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101-Staff Report.pdf ADMINISTRATIVE SERVICES DEPARTMENT CITY HALL 1010300TORRE AVENUE • CUPERTINO, CA 95014-3255 TELEPHONE: (408)777-3227www.cupertino.org CITYCOUNCILSTAFFREPORT Meeting:June 21, 2011 Subject TransientOccupancyTax ballotmeasure RecommendedAction 1.AdoptResolutionNo.11-______submittingtothevotersattheNovember8,2011 GeneralMunicipalElectionanordinanceincreasingthetransientoccupancytaxpaidby hotelguestsfrom 10%to 12% or; 2.Deferthematteratthistimeanddirectstafftoundertakefurtherstudyandreportback with optionsregarding suchameasureatafutureelection. DiscussionandFiscalImpact Since1965,guestsstayingatCityhotelshavepaidaTransientOccupancyTax(TOT)basedon theroomcharge.Unlikeothercities,thetaxhasbeen10%oftheroomchargesince1991.Hotels collectthetaxfromthehotelcustomeralongwiththeroomrevenuesandthenforwardthetaxto theCity.UnlesstheyarepayingforahotelroomintheCity,Cityresidentsdonotpaythetax. ThemoneygoesintotheCity’sGeneralFundandisusedtohelpmaintaingeneralCityservices suchaslibraryservices,neighborhoodpolicepatrols,citystreetmaintenance,rapid9-1-1 emergencyresponsetimes,currentlevelsof police officers,and schooltraffic safetyandcrossing guards.Itisnotlimitedtotheseservices,however,andcouldbeusedforothergeneralCity purposessuchasmaintainingCupertinoparks,picnicareas,andathleticfieldsandmaintaining fundsfor parksand openspaceimprovement projects. TheCityhashistoricallybeenheavilydependentonsalestaxasamajorGeneralFundrevenue sourceforgeneralCityservices,withmuchofthetaxconcentratedinthevolatilebusiness-to- businesssector.Hewlett-Packard,oneoftheCity’shighestsalestaxproducers,willmoveoutof theCityinearly2012.TheirlandhasbeenpurchasedbyApple,Inc.toexpandtheirown campus,whicheliminatesanypotentialfornewsalestaxgeneratorstooccupythesiteand supplantthelostrevenuestream.Accordingly,theCity’sFiscalStrategicPlanCommittee,with itsgoalofstabilizingandrepositioningCityrevenuesources,lookedatpossiblerevenue enhancingmeasuresfor2011/12.Afterdiscussingvariousoptions,includingasalestaxincrease ornewparceltax,theCommitteeproposedaTOTincreaseof2%thatcouldprovideabout $450,000inadditionalrevenues peryear,basedonalong-termaverage of$2,250,000 peryearin taxrevenues.FactorsfavoringthisoptionarethattheTOTaffectsthoselivingoutsideofthe City,involvesmostlythehotelsorbusinessesusingthehotels,andneedsa50%plusonesimple majority of votersatageneralelectionto passasopposedtotwo-thirds. StaffdiscussedthetaxincreasewiththeCity’sfourexistinghotels,ownersoftheShashiHotel andtheChamber’sLegislativeActionCouncilandBoard.Threeofthefivehoteliersdidnot takeissuewiththetaxincreasewhileCypressandCupertinoInnopposedduetothetimingof theeffectivedate.Possibledelaysinthe January1,2012effectivedatewerealsodiscussedinan th efforttomeettheconcernsofthehotels.TheChamberBoardvotedonJune 8toopposethe measure,andApple,Inc–alargeuserofourhotelnights–willremainneutralontheissueas their negotiatedcontractsare on roomrates onlyand do notaddresslocaltaxrates. At12%,CupertinowouldbeequaltoCampbellandPaloAlto,butbelowSanJose’s14%+in SantaClaraCounty,asperthetableofcurrenttaxratesbelow.Seventy-threepercentof Campbellvotersapprovedanincreasefrom10to12%in2010whileeighty-onepercentinPalo Altodidthesamein2007.AMarch2011GodbeSurveyindicatedthat62to68%ofCupertino voterswouldsupportasimilarincrease.Seventy-threepercentwouldsupporta1%increase,but becausethesupportfor2%ismorethanadequateforasimplemajorityrequirement,staff recommendssubmittingtwopercenttothevoters.Onepercentwouldgenerateapproximately $225,000 peryear. SanJose14%+(a) Campbell12% PaloAlto12% LosAltos11% Cupertino(current)10% LosGatos10% Milpitas10% MorganHill10% MountainView10% Saratoga10% SantaClara9.5%+(b) Sunnyvale9.5% Gilroy9% LosAltosHills-- Monte Sereno-- Notes: (a)Represents10%TOTplus4%ConventionCenterFacilityDistrictTaxassessmentplusaslidingscaleBIDfee basedonproximitytotheConventionCenter rangingfrom$.75-$2.00pernight. (b)Plusa2%additionalchargeforninehotelsinthevicinityofthe49erstadium. TwelvepercentismorecommoninSanMateoCounty.OfthefifteencitiesinthatCountywitha TOT, nine havearate orequivalentrateandfeesof 12%,withfiveat 10%and oneat 8%. UsingaverageroomratestatisticsfortheCity,theaverageincreaseonahotelbill,witha2%tax rise,wouldbe$2.63pernight.Actualroomratesandresultingtaxincrease,however,canvary widelydependingonthehotelroom,dateofstay,andrateplan.Hotelwebsitesnormallydonot includetaxeswhendoingratecomparisons.ItwillcosttheCity$37,285inelectioncoststo includethismeasure on theNovember2011 ballot. _____________________________________ Preparedby:DavidWoo,FinanceDirector Reviewedby:CarolA.Atwood,DirectorofAdministrativeServices ApprovedforSubmissionby:DavidW.Knapp,CityManager Attachments:DraftResolution ExhibitA-Ordinance