Half Moon Bay voters are now deciding a ballot measure that could more heavily tax overnight visitors, but an increase in the tax is controversial.
Should Measure U pass, Half Moon Bay hotels, bed and breakfasts, and inns would pass along an increase in the transient occupancy tax. That’s the tax paid by overnight guests, from its current 12 percent to 14 percent beginning in July 2021, then to 15 percent in July 2022.
Both the hotel industry and the city have been hard-hit by the pandemic. Both are looking at the TOT as key in their recovery. Measure U would boost the city’s budget, a third of which comes from the TOT. But local hoteliers fear this could drive customers away, threatening their recovery and inadvertently hurting city revenues, too.
In April the city moved to cut more than $3 million to its estimated budget of $17 million, largely through layoffs and furloughs.
“With less staff there are less city services,” said Half Moon Bay City Manager Bob Nisbet.
Earlier this year, the city administered a poll that found residents were supportive of expanded city services, including in public safety and emergency preparedness. Nisbet said the TOT increase would help cover the costs of meeting these general fund expenses, and the TOT pays into the general fund.
The hotel industry disapproves of the city drawing any connection between specific city services and the TOT, though Nisbet said the priorities identified in the poll which justified raising the TOT will serve as a helpful starting point, Nisbet said. Decisions of how the general fund allocations will be spent will be discussed at future City Council meetings.
At its height, the TOT added $6.8 million to the general fund. Using non-pandemic numbers, the ultimate raise of 15 percent in 2022 would be expected to add an additional $1.5 million.
Though the city considered other means of increasing revenue, the alternative — increasing the sales tax — raised concerns from residents who worried it would unfairly burden locals for the costs created by visitors.
But hotels argue the TOT similarly punishes the wrong segment: group travelers.
“We’re pushing away our ideal traveler,” said Krystlyn Giedt, president and CEO of the Half Moon Bay Coastside Chamber of Commerce and Visitors’ Bureau.
Because group travelers typically stay multiple days and come in the work week, they benefit the local economy without adding to traffic congestion and pollution.
“It comes across that we’re penalizing those ideal travelers for the sins of the day trippers,” Giedt said.
While an increase in the TOT might mean an additional $4 to $6 for a room priced at $200, those charges add up, especially for large group contracts negotiated with travel managers and meeting planners. To them, a 3 percent increase in the TOT could raise costs by $5,000 to $10,000 annually.
Palo Alto passed a similar measure in 2018 that raised its TOT from 14 to 15.5 percent. There, rooms are often occupied by long-term occupants going to Stanford Hospital or Stanford University. After the 15.5 percent TOT went into effect in 2019, Barbara Gross, former general manager at a high-end boutique hotel in Palo Alto, said she saw occupancy fall.
Gross acknowledges other factors played a part in the drop, but maintains the higher TOT played a part.
John Hutar, president and CEO at the San Mateo County/Silicon Valley Convention and Visitors Bureau, has given advice to several cities in the county that similarly rely on the TOT as a major source of government revenue:
“The hotel business has been brought to its knees with COVID. It will take a lot to recover. And I would be cautious to add anything that could impede that progress in any way.”