SR-212-001 (6)
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May 30, 1989
Santa Monica, California
TO:
Mayor and City council
FROM:
City Staff
SUBJECT:
Recommendation to Direct city Attorney to Prepare
Ordinance Increasing the Transient Occupancy Tax
Rate
INTRODUCTION
The following recommends that the City Council direct the City
Attorney to prepare an ordinance increasing the Transient
Occupancy Tax (TOT) rate from 10% to 12%.
DISCUSSION
While the CitY'~-e~panding local tourist industry does have a
significant, positive economic development impact, it also
generates ad~itiopa~ expenditures for the city.
As such, an
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increase in the TOT tax rate is recommended in recognition of the
additional revenues required to provide necessary City services.
In addition, an increase in the TOT tax rate will bring the
city's tax rate directly in line with that of its most viable
hotel competitors in the surrounding city of Los Angeles and
Marina del Ray.
In order to guage the impact of an increase in the TOT tax rate
from the current 10%, set by the City Council in June of 1987, to
12% as currently charged by the city of Los Angeles, City staff
recently completed an analysis of local hotel demand. The
results of that analysis were as follows:
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1. The City of Santa Monica experiences two types of demand
for hotel rooms in the City: regular tourist and
business traveler demand, and tour group demand.
2. Tourists and business travelers elect to stay in the
Santa Monica/Westside Los Angeles/Downtown area largely
due to the convenience of location and the attractions of
the area. Given this specific hotel room population, the
city's main competition for regular tourist and business
traveler hotel room demand is primarily the City of Los
Angeles, which includes West Los Angeles, Downtown Los
Angeles, and the LAX hotel corridor; and Marina del Rey.
Currently, the TOT tax rate for each of these areas is
12%. Neither Manhattan Beach nor El Segundo are seen as
in direct competition with Santa Monica for this type of
traveler due to the relatively smaller number of hotel
rooms available and their less convenient location to
Westside and Downtown attractions.
In addition, tourists and business travelers expect to
pay TOT tax and rarely question the actual tax rate.
3. Tour groups are somewhat more price sensitive than
tourists and business travelers and so may alter their
hotel plans based on varying TOT tax rates. Given the
popularity of the Santa Monica location, however, coupled
with the fact that the most attractive alternative hotel
locations for such groups are West Los Angeles, the LAX
corridor and Marina del Rey, all of which charge a TOT
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tax rate of 12%, an increase in the city's TOT tax rate
would not be expected to negatively impact hotel bookings
by tour groups.
City staff conferred with the consulting firm of Laventhol &
Horwath (L&H) regarding the outcome of the staff study of hotel
room demand factors because of the firm's noted expertise in
analyzing the hotel market. Principals of L&H verified staff
findings that, due to the popularity of the Santa Monica location
and to the fact that the City's principal competition for hotel
rooms all currently charge a 12% TOT tax rate, an increase in the
city's TOT tax rate from 10% to the recommended 12% would not
significantly impact the city's hotel room demand level.
As such, given the findings of the study, City staff believes it
is reasonable for the City of Santa Monica to increase the
current TOT tax rate from 10% to 12%.
In order to increase the TOT tax rate from 10% to 12%, the City
Council must adopt an ordinance estabilishing the new rate. city
staff hereby recommends that the city council direct the City
Attorney to return to the city Council meeting of June 13, 1989
with an ordinance establishing the new 12% TOT tax rate.
BUDGET/FISCAL IMPACT
It is anticipated that an increase in the TOT tax rate from 10%
to 12% will generate an additional $897,000 in General Fund
revenue per year. The revenue estimate of $673{000 included in
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the FY1989/90 Proposed Budget to be adopted by the City Council
on June 27, 1989 include the assumption of a 12% TOT tax rate
effective October 1, 1989, which allows phase-in time for the
city's hotels and motels following the Summer season.
RECOMMENDATION
Based on the analysis conducted regarding TOT tax rates and the
market demand for hotel rooms in the Wests ide area, city staff
recommends that the City Council direct the city Attorney to
prepare an ordinance for introduction and first reading on June
13, 1989 increasing the TOT tax rate from 10% to 12%.
Prepared by:
John Jalili, city Manager
JUlia N. Griffin, Senior Management Analyst
(TOT3)
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Donald Lewin Nelson
1Z51 Fourteenth Street #309
Santa Monica, Ca1ifornia 90404 11- (3
(US) 393-7371
May 30, 1989
Hon. Dennis Zane
Mayor
Santa Monica City Council
1685 Main Street
Santa Monica, California 90401
Re' Transit Occupancy Tax Rate
Dear Denny,
At the time of the enactment of the Land Use and Circulation Element, the CIty of Santa
MOnIca committed itself to increasmg the number of hotel rooms in the beach front section of the
City I supported this decision because I recognized that visitor serving uses could bring
substantial benefits to the community The benefIts included increased employment opportunitIes
and the necessary funds to maintain and lfllprove Palisades Park and the shoreline (1 am
disappointed by the fact that the assurances of equal access for all economIC segments of socIety
have dIssipated.)
In order to fulfill the unwritten promises of the Land Use and Circulation Element, you need
to increase the Transient Occupancy Tax to realistic levels Palisades Park currently suffers from
public utilization beyond its capacity In addition to the need for geological stabilization, the park
needs replacement sod and general improvement
The Transient Occupancy Tax should fund additIOnal police officers required to protect both
residents and visitors from crime. The growth of visitor servmg uses will attract malefactors to the
beach front because of the ready supply of potential victims It will cause the police chIef to dIvert
officers from other patrolling duties in the commumty to the hotels and other visitor serving uses
Quite frankly, the proliferation of expensive hotel rooms in the City leads me to believe that
the price sensitivity issue is a ured herrmg" which lacks any vahdity For individuals willing to pay
in excess of $100 per night for a hotel room, the addition of slightly more than $2.00 per night will
not make any real difference in theIr choice of accommodations. I guarantee you that tbis
proposed price differential will not encourage my mother-in-law to stay in EI Segundo.
Smcerely,
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Donald Lewin Nelson
DLN:S