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Wednesday, Jul 17, 2024

Could Controversial New Hotel Room Fee End Up in Court?

A plan that would allow hotels to assess themselves a fee for destination marketing, thus replacing the transient occupancy tax or room tax that became a honey jar for the San Diego City Council to feed its ever-hungry general fund, has gone by different names. When first conceived two years ago, it was known as a tourism improvement district, or TID, to simplifiers of bureaucratic nomenclature.

Enter another acronym, TMD, which stands for tourism marketing district. The City Council is expected to set the TMD’s wheels in motion this week for a simple majority vote, plus one, of the city’s hotels. The vote will be weighted on the basis of how much they contribute to the 10.5 percent transient occupancy tax, better known as TOT. The question would be whether they want to tack an additional 2 percent self-assessment onto their room bills. The initial step in the voting process, however, would be a petition to assess interest in the matter. Those who respond to the petition will be sent ballots.

While members of the San Diego Lodging Industry Association and the San Diego County Hotel-Motel Association express confidence that the measure will pass, Doug Manchester, owner of the Manchester Grand Hyatt and part owner of the Marriott Hotel & Marina, among other real estate holdings, isn’t sure it’s a good idea. He was credited with an eleventh-hour campaign that helped defeat a proposed 2.5 percent TOT hike in November 2004. That was the second such ballot measure that year.

Contacted in London on May 2 via his cell phone, Manchester said he thinks it’s unfair that the city would keep all of the funding it currently directs to ConVis and ConVis North , as is being proposed , particularly if the TOT collection continues to grow. “At the same time we’d be taxing ourselves, but we would continue to fly on our own,” he said. “That’s not a fair situation at all since the TOT was originally to support tourism.”

He said he expressed his opinion to Mayor Jerry Sanders a couple of months ago, and the mayor said he’d consider it as the city worked to come up with a TMD proposal that the hotel industry can live with. “I haven’t heard of any changes since, but I’ve been out of the country for the past 30 days,” he added. Asked what course of action he would take if the city doesn’t free up funding to subsidize the tourism bureaus, he said he is undecided.

While backers of the marketing district doubt he’d file a lawsuit and Manchester says he doesn’t want to be an obstructionist, history shows that he’s no stranger in civil court. His primary objection to raising hotel room taxes or assessing fees that increase room rates is that they result in reduced occupancy.

Maybe he’s right. After a couple of years of hikes in average daily room rates, hotel occupancy slid 2.4 percent to 70.5 percent in the recent first quarter compared with the like year-ago quarter, according to Smith Travel Research. While 2006 saw only 129 rooms in two new hotels come on line, 3,770 rooms are under construction, more are planned, and more visitors will be needed to fill them.

According the proposed TMD, the budget for the San Diego Convention & Visitors Bureau would be beefed up by $12.5 million or 50 percent of the estimated $25 million that would be raked in annually by the extra 2 percent fee. Including the $3.5 million that comes mostly from dues it would increase to $16 million. But the city would keep its $8.8 million subsidy.

Meanwhile, the San Diego North Convention & Visitors Bureau has a budget of $1.1 million, of which $381,000 comes from the city. Subtract that and add $2.5 million, or 10 percent of the TMD collection, as proposed, and you get $3.2 million , nearly triple that bureau’s current budget.

While 60 percent of the TMD funds would be committed to ConVis and ConVis North, the remaining 40 percent would be used as discretionary funds, according to Bob Rauch, co-owner of the Homewood Suites by Hilton San Diego-Del Mar. Meanwhile, it was agreed that $1.3 million in funds would be spent on special programs, including the Pacific Life Holiday Bowl and Rock & Roll Marathon. That agreement extends only for one year, however, and those seeking funding would have to show the ability for a return on investment thereafter, he added.

Now for the other edge of the sword: If projected calculations on the TMD revenue stream are off and rooms go begging , some already are , room rates could drop as hotels compete for business. Then, both the City Council, which relies on revenue from the TOT, and the city’s hotels, which would be dependent on the TMD, stand to lose. The proposal’s backers, however, contend that the City Council simply will not loosen its stranglehold on the purse strings, and they are taking a pragmatic view that it was time to move on and make a new plan Stan.

Send hospitality and tourism industry news to Connie Lewis via e-mail:


. She may also be reached at (858) 277-6359.


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