Thursday, July 10, 2008

Transient Occupancy Tax Increase is Overdue

(chart courtesy of City of Costa Mesa)

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.

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 Me
sa'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.


The 2% BIA assessment is collected by the ten member hotels in the city, who remit it to the city. Then the proceed
s 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.


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.

If the voters i
n 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."


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.

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.

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.

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.


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.


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

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: Write today...



Blogger Connected said...

I love your blog and love your attention to detail.

With that said, I'm not too sure I agree with this particular post 100%

1. Costa Mesa's TOT is low, but that's not an excuse to raise it. Perhaps these lower Hotel rates bring people to the cheaper hotels in Costa Mesa instead of coming to the more expensive ones in Newport or Irvine?

2. Yes, painless to residents, but what about to the Costa Mesa hotels and businesses? Don't some of these hotels and businesses employ Costa Mesa residents? Wouldn't there be a possible trickle down effect of raising hotel prices to Costa Mesa residents?

3. What about the decline to hotel TOT due to a decline in hotel occupancy due to a raise in prices. Add that to the decline in Sales and Property Tax and you get more problems.

4. Cities need to learn to cut expenses instead of raising taxes.

Just some surface thoughts.

Keep up the good work.

7/11/2008 10:06:00 AM  
Blogger The Pot Stirrer said...


Thanks for your comments. Before posting this entry yesterday I spent a lot of timed reviewing the issue with senior members of the Costa Mesa Finance Department - to be sure I fully understood the issue.

In the most simple terms, Costa Mesa will likely either have to find a supplemental revenue source or cut services. Lots of juggling has been done in recent years via "Fund Balance" - the carry-over of unspent revenue from the previous year to balance the current year's budget. As sales tax revenues diminish, which they are doing, and with the uncertainty of the property tax revenues, an increase in the TOT and/or business license fees are logical avenues to consider. The assessor's office is presently re-valuating recently sold homes downward, the impact of which is unclear until sometime early next year when the revenue stream from the first round of payments trickles down to the cities.

I expect we'll hear from the Chamber of Commerce regarding both issues - as was the case at the study session this week. They don't like the idea of increasing either one. Each of your points are well-taken. Certainly, every city needs to look at how they are spending their money. We just went through the budget process, so all that is clear in the minds of all department heads and, hopefully, the council. I expect to see some heated debate at our council meeting Tuesday.

By the way, there's another blogger here in town who apparently considers himself the only source of credible information - the CM Press. He blogged on this subject this morning and got it 180 degrees wrong! He wrote that the last attempt to pass a TOT increase failed because the funds would be aimed at the General Fund, which he says requires a 2/3 approval. He's wrong. The last attempt many years ago was specifically earmarked for parks - a special use that does require 2/3. What would be proposed this time is sending the funds to the General Fund, which only requires 50%+1 majority of the voters to approve. This is typical of that guy - blurting out inaccurate information, which many of the sheep that read his bilge just suck up like sponges. This is a good lesson for them.

Sorry for the rant. Thanks, again, for the comment. Keep up the good work on the Newport Beach Voices, too.

7/11/2008 10:43:00 AM  
Anonymous Anonymous said...

I don't think you can apply the standard anti-tax philosophy to Costa Mesa's TOT. I am very anti-tax, but taxes are still a necessary evil. In this case, Costa Mesa is not Anaheim - we are not a conference center town. Our hotels are not going to suffer a noticeable decline if we increase the TOT - 99% of standard travelers look only at the room price and simply accept TOT when it comes time to pay. Major bookers will negotiate a rate that includes whatever the TOT is.

The TOT will not hurt the hotels and will only benefit the citizens. Even if we raise it, we'll still be in the low or average in OC.

7/11/2008 04:37:00 PM  
Anonymous Anonymous said...

Let's look at expenses and how we spend our money. Does it make sense to give so much money to firefighters when there is an abundance of applicants? We could cut pay/benefits before cutting number of firemen and we would still be inundated with applicants. On the other hand, getting police officers is a little harder so maybe a raise is appropriate there. Why do we have to match what other cities pay their folks? The guy that graduated fiftieth in his class is probably as good as the guy who graduated fifth but could come cheaper. Why should city employees retire at 55 with 2.5%? 65 is better. Stop the raises at city hall and give a bonus instead to those who get the job done at the same percent to revenue as in the past year. Privatize where feasible. Soon there will be no money for capital expenditures, it will all go to salary and benefits for current and past employee=more taxess. Also, the police and firemen association/union should not participate in city elections and if they do then the candidates they support should not vote on their pay package. There's more but I only had two minutes to type this.

7/12/2008 06:06:00 PM  
Blogger The Pot Stirrer said...

Commissioner Jim, we have no space constriction here... If you have more to say, please just let it rip! I found your comments provocative, as I'm sure the members of the police and firefighters bargaining units did, as well. I assume that, before you sent this to me for publication, you wrote off any chance of their support for you during the upcoming campaign, right? Curious tactic. But, please do let us know if you have other ideas regarding keeping the city fiscally sound.

7/12/2008 06:22:00 PM  
Blogger The Pot Stirrer said...

You know, Commissioner Jim, I've thought a little more about your comment, above, since you submitted it Saturday evening. When I first read it my jaw dropped but, because you seemed constrained by a mythical space limitation, I wanted to immediately invite you to continue - which you didn't do. I guess you really didn't have anything else to say - a good thing, in my opinion.

About the kindest thing I can say about your comment is that it is simplistic, at best. Either you have never managed a business, or you did it badly. I'm trying to imagine just what all the employees of the City of Costa Mesa, and especially those in public safety positions, will think about your approach to management and labor relations. It's obvious from what you wrote that you hold their contributions in low regard and feel we should not waste time trying to negotiate reasonable wage rates so we can continue to hire strong people. If we followed your lead on this we would simply stop over at Lions Park and recruit those folks pushing all their worldly belongings in a shopping cart when they're not snoozing on the grass.

Your suggestion that members of public safety organizations who are also residents of our city should be forbidden from participating in the political process reeks of fascism. It's no wonder that your self-proclaimed "improver" buddies failed to gain the support of the rank and file public safety employees.

Shame on you, Jim Fisler. I can hardly wait for your performance at the candidate forums this summer and fall as we all watch to see if you can get BOTH of your feet in your mouth at the same time.

7/13/2008 04:12:00 PM  
Anonymous Anonymous said...

Jim, I'm confused with your comment. Cities/public agencies hire in cheap labor, those employees get their couple of years in, recieve the necessary training and move on to higher paying cities/public agencies jobs. How productive is that? Also, should local businesses and huge apartment complexes be allowed to put up banners in support of their candidates? Maybe, appointed commissioners shouldn't be allowed to participate in elections?

7/13/2008 06:24:00 PM  
Anonymous Anonymous said...

I was constrained by time, not space or at least I thought that is what I said.(yep, that's what I said, you missed it) The subject was raising taxes or cutting services. I stand by my comments as ideas to think about. AS for being a bad manager, I was a regional manager for Nordstrom SoCal stores for twelve years and corporate told me I "turned the ship around on a dime" by offering far better services at the same percent to sales(evne when sales fell) and raising wages of our lower tier employees. I think I did a good job but heck, what do I know? You seem to know better. Please notice I said we should direct our resources where we have trouble recruiting (police) and take a closer look at where we are inundated with applicants (fire). Isn't that common sense? I was merely suggesting a way to avoid cutting public safety service levels. I hold the contributions of our public safety officials in HIGH regard but would not give them a blank check. In fact, promoting the safety and general welfare for the residents of Costa Mesa in job #1 for the city council. As you said Geoff, every city needs to look at how they are spending their money. That is what I did.

7/14/2008 12:38:00 PM  
Blogger The Pot Stirrer said...

Commissioner Jim, you're right - you did say "time". However, here we deal in "space", which is all I can offer to you to make your points. I didn't realize you had imposed a time limit on the preparation of your views for submission. I visited your web site (lose that obnoxious "buzzing bee" sound, please!) so I already knew what you tell us of your background at Nordstrom. Your assessment of that job may be true, but I'm sure your comments posted here will alienate you from most, if not all, Costa Mesa employees - especially those in public safety jobs.

During your "stellar" career at Nordstrom, did you tell the personnel folks to send you less qualified candidates for your openings? I can just hear you now, "Well, Peggy Sue, you're doing a good job, your enthusiasm is infectious and our customers love you, but I'm not going to give you a raise because I want a less skilled employee in this job." Give me a break! Maybe in your various careers you've been satisfied to surround yourself with sub-standard employees and associates, but that sure does fly in the face of most contemporary management philosophies of which I'm aware.

Is it your perception that the City of Costa Mesa has been giving the employee bargaining units a "blank check"? If so, what facts do you have to support that contention? Will that be part of your campaign platform? If your best idea for responsible fiscal planning is to hire lesser employees, then the voters in this city will almost certainly find that of interest.

As I've said many times in the past, you're always welcome to provide us with your wisdom and insight here. We look forward to your next visit.

7/14/2008 01:03:00 PM  
Anonymous Anonymous said...

Well, this is certainly getting out of hand quickly. I will try to restate something and maybe it will come across clearer. Here goes: I have a concern about a system where one city matches what other cities pay as a way to set compensation. It sounds okay, on the surface, to do this since this is what the market dictates as proper pay. But it is a pretty closed market (which is why I believe you should look to privatize some services,IF feasible). I believe that this pay matching results in an endless upward spiral of costs to the detriment of the city. One city raises here, the next follows, on and on. If there is a limited pool of qualified applicants then we have to play the game. But is the pool that limited? I doubt it. Compared to the private sector, government work is a plum job with its pay and benefits. I do not want to surround myself with "sub-standard" employees as you suggest. I believe working conditions and the actual city where you work(weather,commute time, crime rate) count heavily in an applicant's decision as to where to work. Again, it is NOT about hiring "lesser employees" but how to recruit and retain competent employees without cutting services when revenues are down. Have you ever had any management training that encouraged you to look at all options? Sometimes you have to watch the bottom line and not engage in popularity contests. Sometimes you have to say "here is what I can offer" and see who applies. It does not necessarily mean you end up with sub-standard employees.

7/14/2008 01:46:00 PM  
Blogger The Pot Stirrer said...

Commissioner Jim, thanks for the clarification, I think...

To answer the question you posed near the end of your last comment, yes, indeedy. I have been in senior management positions for a few companies and ran my own business for more than 20 years. In every assignment reviewing all options to resolve issues was a top priority... thanks for asking. I'm not going to try to compare our career successes here - that's not the point. The point is your attitude about managing the human resources in our city.

7/14/2008 01:58:00 PM  
Anonymous Anonymous said...

Geoff, I think - in all fairness - that Jim has a point about the City payroll. Let's not forget the fact that Vallejo went bankrupt because of public safety compensation, including pensions. No department - police, fire, code enforcement, parks, etc. should be a "sacred cow" immune from serious fiscal scrutiny.

That said, Costa Mesa should always endeavor to recruit and hire the best and brightest candidates. Our pay scale should be in line with similar municipalities, although a top-down review of public employee compensation should be looked into. Pensions that offer essentially full-time pay after 20 years are no longer appropriate.

Public safety employees should have a more robust pension than the rank and file, simply because the nature of their work is hazardous, but it shouldn't be overly generous. There are cops who work 3 days a week, and will retire after 20 years, often in their early 40s, making just below $100k/yr. as long as they live. How is that equitable when the general public is suffering through tough times?

The city should also shift away from defined benefit pensions and focus on 401(k) type plans, if it has not already done so. The absurdity of public sector employees having the best retirement plans in the state - often far better than the citizens they serve - must be reexamined.

7/14/2008 02:34:00 PM  
Blogger The Pot Stirrer said...

Commissioner Jim, I thought of another way for the city to save money last night, while watching you and your dais-mates perform at the Planning Commission meeting. It looked like you probably could have held the meeting in the proverbial phone booth. I think the press outnumbered the residents. Since your meeting only lasted an hour, and many have been similarly short - including one in May that lasted SIX MINUTES - maybe the Planning Commission should only meet once a month. That would save on staff time and we wouldn't have to pay you so much, either. How does that sound to you?

7/15/2008 09:47:00 AM  
Anonymous Anonymous said...

I certainly did spend more time getting showered and dressed for that short meeting in May than the length of the meeting itself. In fact I spent three times as long driving there. A six minute meeting is rare, I think we broke a record there. To permanently change to once a month due to an occcasional short meeting is an overreaction I think. I know when I was a parks and recreation commissioner we sometimes cancelled meetings to consolidate them to the next month and we did not receive a stipend for the cancelled month. I think Monahan led an agenda item to pay planning whether they met or not so it is a city policy that would have to be changed. If short meetings become the norm then maybe we could look at a change. Eveything should be on the table for review, unless it costs more to review than the savings we could realize and this may be the case here. I really doubt you are serious but since you asked me to respond I did. BTW, do you know what grade school the guy who writes the Watchtower attends? He has great computer skills for a kid and his school should be recognized for teaching our kids to be so technologically savvy.

7/15/2008 12:12:00 PM  
Blogger The Pot Stirrer said...

Commissioner Jim, I was teasing, of course. I'd forgotten that Monahan had proposed paying the planning commissioners whether they met or not. Now that I think some more about it, I'm surprised that money-saving opportunity didn't just jump right out at you. If you're willing to settle for the number fifty firefighter, don't you feel the least bit uncomfortable knowing that you would get the stipend whether you worked or not?

I, too, was taken aback by the CM Watchtower posts. I have no idea who the author is, but he, she or they should be reminded that this blog is protected by copyright protection. Anything they use from it without permission and attribution could cause them big trouble. Of greater concern, though, is the not-too-veiled threat aimed at those of you who plan to run for council this year. In one of the posts preceding they one where they stripped your comments from my blog is a threat to find "dirt" on every candidate and those who support them. I suspect they think they have protection by their anonymity, but need to be reminded that a simple court order by an aggrieved person or the DA's office could require the internet service provider or blog host organization to give up their identities. Those kind of threats could be construed as terrorist threats - very much frowned upon by law enforcement.

Speaking of candidates, I understand that Katrina Foley was the only candidate to pull papers on the first day, yesterday.

Thanks, once again, for participating here. You're welcome any time the urge moves you...

7/15/2008 02:06:00 PM  
Anonymous Anonymous said...

Geoff, maybe you should stop giving CM Watchtower free billing. Their anonymity, childish threats, misspellings, and plain mean tone, all completely without facts or background, is just boring and dumb.

Since you do read this blog, CM Watchtower, come out from under your rock and engage in the debate likes Big Boys and Big Girls. Stop hiding behind anonymity while lobbing insults at everyone. Pretty cowardly behavior in my opinion.

If you have something to say, be man or woman enough to own your statements.

7/15/2008 03:28:00 PM  

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