Hotel tax raise to be decided

A disagreement between Del Mar hotel owners and the City Council at their Aug. 4 meeting over a ballot measure designed to give the city power to raise transient occupancy tax (TOT) has prompted a delay in the introduction of an ordinance and the calling of a special Aug. 11 council meeting to decide the fate of the ballot measure.

“I think we need another week of conversation,” said Councilman Richard Earnest.

Last month, the Del Mar City Council approved resolutions necessary to submit a ballot measure for the Nov. 4 general election to increase the transient occupancy tax (TOT) paid by hotel visitors up to an amount not exceeding 13 percent. Based on estimated TOT revenue for the 2008/2009 fiscal year of $1.75 million, increasing the rate from its current 10.5 percent to a possible 13 percent, would generate approximately $417,000 more revenue for the city per year.

The idea for the tax increase was first proposed to the council by the city’s Finance Committee and discussed at the council’s marathon budget workshop held in late June. The council indicated a desire to either increase the city’s TOT rate through a ballot measure, or implementing a Tourism Marketing District (TMD) like the one put in place recently by the city of San Diego. Under a TMD, hotel operators collect an additional room fee - usually around a 2 percent increase - to be added to a fund used for city projects such as beatification or infrastructure. Unlike TOT proceeds, which go directly into city coffers, a corporate entity or existing city non-profit group usually controls and dole out the TMD funds.

The Del Mar ballot question decided on though by the council last month, included aspects of both the TOT and the TMD. As currently drafted, the ballot measure will be phrased to allow the city to collect “up to” 13 percent in TOT to match the rate of neighboring cities, and the wording of the ballot measure would allow hotel owners in town to form tourism marketing district and the city would have the ability to set the TOT rate at an amount less than 13 percent so that the TMD and TOT rate combined would equal 13 percent. Additionally, if in the future, neighboring cities increased their hotel tax rates above 13 percent, Del Mar under wording of the ballot measure, would have the flexibility to match those rates. The city of San Diego currently has a combined TOT and TMD rate of 13 percent. Neighboring Solana Beach has in place a straight 13 percent TOT rate.

But a request by Del Mar hotel operators Monday for the city to forgo the TOT raise and instead implement only the tourism marketing district has thrown somewhat of a monkey wrench into the issue.

Speaking on behalf of hoteliers, Thomas Mackey of the Clarion Del Mar Inn, indicated any sizeable increase of TOT tax would interfere with business operations and might dissuade visitors, especially corporate entities from choosing a Del Mar hotel. Instead, he said, the marketing district would directly fund downtown improvements and allow for increased marketing while attracting guests to a more vital and attractive city.

“This would let us compete from Chula Vista up to Oceanside,” said Mackey. “It would provide marketing dollars to attract clientele.” Mackey said depending on the percentage decided on, the TMD could bring in anywhere from $150,000 to $250,000 a year for downtown improvements. He said the exact funding percentage would be determined by a consultant’s evaluation of competing markets, but likely would be not less than 1 percent or greater than 2 percent. As a good will gesture towards implementation of the marketing district, hotel owners have placed $28,000 in an escrow account to fund legal and documentation elements of the plan.

Mackey implied that allowing the TOT increase might change hoteliers’ minds over implementing the marketing district. He said monies directed only to the city’s general fund would never be seen again by hotels - a remark that did not sit well with Councilman Henry Abarbanel.

“Who would you call if your hotel had a fire or if a guest had a medical emergency?” Abarbanel asked Mackey.

Council members though, were divided on the issue.

“The issue is the message we would be sending to hotels,” said Councilman Carl Hilliard. “They have put a significant amount of money in escrow. We would be sending a negative message, especially in these difficult financial times.

“At some point we have to start trusting each other,” said Earnest,” and right now we clearly don’t.”

Mayor Dave Druker reiterated that the ballot measure only granted the city future options to increase the hotel tax.

“It gives the city the ability to make a whole lot of decisions in the future,” he said. “Ultimately it gives us degrees of freedom. It’s nice to have options.

“We want to keep hotels competitive,” he added. “This is not a money grab.”

Not gaining a consensus among council members, it was agreed that further discussions was required, thus the need for the special Aug. 11 meeting.

The council has until Aug. 13 to rescind the TOT measure and take it off the ballot, or continue with its placement on the ballot.