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Monday, Mar 18, 2024
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Gaining Control of Hotel Tax Revenues

As the push for creation of a tourism improvement district gains steam, the head of a private think tank that advocates government reform wants local hoteliers to re-channel their energy and force City Hall to restore transient occupancy tax funding to the San Diego Convention & Visitors Bureau, the destination’s primary tourism marketing arm.

Carl DeMaio, president of the Performance Institute, which has publicly criticized City Hall for a variety of reasons, including its underfunded municipal pension system, said he is making the usage of transient occupancy tax, or TOT funds, one of his top priorities.

DeMaio said he and others, including hotelier Doug Manchester, met with hotel operators and owners to try to dissuade them from forming a tourism improvement district that could assess a fee on the city’s hotels that would be used to jump-start destination marketing in the wake of successive funding cuts to ConVis.

Within the past three years, ConVis has seen its TOT revenue subsidy slashed 37 percent to $8.8 million. The remainder of the bureau’s total operating budget of $12.3 million comes from private revenue sources, primarily membership dues.

Manchester, who owns the Manchester Grand Hyatt Hotel and is co-owner of the Marriott Hotel & Marina, currently the city’s two largest convention hotels, has long opposed increasing hotel room taxes and now opposes a self-assessment.

According to a recent draft of a plan for the district, it would collect a 2 percent surcharge on nightly hotel room rentals, effectively raising the hotel room tax to 12.5 percent at 300-plus hotels within the city limits. The proposal’s backers estimate that it could generate some $26 million in marketing funds annually.

Under state law, a tourism improvement district can be created if 50 percent plus one of the hotels affected vote to approve it, and a governing authority, such as City Hall, also gives approval.

“The San Diego City Council has squandered and diverted the TOT from its intended purpose and redirected it to other purposes over the years,” DeMaio said. “We believe that intentionally under-funding promotional programs for an industry that supports 110,000 jobs locally needs to be seen as a public policy problem.”


Give Voters A Voice

DeMaio said that getting a referendum on a ballot to let voters decide how the TOT should be spent could force the council’s hand to free up more funds for tourism marketing , the original purpose of the tax when it was created in the early 1960s.

It’s too late to gather signatures to get such a measure on the November ballot. But the Performance Institute could set its sights on a future election. Meanwhile, in the event that a tourism improvement district becomes reality, a referendum could also be a way to halt what he calls “double taxation,” or adding a fee on top of the TOT, DeMaio said.

“If a double tax is imposed in the city, I think we will be compelled to move forward to give voters the opportunity to end it,” he said. “There are a number of ways to end double taxing. A lawsuit is also an option, depending on a review of the liability points that the scheme contains.”

DeMaio said that instead of “rolling over to the demands of City Council” in fear of a municipal government that “literally has the (marketing) funding in their hands,” hotel operators should demand complete accountability on how TOT funds are spent.

They should also insist that the council do a study on the return on investment generated by all of the agencies and programs receiving such funds, he said.

“We feel that the TID (tourism improvement district) is a premature step,” DeMaio said. “We understand that they (hoteliers) would like to secure a stable funding source to promote travel and tourism to San Diego. We agree with the outcome. We disagree with the means.”

But DeMaio admitted he isn’t sure whether the hotel executives and owners he met with embrace his opinion.

“I think people who were in the room are torn,” he said.

Bob Rauch, co-owner of Homewood Suites by Hilton San Diego/Del Mar and president of the San Diego County Hotel-Motel Association, which he says continues to endorse the creation of a tourism improvement district, disagrees that the industry is afraid to stand up to City Hall.

“I don’t agree that the hotel industry is afraid of City Council,” Rauch said. “I do believe there has been concern in the past. However, I believe that the relationship between the tourism industry and the City Council today is a good one that has much more trust than previously and one where dialogue is comfortable and can develop into a mutually agreeable position down the road.

“I think that the tourism industry knows that the city is in dire financial straits and I believe that most of us want to do what is right for the industry and the city.”


Working Both Sides

Nonetheless, he said that if the city’s financial situation did show signs of improvement, it would be premature to “jump into a TID.”

“I really think the tourism industry, specifically hoteliers, will look to the Performance Institute much like it would any credible organization,” he said. “On the other hand, we do have some trust now with the city, and I think we will continue down the path of developing the TID while reviewing all options.”

While tourism officials applauded Mayor Jerry Sanders for recommending that the subsidy for ConVis be left intact for the fiscal year that starts in July, DeMaio said they’re operating under a false sense of security.

“Funding will remain stable this year, but that’s nothing to celebrate. It’s like saying, ‘Did you beat your wife last night? No? Well, that’s good,'” DeMaio said. “It’s not good if the wife’s been taking a beating for years.”


Losing Sight Of Golden Egg

Manchester is convinced that the City Council has lost sight of the reason the TOT was created , to fuel marketing that generates increased tourism, which in turn brings in more sales tax revenue to the city. And he holds to the argument he voiced during two previous attempts to hike the TOT by 2.5 percent , that raising the price of hotel stays would deter tourism, particularly meetings and conventions.

Two ballot measures to hike the TOT to 13 percent were recently shot down at the polls, first in the March 2004 primary and again the following November. Manchester’s financial backing of an 11th-hour opposition campaign was credited for the defeat of Proposition C in that general election.

“We’re at 10.5 percent; if you go higher you have a real problem,” Manchester said. “We have a great convention center, but it has higher rates than most. We have good weather, which complements the appeal of the ocean, but it’s still hard to get here considering distance and connecting plane routes.”

Meeting planners take all costs into consideration when they’re comparison shopping for venues and destinations, so adding a fee onto hotel bills would put San Diego at a disadvantage to cities that offer less expensive packages, he said.

To remain competitive with major destinations, Manchester said that destination marketing should receive 4 percent of the annual TOT collection, which he estimates will be as much as $140 million in the upcoming fiscal year beginning in July.

According to the original ordinance that created the TOT, four cents of every dollar collected would be earmarked for tourism promotion.

“So that amounts to $56 million that should be allocated to promote San Diego, and frankly anything less than that and you’re not doing what major cities in the U.S. are doing,” he said.


ConVis Share Reduced

He pointed out that the city’s TOT revenue has increased from $84 million to $140 million within the last decade, while the portion doled out to ConVis was reduced from a high of $14 million to $8 million.

By contrast, the Orlando/Orange County Convention & Visitors Bureau has a total operating budget of $28.4 million for the current fiscal year, which runs concurrent with the calendar year. The Las Vegas Convention and Visitors Authority, which tops all other visitor bureaus in the nation in terms of its marketing funds, had an operating budget of $198.8 million for the fiscal year that ended on June 30. Those two bureaus oversee marketing and renting convention center space, however. Since 2004, the San Diego Convention Center Corp. has had full responsibility for that task, while ConVis markets to lure leisure travelers and in-hotel meetings.

John Campbell, general manager of the La Jolla Beach and Tennis Club, said that national hospitality industry studies have shown that hotels stand to lose sales when a city or county raises its hotel room taxes.

“If you raise the TOT tax from 10.5 percent to 11.5 percent, that’s effectively 10 percent bigger, so a 10 percent increase could result in a 5 percent loss in sales,” he said.

Terri Breining, president of Concepts Worldwide, a Carlsbad-based firm specializing in meeting planning, said that hotel room taxes are one of the things association and corporate meeting planners carefully scrutinize.

“Leisure travelers do not pay as much attention, but for those of us that plan meetings and conferences, that’s one of the points we look at when deciding a destination because room taxes vary so much around the country,” she said.

“San Diego is not inexpensive to visit so if you add 12.5 percent on top of that, that’s on the higher end of the range and it could slow convention and meeting business,” Breining said. “I think the biggest hit would be in association business, because individuals pay for their own guest rooms.

“Association meeting planners have a responsibility to look out for their members. They’re not just looking for an attractive place, but also a place their members can afford to come to.”

– – –


San Diego County Visitor Industry 2005

– 27.2 million visitors, including 15.9 million who stayed overnight.

– Tourism represented $5.8 billion in direct spending.

– Estimated gross regional product , $141.7 billion. Tourism remained the county’s No. 3 revenue generator, behind military and manufacturing.

– About 110,000 San Diegans worked in tourism industry fields.

– In fiscal 2005 (July 2004 to June 2005) the San Diego Convention Center hosted 224 events, including 55 conventions and trade shows. Total attendance stood at 860,258 people, including 494,150 from out of town. Altogether they generated $493.8 million in direct spending.

– San Diego County’s average hotel occupancy was 72.3 percent. The daily room rate averaged $122.

– The county counted about 452 lodging properties with more than 54,000 rooms. An additional 84 properties with 1,494 rooms include bed and breakfast inns, hotels at American Indian casinos and health spa resorts.


Statistics came from the San Diego Convention & Visitors Bureau, San Diego Convention Center Corp. and Smith Travel Research.

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