With the number of hotel rooms expected to double in Scotts Valley in the next 18 months, and with a “fiscal cliff” lying ahead for the city budget, several city council members think it may be an opportune time to raise the local hotel room tax, called the Transient Occupancy Tax (TOT). The question, is by how much?
At the city council meeting on June 6, local hotelier Bijal Patel argued against a proposed increase in the local TOT from 10 percent to 12 percent just as the market will be absorbing a two-fold increase in the number of hotel rooms, and recommended only a one percent increase, to 11 percent, in the local TOT.
“As a local resident and constituent of the City of Scotts Valley,” Patel explained, “I value the community, I understand the fiscal difficulty the city is in, and I want to give back to the community, but I and others in the industry believe a two percent increase is just too much, too soon.”
As a general purpose tax, an increase in local TOT requires a simple majority of voter approval. The proposed increase in TOT was discussed with a certain urgency at the June 6 city council meeting because the amount and time-frame of the tax increase has to be finalized before an August 10deadline to be included on the November general election ballot. Several city council members made it clear they preferred consensus with the hotel industry on the amount of the tax increase rather than face their opposition when the measure is already drafted for the ballot.
City council members discussed the possibility of a one percent increase beginning January 1, 2019, to 11 percent, with an additional one percent increase after a few years to allow the market to “ramp up” to the new hotel room capacity. Patel indicated the group of hoteliers he represented would want to see “a considerable commitment of support” by the city for the local hotel industry for any TOT increase exceeding one percent.
Patel said the local hotel industry could use some help from the city to better market and publicize Scotts Valley as a destination location and alternative to hotels closer to the beach in Santa Cruz and Capitola. Council member Jack Dilles pointed out the use of tax dollars for such a specific use- marketing and outreach for the local hotel industry- would require a two-thirds majority approval by voters, a much higher threshold than a general purpose tax.
Patel is the owner and developer of the 120-room Marriott Residence Inn project on the former “Borland Phase II” site at the end of Santa’s Village Road, scheduled to begin construction at the end of the summer. Patel points out his project will be the first “upscale, corporate-oriented, extended stay hotel in the county.” Patel made clear that a longer-term stay hotel, with every room equipped with a full kitchen, is bound to multiply economic benefits to local grocery stores and restaurants.
The soon-to-be-finished “Four-Point Sheraton Hotel” on Scotts Valley Drive, formerly known as the Lexington Hotel before the project was sold to Sheraton, will include 128 rooms, and 1,400 square feet of “market-leading meeting facilities”, according to a press release announcing the opening of the hotel later in the summer.
Currently, the 178-room Hilton Hotel and 58-room Best Western Hotel have consistently provided about $1.2 million annually, by way of the city’s current 10 percent TOT. With the number of hotel rooms doubling when Patel’s Marriott Extended Stay Hotel is open for business, planned for next summer, Patel warned city council members that a 12 percent TOT tax would be “a little too much shock for our small town,” Patel said.
“We understand there needs to be an increase, but we think a 12 percent TOT is overreaching, and we recommend you go up by just one percent,” Patel said to city council members at the June 6 meeting.
The discussion over the proper increase in TOT included recognition that a similar ballot measure failed in Capitola back in 2014, which the hotel and tourism industry did not support. Council member Donna Lind indicated she understood the hotel industry in Capitola and Santa Cruz is currently not planning to oppose the TOT increases, to 11 percent and 13 percent respectively, under consideration in those cities.
“We need cooperation from these businesses that are especially effective in raising money for our city,” Council member Randy Johnson said. Councilmember Lind, who supported an increase to a 12 percent TOT, said there may be more the city can do with the visitor’s bureau to work as partners with the hotel owners, independent of the proposed ballot measure, to better market and advertise the benefits of staying in Scotts Valley. The city council closed the discussion with a commitment to review and discuss the proposed TOT tax increase at their next meeting on June 20.
