A month-long series examining the Santa Monica City Hall finances Tax time: Increase might appear on November ballot Hotel bed tax pumps millions into City Hall
CITY HALL — Voters this fall might decide whether the local tourism industry should be taxed as much as $3 million, money that likely would help bail out struggling public schools.
At 12 percent, Santa Monica’s hotel bed tax is expected to generate $18.5 million for City Hall this year. For each percentage point the bed tax increases, officials estimate an additional $1.5 million would be raised.
However, raising the tax could turn away some potential business — especially travel agents, who buy package deals in bulk. Those agents often will choose Santa Monica because the bed tax is lower here than in surrounding areas, including Beverly Hills, Marina Del Rey and West Hollywood.
Before the matter can appear on the ballot, the City Council must agree an increase is justified and decide how much to request. Council members on Tuesday said they are considering a 2 percent hike.
“I think that makes sense,” City Councilman Ken Genser said.
Setting the bed tax at 14 percent would generate about the same amount City Hall needs to cover its stated ambition of giving local schools $6 million this year. The city already gives schools $3 million in ongoing funds but is looking for an additional revenue source to double that.
The proposed hike would put Santa Monica on par with Beverly Hills, West Hollywood and Los Angeles, which all charge 14 percent. Other cities — like Hermosa Beach, Manhattan Beach and Redondo Beach — have kept their bed tax at 10 percent, which is where Santa Monica’s was until it was upped in 1989. But while those South Bay cities might not be direct competitors, some closer neighbors are.
City Councilman Bob Holbrook said he likely would oppose an increase that pushes Santa Monica’s bed tax higher than Marina Del Rey’s, because there are several competing hotels in the Marina that could attract Santa Monica business. The bed tax is 13 percent in the Marina.
Still, Holbrook said he supported the idea of some increase.
“Generally speaking, unless you have a family visiting the city, it’s not going to affect you personally,” he said. “It’s a tax that’s probably 99.9 percent borne by visitors to this city. The important thing about it is that we remain competitive. We don’t want to price ourselves out of the tourist market.”
The bed tax is expected to generate $18.5 million for City Hall this fiscal year — the most since the 2000-2001 year, when $19.2 million was raised, according to Dave Carr, City Hall’s assistant treasurer.
It’s unclear what effect the change would have on business. Santa Monica already charges more, on average, for hotel rooms than most surrounding communities.
“The negative part of it is because our rates are already much higher than any other area around us, so this will add even more to the sales process, which lessens our value and diminishes our competitive edge,” said Francois Khoury, general manager of the Doubletree Guest Suites Hotel on Fourth Street. “Of course, nobody looks forward to a change like that, because it changes some of the sales strategies that we have — that we use as an advantage today — which would be taken away.”
Misti Kearns, executive director of the Santa Monica Convention and Visitors Bureau, said she expects hotel occupancy to stay relatively strong this year — between 75 and 76 percent — and expects the daily average rate to grow by about 5 percent. That rate in 2003 was $183.96.
“I can tell you that performance wide, we’re doing pretty well,” Kearns said. “We ended the year 2003 at a 73.9 percent occupancy and a $183.96 average daily rate, which was a 2.6 percentage growth in rate — that hasn’t been happening.”
Asked about the possible bed tax hike, Kearns said she only hopes if the bed tax is raised, at least a portion of the new revenue is reinvested in tourism. That sentiment was echoed by Kathy Dodson, president and CEO of the Santa Monica Chamber of Commerce.
“We feel that it’s extremely important that funds raised from this tax go back into tourism,” Dodson said. “At least some portion. You can increase the percentage, but if you’re not promoting tourism, the income could actually decrease.”
“We feel that it’s extremely important that funds raised from this tax go back into tourism.” — – KATHY DODSON President and CEO, SM Chamber of Commerce
In mixed company A breakdown of how much nearby cities tax tourists for staying in their hotel rooms: Beverly Hills 14 percent Inglewood 14 percent Los Angeles 14 percent West Hollywood 14 percent Marina Del Rey 13 percent Culver City 12 percent Hawthorne 12 percent Long Beach 12 percent Malibu 12 percent Santa Monica 12 percent Torrance 11 percent Burbank 10 percent Hermosa Beach 10 percent Manhattan Beach 10 percent Redondo Beach 10 percent The tax man Hotel bed tax revenue is a major source of income for City Hall. Here’s a breakdown of bed tax revenue over the last five fiscal years: 2003-2004*. $18,550,000 2002-2003. $17,058,749 2001-2002. $16,348,320 2000-2001. $19,218,221 1999-2000. $17,880,110 1998-1999. $15,418,238 *From the revised budget, which is based on expected income.
Originally published in the Santa Monica Daily Press print edition on May 5, 2004. Read the original PDF.