The city of Half Moon Bay is considering a ballot measure on the November ballot that would increase hotel transient occupancy tax to 15 percent — the highest rate in the county. The tax would further shift the burden of funding city operations to a hospitality industry that has reeled through the pandemic.
Half Moon Bay is one of a few cities in California that gets more revenues from hotel tax than any other single source. In fiscal year 2019-2020, the tax accounted for nearly 40 percent of the city’s total revenues.
Facing financial turmoil because the coronavirus pandemic drastically impacted hotel stays, the city is forced to look at ways to raise revenues.
City Manager Bob Nisbet said discussions to raise the TOT started about a year ago as a way to help fund some of the Half Moon Bay City Council’s priorities. City staff conducted polling online to see if there was an interest from the community. Then the pandemic hit and the city’s timeline for raising the tax became more urgent as revenues from TOT declined.
The transient occupancy tax is often popular with residents because it is paid by tourists. Guests staying at hotels or other short-term rentals in Half Moon Bay pay the tax as part of the booking fees. Nisbet said he estimates the increase could bring an additional $1.5 million to the city’s annual revenues.
Mayor Adam Eisen, who works in the hospitality industry, said he is in favor of increasing the TOT because the added revenue to the city can be used to fund capital improvement projects and keep the beaches clean.
“In the ideal, the tax is going to help pay for services to maintain the upkeep of Half Moon Bay, which will benefit the hotels and visitors as well,” Eisen said.
Though Eisen is in favor of looking at other ways to generate revenue that is not so reliant on a hotel tax, he said the measure would benefit the city in the immediate future.
Some Half Moon Bay hotel owners and managers disabree. After suffering severe losses because of the pandemic and shelter-in-place orders, some in the local hotel industry are worried a hike in the bed tax will keep future visitors away.
“Right now, leisure travel is very money conscious,” said Dana Dahl, manager of the Beach House. “Everyone is looking at the dollar amount. This could not happen at a worse time.”
She said Half Moon Bay hotels already have to compete with surrounding hotels that are in unincorporated San Mateo County, which charges just 10 percent TOT. By adding another 3 percent to the tax, that disparity increases.
“I could see the Beach House being very negatively impacted by this,” she said.
It’s been an unpredictable year so far for Dahl, with mass cancelations and a slow uptick in last-minute bookings from people looking for an easy getaway destination. The corporate meetings and events Dahl had once hoped would rebook for the fall now seem unlikely, forcing her to pivot to market to the leisure market. Dahl said if the TOT increases she is concerned people would look at the prices and opt to stay elsewhere on the coast or in Monterey or Carmel, where the taxes are lower.
“Everything is so volatile,” she said.
Nisbet said he does not think a tax hike will keep visitors at bay. Within the last few months visitors from across California have come to Half Moon Bay because it’s a local, drivable location.
“It’s not a fear of mine. It’s a minor increase that people don’t really look at. They choose Half Moon Bay because it’s Half Moon Bay,” he said.
Increasing the TOT is just one option the city is looking at to increase revenues. Nisbet acknowledges the city relies heavily on an unstable revenue source. He said while the city is doing small things, such as raising parking rates at the beach, in the long term the city may need to consider increasing its sales tax as well.
“Let’s get past this couple of years, but looking at raising the sales tax is a possibility for this community,” he said.