the City's long-term financial health needs, the 9% rate is justified. / ����i ►�III����A ll city of San LUIS OBISPO 111 mm= Imaiis COUNCIL AGENDA REPORT ■ Approve No Increase in the Transient Occupancy Tax Rate Based upon the City's long-term financial health needs, as supported by the approved objectives in the Comprehensive Financial Management Plan and the recommendations of the Citizens' Advisory Committee Report, this is not a viable alternative. ■ Approve a Phased Increase in the Transient Occupancy Tax Rate As recommended by the CAC, the Council could implement a phased increase appproach by approving a one percent (1%) or two percent (2%) increase (raising the TOT rate to 7% or 8%) at this time with an additional increase to become effective at a defined later date (i.e. one or two years later). However, taking into consideration the TOT rates of other comparable cities, the length of time since the last TOT rate increase, and the current requirement for the funds, this alternative is not recommended. SUMMARY Increasing the TOT rate from six percent (6%) to nine percent (9%) has been the subject of extensive community discussion over the past four years. The proposed increase will set TOT rates at competitive levels with similar communities while generating funds that will assist in meeting demonstrated financial needs. As such, it is recommended that the Council adopt an ordinance increasing the TOT rate from six percent (6%) to nine percent (9%) effective May 1, 1991. Attachments: Ordinance to Increase the Transient Occupancy Tax Rate from Six Percent (6%) to Nine Percent (9%) Attachment A. Excerpt from the CAC Report submitted to the Council on February 5, 1991 summarizing new program and project efforts. ORDINANCE NO. (1991 Series) AN ORDINANCE OF THE CITY OF SAN LUIS OBISPO AMENDING CHAPTER 3.04, SECTION 3.04.030 OF THE MUNICIPAL CODE, TRANSIENT OCCUPANCY TAX RATE WHEREAS, applicable state legislation provides the authority for counties and cities to levy a hotel and motel room tax; and WHEREAS, the Constitution of the State of California provides additional authority to charter cities to levy such taxes; and WHEREAS, the City Council has identified the need for increased financial support-for the usual and current expenses of the City, and to fund City projects and programs on an ongoing basis by raising the Transient Occupancy Tax from six percent (6%) to nine percent (9%); NOW, THEREFORE, BE IT ORDAINED by the Council of the City of San Luis Obispo as follows: SECTION 1. Municipal Code Section 3.04.030 is hereby amended to read in full as follows: "3.04.030 Imposed. "For the privilege of occupancy in any hotel, each transient is subject to and shall pay a tax in the amount of nine percent (9%) of the rent charged by the operator. The tax constitutes a debt owed by the transient to the City which is extinguished only by payment to the operator or to the City. The transient shall pay the tax to the operator of the hotel at the time the rent is paid. If the rent is paid in installments a proportionate share of the tax shall be paid with each installment. The unpaid tax shall be due upon the transient's ceasing to occupy space in the hotel. If for any reason the tax due is not paid to the operator of the hotel, the Tax Administrator may require that such tax shall be paid directly to the Tax Administrator." Ordinance No. (1991 Series) SECTION 2. This ordinance, inasmuch as it provides for a tax levy for the usual and current expenses of the City, shall take effect immediately upon adoption, except that the additional tax imposed by this ordinance shall become operative and be imposed on May 1, 1991 and shall not apply prior to said date. SECTION 3. This ordinance, together with the ayes and noes, shall be published once within five (5) days in a newspaper of general circulation, but delay in publication, or even failure to publish, shall not affect the validity of the ordinance. INTRODUCED AND PASSED TO PRINT by the Council of the City of San Luis Obispo at the meeting held on the day of 1991. On motion of , seconded by , and on the following roll call vote: AYES: NOES: ABSENT: ATTEST: Mayor Ron Dunin Pam Voges, City Clerk / - 8 Ordinance No. (1991 Series) APPROVED: City Adan 'strative Officer om Director of Finance %tudhimenLL New Program Efforts and Capital Facilities POLICY PROJECT ANNUAL REFERENCES COSTS COSTS Ongoing Programs and Projects Operating Programs Enhanced law enforcement programs Police 5 Year Plan $250,000 Drug education and prevention 1989-91 Financial Plan 75,000 Hazardous waste materials management 1989-91 Financial Plan 50,000 Downtown trolley 1989-91 Financial Plan 90,000 Residential street tree maintenance 1989-91 Financial Plan 60,000 Art-in-public places Public Art Policy 50,000 Historical preservation 1989-91 Financial Plan 150,000 Property tax collection and booking fee charges State Law (SB 2577) 300,000 Total operating programs 1,025,000 Ongoing capital projects Pavement overlay and chip seal maintenance Pavement Management Plan 800,000 Street improvements Ongoing Projects 200,000 Traffic signal improvements Ongoing Projects 200,000 Downtown sidewalks and bulbouts 1989-91 Financial Plan 350,000 Bikeway improvements 1989-91 Financial Plan 200,000 Park improvements Ongoing Projects 300,000 Other capital improvements as required Ongoing Projects 450,000 Total ongoing projects 2,500,000 Total ongoing programs and projects 3,525,000 Special Projects— Debt Financed Performing arts center (PAC) PAC Agreement 3,900,000 Fire station no 1 replacement land 1989-91 Financial Plan 2,600,000 construction Facilities Master Plan 2,750,000 Recreation administrative offices Facilities Master Plan 600,000 Civic center improvements Facilities Master Plan 6,500,000 Mission plaza expansion Mission Plaza Policy 1,500,000 Seismic safety improvements to city buildings Recent Seismic Analysis 1,300,000 Police station expansion (1995) Facilities Master Plan 2,200,000 Corporation yard expansion(1995) Facilities Master Plan 2,200,000 Total Special Projects 23,550,000 2,237,300 Total Projects with Cost Estimates $5,762,300 Other Projects Under Consideration—Very Rough Cost Estimates Flood management ($3,000,000 to $10,000,000) Open space and parkland acquisition($1,500,000 to $20,000,000) Creek protection($500,000 to $5,000,000) Downtown plan implementation($500,000 to$2,500,000) Laguna park improvements ($250,000 to $3,500,000) Laguna lake dredging($2,000,000 to$10,000,000) City assistance to downtown seismic safety for privately owned property ($0 to $1,000,000) Surplus railroad right-of-way acquisition($6,000,000 to $10,000,000) Overhead utility line and pole undergrounding($0 to $6,000,000) Circulation element improvements ($500,000 to $15,000,000) Transit system improvements ($200,000 to $800,000 ANNUALLY) Management information systems ($200,000 to $1,500,000) Emergency communication systems ($500,000 to$4,000,000) Telephone communications ($800,000 to$2,000,000) Storm drainage treatment(under consideration by the EPA, VERY EXPENSIVE) Senior citizens center ($1,000,000 to$3,000,000) Community recreation center($1,500,000 to $4,000,000) � �� 1,11.�1��'-'/r /( � � 1. •mss �;� y 100 MADONN.> iu•: -1(?i:'J 4.Ifn .�SSC�!r•L��r..�� %011!06111�'11110 'r. January 31, 1991 Jerry Reiss San Luis Obispo City Council 990 Palm Street San Luis Obispo, CA 93401 Dear Mr. Reiss: It has come to our attention that the city council will be considering a proposal to increase the city's Transient Occupancy Tax in the near future. From what we understand, the tax would be increased from the current 6% rate to a 9% rate, an effective increase of 50$! We believe that such an increase is ill advised and would negatively impact not only local lodging businesses but all tour and travel related businesses in the city. The original purpose of this tax was to be in advertising and promoting tourism in San Luis Obispo, if this were so, what portion of the now 6% tax is being used for that purpose and what purpose would the monies from the increased tax be used? Madonna Inn is specifically concerned about the impact the proposed- increase will have on all of our current business, as well as the disruption of any possible future business with our tour groups and individual guests. As we are in the business of catering to honeymooners, anniversary couples and group tours who are often repeat customers, these customers, may choose to travel minutes away from our city to stay instead of paying higher rates, which we do not have the opportunity to explain to them is caused be increased occupancy tax. In a city that relies on tourism for much of its livelihood, we believe that we cannot afford to do anything that has even the slightest potential of discouraging tour and travel dollars from being spent in San Luis Obispo! As business is already influenced by this city's nonsmoking ordinance, for example we have had numerous complaints from customers state their dislike of this ordinance and the fact that they will no longer stay in San Luis Obispo when traveling through this area. Jerry, we urge you to rethink your action on the nonsmoking and to vote no against the proposed Transient Occupancy Tax increase. Very sincerely, Ruth Geivet Madonna Inn Office January 21 , 1991 Ma;y-or Ron-_ O.unin San Luis Obispo City Council 990 Palm Street San Luis Obispo, Ca 93401 Dear Mayor Dunin As a manager of the Travelodge and a member of the local Hotel b ;Motel Association , I would like to express my opposition to any in.cre?se in the Transient Occupancy Tax at this time. Statewide occupancy rites "" "r'.'e ar.^ leeai oceupane" levels ar The current economic ; e now beginning to f.ollo•; suis. Picture cture is stagnant at best land will probably slip further into recession before it begins to improve. These .factors combined with the higher cost of fuels and transportation and the already stiff competition for local lodging dollar do not bode well for the local lodging industry. An increase in the city bed tax now will only add insult to injury. Here at the Travelodge, the bulk of our business is made up of very price sensitive market segments. Government, Airlines , and Tour and Travel groups are already under pressure to cut costs . If the city increases its bed tax relative to the surrounding communities and segments are suddenly forced t0 absorb and increase of between 31.00 and $3.00 per room the liklyhood is that they will act to control costs. We will be forced to absorb the increase by reducing our rates or risk losing this business to lodging competition outside the city limits. Mayor Dunin In a city that relies an tourism .for much of its livelihood, I believe that we cannot afford to do anything that has even the slightest potential of discouraging tour and travel dollars from being Spent in San Luis Obispo! I hope you will agree. Respectfully, Trevelodge Sara Thompson General Manager C.C./j.6 Peg Pinard 'Jerry Rei=ss "9 Penny Rappa Bill Roalman �' "E'I SAN LUIS OBISPO 1825 Monterey Street San Luis Obispo, CA 93401 (805) 543-5110 49,Tivsthouse Forte Hotels.Inc.