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Menlo Park will ask voters in November to consider raising the city’s hotel tax to help counter ongoing funding challenges.
On Tuesday night, July 9, the City Council approved placing a measure on the Nov. 5 ballot to increase the transient-occupancy tax (TOT) by 3.5% from the current 12% to 15.5% over a two-year span.
The higher hotel tax would go toward maintaining or enhancing key services such as street repair, recreational programs, emergency preparedness and police response, a city staff report said.
“The city has faced the removal or the discontinuation of revenue sources that it has depended on for decades — one being the UUT (utility-user tax), which the city is no longer collecting,” Vice Mayor Drew Combs said during council discussion.
The city lost the use of the UUT last year when a San Mateo County Superior Court judge ruled in favor of a class-action lawsuit that challenged Menlo Park’s collection of that tax.
A higher TOT would serve as “restorative tax revenue,” Combs said.
The TOT is imposed on, and paid by, guests of hotels, inns and short-term rental stays of 30 days or less, the staff report said. It is applied to the customer’s lodging bill, and the tax revenue goes into the city’s general fund.
According to the report, the hotel tax if the ballot measure passes would go to 14% for 2025 and then 15.5% the following year.
The increase when fully enacted would bring an estimated $3.6 million in annual revenue to the general fund, according to the report.
It would preserve nearly $18 million in city reserve funds that would otherwise be needed to address a long-term structural budget deficit in which expenditures outpace revenue growth, the report said.
Last month, the council approved the city’s 2024-25 budget of $74.2 million with a deficit of about $820,000 to be plugged by money from the general-fund reserve.
Putting the hotel-tax measure on the ballot required four “yes” votes from the council, and the group did just that with member Jen Wolosin absent.
Just before voting, the council added language indicating that it could later adjust the tax up or down by way of a resolution just as long as the rate doesn’t go beyond 15.5%.
The council was seeking flexibility to be able to reduce the rate if deemed necessary so as not to overly burden hotels, especially if their business might be doing well.
Addressing the council, hotel representatives expressed deep concern over the proposed tax increase.
Avi Haksar, managing director at The Stanford Park Hotel, called the TOT’s potential 3.5% jump “extremely high” while noting that his establishment has yet to reach pre-pandemic occupancy levels.
In 2017, Haksar said, Stanford Park’s occupancy was at 76%, which is considered good for upscale hotels. But last year, it was 65%.
“To impose this kind of tax and at this amount at this time just doesn’t seem correct,” Haksar said. “With the economy, with the wage increases (and) with a lot of other hotel rooms coming around in this area outside of Menlo Park, we are going to be put in a disadvantageous position.”
‘With the economy, with the wage increases (and) with a lot of other hotel rooms coming around in this area outside of Menlo Park, we are going to be put in a disadvantageous position.’
Avi Haksar, managing director at The Stanford Park Hotel
But if the city really wants to pursue a hike, he said, “a more approachable (tax) would be between 12 and 14%.”
Philip Meyer, managing director at Rosewood Sand Hill Resort, backed Haksar’s sentiments.
“We’re in the same boat as many of the other hotels in the area,” Meyer said.
But with a TOT currently lower than that of many other nearby cities, he said, Menlo Park still has a competitive advantage.
That advantage over such cities as Palo Alto benefits his hotel’s post-pandemic recovery and efforts to bring the occupancy rate back to 70% or more, he said.
If voters agree to the rate hike, Menlo Park’s hotel tax would be among the highest in San Mateo and Santa Clara counties.
In comparison, according to the Menlo Park staff report, Palo Alto is at 15.5%, Half Moon Bay is at 15% and Redwood City is at 12%. Toward the lower end, Santa Clara County is at 8%, Portola Valley is at 9.25% and Mountain View is at 10%.
New four-story housing unit gets approval despite resident pushback
In another matter, the council unanimously approved going ahead with the construction of a new four-story, eight-unit housing project at 1220 Hoover St.
The project would include one below-market-rate unit and initially serve as a rental property before being converted at some point into a condominium complex with for-sale units, a city staff report said.
In moving forward with the project, the council denied an appeal by residents opposing the Planning Commission greenlighting the project in April.
Among their concerns, the residents criticized the project for its size, height and fit within the context of their neighborhood.
But city staff concluded that the project would be compatible with the neighborhood. It would also create and promote much-needed additional housing in and around downtown, staff said.
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What has Menlo Park’s government done to deserve this tax hike? If anything, the rate should be reduced.