In the News

SC council OKs seeking small bump in hotel tax: Deal with tourism industry hinges on county vote

Santa Cruz Sentinel, 7/25/12

SANTA CRUZ - The City Council voted Tuesday to compromise with the tourism industry by seeking a smaller increase in the local lodging tax than first recommended by city leaders.

Amid pressure from hoteliers concerned a sharp tax hike could drain business, the council approved a measure for the Nov. 6 ballot that asks voters to hike the transient occupancy tax from 10 to 11 percent if the county does the same.

Hotel owners urged the one-point increase - rather than two originally sought by a council task force - with the promise that the Santa Cruz County Conference and Visitors Council will stop requesting annual city funding. As part of the deal, the city also must endorse an increase in a separate room fee controlled by the Santa Cruz Hospitality and Lodging Association to make up for the loss in funding for the tourism bureau.

However, if the county Board of Supervisors votes to hike the county's room tax from 10 percent to 12 percent next month, the council gave the city manager authority to change the city's proposed increase to 12 percent to be consistent. City voters will have the right to weigh in on both the city and county increases.

The 4-1 council vote was surprising because Councilwoman Lynn Robinson, who made the original motion for the 1 percent compromise, ended up as its dissenter because other council members hung the ultimate amount of the increase on the county's vote, expected Aug. 7.

"Eleven percent is appropriate - it's one that works for the city and our tourism industry," Robinson said after the meeting. "If you look at who we are truly competing against for tourism dollars, 12 percent is going to be very harmful for us."

Monterey has a 10 percent rate but other regional coastal cities, including Seaside, Marina, Half Moon Bay and Pacifica, are at 12 percent. Hotels in Santa Cruz County saw 75 percent occupancy in June, the highest in 12 years, and hoteliers largely credit CVC marketing.

Maggie Ivy, executive director of the Conference and Visitors Council, said the tax hike may seem minor on a night-by-night basis for single rooms. But an increase of 2 percentage points - essentially a 20 percent increase over current rates - could harm competitiveness on group sales, where the tax difference could reach into the thousands for long stays.

The room tax is paid by hotel and rental house guests. The increase of one percentage point is estimated to bring in $440,000 for the city's general fund, money used for most salaries and services.

The Conference and Visitors Council's annual funding from the city is $330,000. Therefore the difference in city revenue between a 1 and 2 percentage point increase, when the CVC cut is considered, would be $110,000.

"For me, $100,000 is not a big enough number to fight about," Mayor Don Lane said. "We have a compromise that delivers for the community a similar amount of money."

Councilmembers Katherine Beiers and David Terrazas were absent.

Several residents urged the hike to 12 percent, saying it would provide more discretionary funds for public services for a city that has cut services, instituted furloughs and closed recreation programs.

"The extra $440,000 would probably not only benefit the people of Santa Cruz but also the tourism industry because when we have safe streets and (support the) police department and parks and recreation then our tourism business goes up," said Reed Searle, a member of the city's Transportation and Public Works Commission.

A city-sponsored poll conducted last weekend showed 76 percent support for a hike to 12 percent. The tax measure would need a simple majority to pass.

In other action Tuesday, the council:

Designated the Water Commission to review and take public comment on the impending environmental impact report for a proposed seawater desalination plant before making final recommendations about whether and how to approve the $115 million project.

Accepted the city clerk's certification of a desalination petition initiative for the Nov. 6 ballot that would change the city charter to guarantee voter approval before building the plant.

Took final votes on a ban of single-use plastic bags and polystyrene products distributed by retailers. The bag ban goes into effect in April and the polystyrene ban takes effect in 30 days with a six-month warning period.

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