Almanac

News - August 4, 2010

Divided council reverses itself on hotel tax increase

by Renee Batti

Menlo Park's hotel tax will remain as is for at least three more years after the City Council reversed itself at its July 27 meeting and decided not to ask voters to raise it from 10 percent to 12 percent.

At its meeting the week before (on July 20), the council had approved an ordinance on a 4-1 vote to place the proposed increase on the Nov. 2 ballot, with Councilman Andy Cohen opposed.

Consideration of the matter at the July 27 meeting was the legally required "second reading" of the ordinance. Both votes required a two-thirds majority to pass, which means four votes on a five-person council.

Since the July 20 action, the council heard from representatives of the city's two hotels — the Rosewood Sand Hill resort and the Stanford Park Hotel — which generate 85 percent of the city's hotel tax, or transient occupancy tax.

Greg Alden of the Stanford Park Hotel told the council on July 27 that his facility "has been hit tremendously hard" by the economic downtown. The workforce has been cut by 19 percent since 2007, and payroll has been cut 18 percent during that time, he said. Overall, business is down more than 20 percent, he added.

The tax increase, he said, would take away some of the competitive edge the hotel now has because the transient occupancy tax in Palo Alto and other nearby cities is 12 percent.

The Rosewood's Michael Casey agreed. On July 20, he urged the council not to increase the tax. "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.

The council majority had pushed for a higher tax because of eroding general fund revenues resulting from the economic downturn. Property and sales tax revenues have fallen steeply, and costs — particularly for employee salaries and benefits — have been rising quickly. The city is wrestling with a structural budgetary deficit that's expected to be in place for several years.

On July 20, when the ordinance was introduced, Councilman Heyward Robinson argued strongly for the tax increase. Holding up a copy of the city's newsletter, MenloFocus, he 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.

Mayor Rich Cline agreed that the city must increase its revenues, but said he opposes a utility tax increase. A hotel tax is appropriate, he said, because the tax hasn't been raised in 18 years, and the hotel/motel market, driven by Stanford University, is stable.

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," strong opposition to the increase surfaced in the last few weeks from top officials of those hotels.

Mr. Alden of the Stanford Park told The Almanac he had learned that city staff did ask an individual at the hotel about the effects of a higher tax, but that the person "didn't discuss it" with higher management. The person "gave a response, but it wasn't reflective of the management," he said.

Councilman John Boyle, who last week expressed apprehension about the tax increase before being persuaded to support it, reiterated his concerns about it. He said he had been unaware of the severe drop in business Mr. Alden spoke of, and said that now may be the wrong time to raise the tax.

Referring to the Stanford Park's reduction in workforce and payroll, he noted, "They're taking steps we haven't taken as a city" to deal with declining revenue.

Council members appeared interested in revising the ordinance to find a compromise that could secure four votes, but City Attorney Bill McClure said that, with the looming deadline for qualifying the question for the ballot, no substantive revisions were possible. The next time such a measure could go before voters would be November 2012, he said.

Asked by Councilwoman Kelly Fergusson if the tax could be lowered later even if voters set it at 12 percent, Mr. McClure said the council could reduce a tax rate without voter approval.

Councilman Heyward Robinson's motion to approve the ordinance included a stipulation that, if the tax is approved by voters, the staff would prepare a resolution for the council to vote on that would allow the council to lower or eliminate the increase as it saw fit — for example, in the event that the economy doesn't pick up before January 2012, when the proposed increase would have taken effect.

That motion died for lack of a second. Although Mayor Cline and Councilwoman Fergusson indicated they wanted to forge ahead with the increase, Councilman John Boyle made it clear that his decision was shifting against the action. With a fourth vote apparently not in the cards, a formal vote was never taken.

Ms. Fergusson, who noted that many staff hours had gone into putting the ordinance together, said she was "disappointed to see the council flip-flop at the last minute."

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