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Thursday, Sep 21, 2023

City Looks to Lean on Hotel Room Tax to Fix Ailing Budget

The San Diego city manager’s proposed budget for the upcoming fiscal year takes a dichotomous look at tourism: While it proposes to cut a subsidy used to lure visitors here, it also suggests that the tax they pay to stay in local hotels once they arrive should be raised to generate more general fund revenue.

When City Manager Lamont Ewell unveiled his proposed $2.37 billion budget for the fiscal year that begins July 1 , $116 million less than last year’s total budget , he recommended a battery of cuts, including a 10 percent, across-the-board reduction in funding for recipients of hotel room tax revenue, such as the San Diego Convention & Visitors Bureau.

However, as ConVis spokesman Sal Giametta pointed out, Ewell recommended that $1 million be slashed from the bureau’s city supplement, which stands at $9.8 million.

“So that actually comes to more than a 10 percent cut,” Giametta said.

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The reduction in the city supplement would be the agency’s third, following a 21.5 percent cut in fiscal 2005 and a 10 percent cut in fiscal 2004. In fiscal 2002 and 2003, the bureau’s supplement remained flat.

Slashing funds for ConVis, the county’s primary arm for tourism marketing, jeopardizes its ability to compete with other destinations in attracting tourists, but it appears unlikely that the bureau will be spared, said hotel consultant and owner Bob Rauch.

“It’s shortsighted to cut funding for ConVis,” said Rauch, an owner of the soon-to-open Homewood Suites by Hilton in San Diego. “It will have a significantly negative impact on revenue from tourism, and hence the TOT (transient occupancy tax) receipts, but it’s my opinion that we can weather the storm for one year with that reduction.”

Joyce Gattas, who chairs the ConVis board, lobbied the City Council rules committee this year to convince it that the bureau’s budget should be left intact, said that the board would be meeting soon to discuss the recommended cut. Gattas, who is the dean of San Diego State University’s College of Professional Studies and Fine Arts she wasn’t sure how the board would react to the cut.

Critical Of Plan

ConVis President and Chief Executive Officer Reint Reinders, however, was highly critical of the recommendation, saying it shows that “there is no solid commitment to marketing the destination.”

“I guess City Hall doesn’t really understand the business of tourism and how competitive it is out in the marketplace,” Reinders added. “Tourism destination marketing is the only dollars the city invests where it can expect a return on investment.”

He said he realizes that many city departments and services would have to suffer funding cuts. But he also said that if the “funding model” adopted for ConVis is expected to continue to bring in tourism, a “long-term strategy” should be put in place that sets funding at a certain percentage of the revenue generated by the hotel room tax.

“ConVis shouldn’t have to come and compete against libraries (for city funding),” he said.

Ewell did make one recommendation that pleased Reinders. He advised that City Hall establish a committee to analyze hotel tax revenue recipients on the basis of their ability to generate a return on investment.

“Yes, let’s analyze everyone, including ConVis, on their ability to generate a return on investment, before they get TOT funding. I’ve been trying to get that for years,” Reinders said.

Asked whether he would seek renewal of his contract, which ends in a year, Reinders said he isn’t sure.

“I feel undervalued,” he said. “I’ll fulfill my obligation, and what happens after that, we’ll see.”

Hotel officials gave a mixed reaction to the proposal that City Hall might try, once again, to increase the hotel room tax.

Mike McDowell, the executive vice president for the San Diego Lodging Industry Association, said the association wouldn’t consider backing a proposal unless it included a guaranteed revenue stream for tourism marketing.

But hotel owner Doug Manchester, who helped fund an eleventh-hour campaign to defeat the March 2004 ballot measure seeking an increase in the tax, vowed he’d do it again if necessary.

Criticizing the city’s under-funded pension system as the root of its financial dilemma, Manchester said, “An increase in the TOT would not address the real problem.

“The reality is that the city does not have a fiscally responsible plan,” he said. “As a result the city is bankrupt and yes, I would absolutely put funding toward a campaign to defeat an increase in the TOT.”

Manchester, whose holdings include the 1,625-room Manchester Grand Hyatt Hotel in Downtown, never said how much he spent to fight the March 2004 ballot measure. But public records showed that one of his companies contributed $49,900 to a Republican committee that launched a direct-mail blitz and phone campaign advising San Diego voters against increasing the hotel room tax.

In his recent budget recommendation, Ewell estimated that increasing the hotel room tax by 2.5 percent to 13 percent could generate an additional $27 million annually.

For fiscal 2006, the anticipated revenue from the current TOT rate of 10.5 percent is $67.3 million , an increase of 5 percent from fiscal 2005.


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