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Study: Hike in Hotel Tax Could Cut Occupancy

Study: Hike in Hotel Tax Could Cut Occupancy

BY CONNIE LEWIS

A nationwide survey of meeting planners seeking their thoughts on the effect of a proposed increase in the tax San Diego charges people to stay in local hotels revealed it could lower overall occupancy.

“Our results from primary research show that a 2.5 percent increase in the (transient occupancy tax) would result in a negative impact on hotel occupancy,” said Bob Rauch, director of San Diego State University’s Center for Hospitality and Tourism Research, which surveyed about 1,000 meeting planners across the nation in August.

“We don’t have the percentage of decline. That may come as we crunch the numbers further, but right now we don’t have it as yet,” Rauch added.

The center was commissioned by the San Diego Taxpayers Protection Association to conduct the surveys, which were compiled in a study.

Hotelier Doug Manchester, who heads the association, was not available for comment, but strongly opposes the proposed tax increase.

Since Manchester paid for the study, it’s up to him to make additional findings public, Rauch said.

Manchester is the founder of Manchester Resorts L.P., which has developed several area properties, including the Manchester Grand Hyatt Hotel. A recent $240 million expansion of the hotel made it the largest in Southern California. Located Downtown near the San Diego Convention Center, the Manchester Grand Hyatt gets much of its business from the center.

Currently, there are two proposals being floated to increase the hotel room tax from 10.5 percent to 13 percent.

One, by the San Diego Lodging Industry Association and a local firefighters’ union, requires about 64,000 voter signatures to appear on a citywide ballot in March.

The other, proposed by Mayor Dick Murphy, is still being written, but could be put on the March ballot if Murphy gets the City Council’s approval.

“Raising the TOT is not a black and white issue,” said Reint Reinders, chief executive officer of the San Diego Convention and Visitors Bureau. “I’m supporting it, but at the same time, I have grave concerns.

“I don’t like to increase the TOT, but the fact that we’re supporting the move is because we want to create a mechanism for funding tourism promotion that will produce a predictable, long-term revenue stream not subject to annual raids.”

Finding Common Ground

Reinders was referring to City Council’s cutting of ConVis’ hotel-room tax funding by 10 percent to $12.5 million for the current fiscal year. The cut to the bureau and other recipients of the tax revenue, including some 200 civic organizations and projects, was made to help shore up a multimillion-dollar budget deficit.

Meanwhile, the mayor’s office and the lodging industry association are at odds about the wording of their separate proposals. The lodging industry association’s proposal calls for ConVis to receive base-level funding of at least 40 percent of the 2.5 cent tax increase.

The mayor’s proposal doesn’t include a guaranteed sum of funding for ConVis, but he said he’s not opposed to the idea.

Both proposals would direct a portion of the tax collection for city services, including police and fire protection. But the lodging industry association and firefighters’ union plan would prevent the city from making cuts in funding for fire and police protection.

The mayor objected, saying that would prevent city government from doing its job of allocating funding resources as it deems necessary. The two sides have met to try to iron out their differences, but have been unable to reach a compromise proposal.

“Discussions are ongoing because time is of the essence,” said Mike McDowell, executive vice president of the lodging industry association. “But we’re completely comfortable with the initiative that’s on the street for signatures.

“According to what the public has told us, a (transient occupancy tax) increase proposal, if it is to win at the polls, has to earmark money for police and fire protection that doesn’t flow through the general fund.”

McDowell is confident the initiative by the lodging industry association will gain more than enough signatures to go on the upcoming ballot.

Predictions are that the county’s hotel occupancy rate will reach about 71 percent on average this year, despite a six-week run this summer when the county enjoyed the highest rate in the country. During that timeframe, beginning in early July, occupancy rose to around 90 percent, according to Smith Travel Research of Hendersonville, Tenn., which independently tracks the nation’s lodging industry.

San Diego created the transient occupancy tax in 1964 to raise funds for tourism promotion.

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