A possible increase of hotel taxes has the local tourism industry and the city of San Diego readying for another round of debate over one of the few issues that divides them.
The San Diego Firefighters Association has proposed a 3 percent increase to the city’s transient occupancy tax, or TOT, which currently stands at 10.5 percent. The firefighters want the additional revenues to be used to buy new equipment and make repairs to existing fire department facilities. Soon after the firefighters’ proposal was made to the City Council’s Rules Committee on Sept. 26, a general outcry came from the tourism industry, which is already in crisis from the slumping economy and dramatic drop in travel since the Sept. 11 terrorist attacks.
“Here we are, going through one of the most difficult times in our industry , we are laying off people because we don’t have enough volume, enough business, and to propose raising the tax not only by raising it by a percentage, but by going three points it will be devastating,” said Luis Barrios, president of the county’s Hotel/Motel Association.
Lower than some of San Diego’s main competitors on the West Coast, the 10.5 percent tax has long been considered a competitive edge when selling San Diego as a destination, Barrios said.
San Francisco and Los Angeles both have a 14 percent hotel tax. Anaheim has a 15 percent TOT. Among Western cities, Seattle charges 16 percent, Denver 14 percent, Phoenix 11.5 percent and Las Vegas 9 percent.
Competitive Factor
A lower TOT has also been an important factor because San Diego isn’t the least expensive destination for basic travel, he said.
For instance, Barrios said, “It’s cheaper and easier to fly to Los Angeles than to fly into San Diego.” A lower city tax balances the expense of traveling with the amount of money spent on hotel rooms, he said.
According to Reint Reinders, president and CEO of the San Diego Convention & Visitors Bureau, the current 10.5 percent TOT level is very important to the city’s marketability, particularly in a time when tourism is down everywhere.
“At this time, when we are all fighting for market share, we’re all marketing to the same customers, especially the customers here in California,” Reinders said. “Every little advantage is going to help us.”
The hotel tax becomes particularly significant for larger convention groups, he said.
Impact On Conventions
As an example, Reinders used a current group of 2,000 in town for five days. If they are paying $200 for a room each night, multiplied by five nights, a 3 percent increase in hotel taxes would cost them an additional $60,000.
The additional funds could also impact the city’s restaurants and other places where a group’s discretionary budget would have gone.
“When you collectively take a certain amount of money out of people’s pockets, it is not spent somewhere else,” Reinders said.
For planners and those who decide a meeting or convention’s location, factors include room price, meal price and cost of travel, he said.
“They look at everything, and the change in occupancy tax, especially because it has been rising for the last 10 years in all destinations, that is becoming more and more of a prime factor as people are comparing one city vs. another,” Reinders said.
Second District City Councilman Byron Wear said he doesn’t support a 3 percent increase to the city’s hotel tax in the next year.
However, Wear said he would be interested in a measure that would allow the council to reserve the right to increase TOT in the future if the market performs at least 70 percent occupancy for two years.
Council Studies Future Needs
Also, the rate would have to keep the city competitive with other major markets, he said.
The firefighters hope the TOT increase could be approved before possible passage of a ballot measure scheduled for the city’s March election that would require any increase of taxes be approved by two-thirds of voters.
The measure is sponsored by local hotelier Doug Manchester.
Currently, tax increases must be approved by more than 50 percent of voters. Only special purpose taxes require the two-thirds approval.
The council is also looking into whether another ballot item could require Manchester’s initiative be approved by two-thirds of voters, rather than more than 50 percent, Wear said.
As is, the Manchester measure would be “destructive” to the city, Wear said.
Much needed infrastructure improvements and other tourism-related projects, such as another expansion of the San Diego Convention Center, will require more funding, he said.
“Now would be a poor time to do it, but leaving open that option down the line is something we should do because those are going to be the dollars that are going to be needed to fund things like this third phase of the convention center,” Wear said.
The council has also discussed giving financial assistance to the local tourism industry to market San Diego to Los Angeles, Orange County and other target cities within driving distance, he said. Wear wouldn’t specify how much money that could be.
