Nearly every city that relies heavily on taxes generated from hotels is now grappling with how to make up for severe financial losses due to a stalled tourism industry. Half Moon Bay is no exception.
With staff projecting a multi-million-dollar loss ending this fiscal year, the city is considering ways to mitigate the shortfalls from its most volatile and lucrative revenue source. The largest dip in revenue is from the city’s transient occupancy tax. Yet some hotels — hit hard by stay-at-home orders and fear of COVID-19 — are reportedly requesting deferrals on payments.
Some cities are opting to defer hotel tax collection payments until the summer and fall. Earlier this month, the Pismo Beach City Council unanimously voted to extend the deadline local hotels have to pay their transient occupancy taxes. Half Moon Bay has not, so far, elected to defer payments from hotels or short-term rentals.
“We’ve said get it to us on time. In the past we’ve worked with local hotels that had a mishap and are willing to work with hotels on an individual basis,” Administrative Services Director Lisa Lopez said. A few hotels have asked the city if the tax collection could be waived, Lopez said. She said legally the city couldn’t allow that.
“TOT is a pass-through tax. It is not allowed to be used other than paying it to the city. We can’t waive it,” she said. “If a payment was delinquent it would not break the bank, but at the year’s end it would cause the revenue to go down.”
Half Moon Bay has one of the highest TOT rates in the county at 12 percent. It’s a tax charged to hotel visitors and passed on to the city as a revenue source.
“So, in theory, there is no good reason it should be paid late,” Lopez said. “Sometimes however, if a hotel has something unexpected happen and they dip into those revenues, they could use the money even though they are not supposed to.”
She said at least two hotels have approached the city asking for a deferral of payment.
There is no indication from the Half Moon Bay City Council there will be a vote to allow a deferral of payments.
Another option on the table is to put a measure on the ballot in November to raise the TOT rate in the city. An increase in TOT would theoretically generate more revenue and it would not be paid by residents. Tourism industry advocates, however, suggest that an increase in the local tax could drive guests and corporate meeting planners to other locations, thereby ultimately driving down total revenue.
“We have not made any decision one way or the other. We’re still exploring all options,” Lopez said.
She said she’s aware of some cities that are in the process of exploring a measure for the 2020 election. Mayor Adam Eisen, who works in the hospitality industry himself, has also mentioned the possibility of an increased TOT at previous City Council meetings.
“We will make our final budget presentation (for fiscal year 2020-21) in June. Till then we’re still feeling it out,” Lopez said.