Council members struggled with the question, voicing concerns that the economic climate makes this a risky time to raise costs for business owners. But after citing the city's budget realities, the council voted 4-1 to send the proposed increase to the Nov. 2 ballot. Councilman Andy Cohen opposed the action.
Holding up a copy of the city's newsletter, MenloFocus, Councilman Heyward Robinson pointed to a pie chart showing that police salaries now account for 39 percent of the city's spending — up from 34 percent in 2007, he said.
The city, he said, must find a way to raise more revenue. "It doesn't have to be (the hotel-occupancy tax) ... but this is certainly one option," he said. If the council doesn't approve sending the proposed hike to the ballot, "we need to look at raising the utility-users tax," he added.
Although the city staff report said that, overall, "representatives from the two Menlo Park hotels felt there would be no discernable impact if the (tax) rate were increased by either one or two percent," that appears to have changed.
Before the vote, Mike Casey, managing director of the Rosewood Sand Hill Resort, warned the council that boosting the tax, which hotels, motels and inns must charge occupants, would take away the competitive advantage his hotel has over facilities in Palo Alto and San Francisco in attracting non-business customers. That's because Palo Alto and other nearby cities have set their hotel tax at 12 percent, and San Francisco at 15 percent.
"Raising it is a risk," he said, not only to hotels but to other Menlo Park businesses that benefit from the trade the hotels bring to town.
Greg Alden, manager of the Stanford Park Hotel, issued a written statement opposing the increase. "The travel industry is in the midst of a fragile recovery, and this is not the time to make visiting our city more expensive," he wrote.
The Rosewood and the Stanford Park Hotel contribute about 85 percent of all hotel tax — or transit-occupancy tax — revenue, according to the staff report. In addition to those hotels, there are five motel/inns in town, the report says.
Councilman John Boyle expressed misgivings about raising the tax, but said he'd be willing to compromise on an increase to 11 percent. But Councilman Heyward Robinson and others cited the city's need to raise revenue because of growing costs, especially for police compensation, and shrinking revenue in other areas, such as property and sales tax.
Mayor Rich Cline spoke forcefully in favor of raising the tax to 12 percent, saying he is opposed to raising the utility-users tax, which he called "regressive." The hotel tax is a more logical place to look for increased revenue, he said, noting that the tax hasn't been raised in 18 years and that the market, driven by Stanford University, is stable.
The ballot measure approved by the council would make the tax hike effective January 2012.
Mr. Cohen said he opposed the move because the city needs to do a better job reducing costs.