Mention the term “transient-occupancy tax” to Joe and/or Josephine Six-Pack, and you'll probably get a puzzled look, maybe a yawn. But whisper it anywhere near City Hall, and eyes bulge with dollar signs. And why not-it's become every politico's favorite financial silver bullet.
Also known as a room or lodging tax (on the East Coast, hotel-occupancy tax, or HOT), the transient-occupancy tax (TOT) is, not surprisingly, a cash cow for a tourist mecca like San Diego. In the last fiscal year, ending June 30, the city's share of TOT dough exceeded $98.3 million, about three-quarters of the county's total take for the year.
While not a household term, the TOT has been getting a lot of face time with City Hall recently. Established here in 1964 as a means to help promote the city, the room tax has evolved into something akin to the tobacco-settlement proceeds. In the last year alone, talk about using TOT money has bounced around a variety of hot-plate causes not typically associated with tourism: affordable housing, a new Chargers stadium, the proposed central library downtown, additional police and fire equipment and even to fix sewers and streets.
Is it seen as the holy grail of taxes? “I think so,” says Sal Giamatta, head of marketing for the San Diego Convention and Visitors Bureau. “For example, the lion's share of the funding to underwrite the cost of a new central library will come from the TOT. If you think about it, 99.9 percent of the users of the central library will be San Diego residents, not tourists.”
And this is where it gets sticky. See, the folks who bring convention business to town-and it's big business-typically side with the hoteliers and their representative associations who rely on that business when talk brews about raising the city's TOT, which has remained at a major-city-low 10.5 percent since 1994, when it was bumped up from 9 percent.
By comparison, Los Angeles, San Francisco, Atlanta and even Pittsburgh boast 14-percent room-tax rates, according to statistics from the Washington, D.C.-based Travel Industry Association of America. Houston hits up its hotel visitors at a whopping 17 percent rate. Seattle's isn't much lower at 15.6 percent.
Bolstered by the passage of two TOT rate-hike propositions in the county during the general election earlier this month, rate-hike proponents are beginning to rally the troops in hopes of gaining a more sympathetic ear from the newly jiggered San Diego City Council, which takes the reins early next month. Speculation abounds that the new council-sporting a supermajority of six labor-backed members-will reintroduce the issue in fairly short order.
TOT aficionados note that every percentage point equates to roughly $10 million in additional revenues for the city, which is facing a significant budget crunch while civic projects are stacking up in record numbers.
By the city's own policy on raising the TOT, the ceiling for such a hike is dependent on a hotel-industry-influenced formula of averaging the TOTs of 15 major cities, from Atlanta to Washington, D.C. Based on travel-industry data, that maximum ceiling would currently hover around 12.5 percent, which could mean at least a $20 million annual boost in city revenues. And that's not even counting the estimated 5,000 hotel rooms in the planning pipeline for the downtown area alone.
Leveraged out, that money could help raise $200 million in bond proceeds for city projects, with the TOT increase paying the way, a city insider estimated.
But raising the TOT won't be as simple as it was in 1994, when it only took a simple council majority to ensure passage. Now, the city finds itself hog-tied by state and local law.
In 1996, California voters passed Proposition 218, requiring voter approval of tax increases. And during the March primary, Proposition E, the Taxpayer Protection Act requiring two-thirds votes on all tax increases, passed-much to the chagrin of city officials. They had promoted their own ballot measure, Prop. F, which required that two-thirds vote requirements themselves should pass by a two-thirds vote.
In August, a Superior Court judge ruled that the city had violated state law by trying to thwart passage of Prop. E with its own measure. The city is expected to appeal the decision. And the TOT is said to be the main reason.
On Nov. 5, voters in Del Mar and Poway voted to boost their TOT rates-Del Mar to 10.5 from 10 percent, and Poway from 6 percent to 10 percent. TOT hike proponents think the time is ripe for a boost in San Diego, but getting over the two-thirds voter hump will take some razzle-dazzle.
Says one backer privately: “Once the public understands it's coming out of the pockets of tourists-and we use the slogan, ‘We want to charge them what they charge us when we visit their city'-a two-thirds vote is not difficult.”
But don't expect San Diego's heavyweight hoteliers like downtown's Doug Manchester and Mission Bay's Bill Evans to roll over-and hence, expect the Union-Tribune to scratch and claw over it as well, since hotels spend advertising dollars.
Said one city insider: “I find it interesting that the Hyatt and Marriott are paying 14 percent TOT throughout the state and even more in other cities and still making a profit, but they argue that they can't pay it here. I also notice the U-T supported the [Del Mar and Poway] TOT propositions, but it thinks an increase in TOT in the city of San Diego would be a union plot.”