The hotel industry in Petaluma has put forth an interesting proposal to fund the city’s tourism program that local officials should seriously consider before asking voters to raise the hotel occupany tax rate.
City government officials have discussed increasing the transient occupancy tax, or TOT, which is charged on overnight stays in the city. Under the city’s proposal, the current 10 percent TOT tax would increase to 12 percent, similar to other jurisdictions in the county.
The increase would generate a modest amount of revenue for the city to use on tourism promotions. However, the revenue would go into the city’s general fund and, during lean years, city leaders could decide to scrap the promotions and spend the TOT revenue elsewhere.
Though the TOT is largely paid by out of town visitors to Petaluma, the increase requires approval of a majority of Petaluma voters. The TOT increase is one of the measures the city is considering placing on the November ballot together with a sales tax increase proposal.
Before placing the TOT tax increase on the ballot, leaders would be wise to consider the alternative proposal. Hotel owners in Petaluma would prefer to form a special tax district called a tourism improvement district, or TID. The TID would collect a 2 percent assessment on all overnight stays and the funds collected would be used exclusively for tourism promotion.
The fee increase would be the same — 2 percent — whether it is a TOT increase or a new TID assessment, so hotel guests won’t know the difference. With the TID collecting the money necessary for tourism promotion, the City of Petaluma could then reallocate the approximately quarter million dollars it annually designates for tourism program funding to other uses. Thus the city gets a de facto revenue boost.
The TID structure guarantees that money collected from hotel guests is used to promote the city, so that some future city council won’t be able to divert this resource to other city priorities. Promoting the city is essential, especially in lean years, since tourism drives a good portion of the economy. It brings in much needed business for our shops, restaurants and breweries, and generates sales tax revenue to fund essential city services.
Finally, a TID does not require a ballot measure, just a majority vote of the city’s six hotel owners. Since the Petaluma Lodging Association is backing this proposal, it clearly has the support to pass. A TOT ballot measure, which Petaluma hotel owners would likely oppose, may or may not win voter support, and its presence on the ballot could interfere with the city’s more important effort to pass a much needed sales tax increase.
The TID concept works well in other local jurisdictions, including Santa Rosa, Sonoma and Healdsburg, and provides those cities a dedicated source of funding to promote themselves and attract tourists. If Petaluma leaders took a hard look at this idea, they might conclude that it makes more sense than asking voters for another tax increase.