Transient Occupancy Tax Increase is Overdue
At the very end of their meeting on Tuesday, July 15th, the Costa Mesa City Council will consider the question of whether or not to place two tax measures on the November ballot - an increase in the Business License fee and/or an increase in the Transient Occupancy Tax (TOT), also known as the "bed tax". These issues were discussed extensively at the council study session last Tuesday. While both items certainly need serious consideration, I'm going to focus this entry on the Transient Occupancy Tax.
LOWEST "TOT" IN COUNTY
At 6%, Costa Mesa has the lowest TOT in Orange County. Even if you include the additional 2% earmarked for the Costa Mesa Business Improvement Area (BIA), Costa Mesa's TOT is still well below the county average of 10.5%, and has not been adjusted for almost three decades. At it's present level it generates around $6 million in revenue - 5.34% of the total. (See chart above) As an aside, the current Business License fees generate just under $1 million.
IN ONE HAND, OUT THE OTHER
The 2% BIA assessment is collected by the ten member hotels in the city, who remit it to the city. Then the proceeds are funneled to the Costa Mesa Conference and Business Bureau, which uses the money for business development on behalf of the city. A portion of those funds are directed back to the participating hotels for their business development programs.
2% EQUALS $2 MILLION
A modest 2% increase in the TOT could mean an additional $2 million in revenue to the city, which would still retain it's competitive edge by remaining well below the average of other Orange County cities.
SOLVENCY OR NOT?
If the voters in Costa Mesa are given a chance to consider this issue on the November ballot, their response at the polls could mean the difference between solvency and extreme financial hardship for the city. According to City Manager Allan Roeder, "... from a staff perspective, we believe such an increase will be needed to support existing service levels as opposed to adding more personnel or paving more streets or building more parks. I fully understand that isn't very sexy in terms of voter appeal. But as we have pointed out in recent years, the annual cost of operations for existing services already places us in the situation of having to use Fund Balance (revenues in excess of projections & budget savings) to balance the ensuing year's budget. Short term that isn't of great concern but it is becoming a reoccuring "theme" both in good economic times (as we've had for the past 3 to 4 years) and under present day circumstances."
INCREASE NEEDED TO STAY AFLOAT
What that means, folks, is that Roeder and his excellent staff feel we need an increase in the TOT in order to keep levels of service where they are right now. In light of the obvious current economic downturn, and without a way to augment what will almost certainly be a decline in sales and property tax revenues, the city leadership will face some difficult decisions in the years ahead.
I strongly support an increase in the Transient Occupancy Tax, and have done so for many years. This is a virtually painless tax for Costa Mesa residents. We simply reach a little deeper into the pockets of our visitors and drag out a couple more dollars for each night they spend in one of our many lovely hotel rooms. On a $100 per night room that would be $2.00.
50% + 1 MAJORITY OF VOTES REQUIRED
For an increase in the Transient Occupancy Tax to be implemented it must first be placed on the ballot by a majority vote of the City Council. Unless the tax increase is specifically designated for a special purpose - the purchase of parkland, for example - passage requires only a vote of 50% +1. If it is earmarked for a special purpose, a two-thirds approval by the voters is necessary.
ROEDER'S ALMOST OUT OF RABBITS
We have not had an increase in the Transient Occupancy Tax in almost three decades. Even though Roeder and his staff have done a masterful job of performing magic to keep the city financially solvent over the past several years, it looks like they are just about out of rabbits to pull from the hat. The current economic climate makes it essential to approve a TOT increase now.
INCREASE WOULD DOVETAIL WITH DECLINES
According to city officials, if the TOT is approved in November, additional revenue would likely begin to flow into the city coffers at approximately the same time the impact of declining sales and property taxes - which represent more than 70% of the city's revenue (see chart above) - is beginning to be felt.
SERVICES TO BE CUT?
Without new sources of revenue the city may be faced with reduction of services - fewer police and firefighters, more potholes left unfilled, fewer programs for our kids.
WHICH CANDIDATES OPPOSE IT, AND WHY?
I'm led to believe that some members of the City Council may oppose an increase in the TOT, which really doesn't make sense to me. If that is the case, and any of those opposing it are running for re-election, this will certainly make for some interesting questions at the candidate forums this summer and fall.
1 - Costa Mesa's Transient Occupancy Tax is the lowest in the county
2 - An increase would be invisible and painless to Costa Mesa residents
3 - The almost-certain decline in both sales and property tax revenue will adversely affect our budget
4 - The city needs the additional income to maintain current service levels
NOW IS THE TIME
Unless you are OK with the probable decline in services provided by the city, now is the time for an increase in the Transient Occupancy Tax. Now is the time to contact your council members to let them know how you feel. Here's an email address that will get your views to the council: email@example.com. Write today...
Labels: Transient Occupancy Tax