Voter Guide: Measure CC

Getting your Trinity Audio player ready...

Measure CC, A ballot measure that would increase Menlo Park’s transient occupancy tax, also known as a hotel tax, will come before Menlo Park voters on the Nov. 5 ballot.

If passed, Measure CC would raise the city’s transient occupancy tax by 3.5%, from the current rate of 12% to 15.5%, over a two-year period. The transient occupancy tax would increase by 2% on Jan. 1, 2025 to 14%, and by another 1.5% to 15.5% on Jan. 1, 2026.

A transient occupancy tax is a type of short-term rental tax that is paid by guests of hotels, Airbnbs and other short-term stays. This tax is not charged to the residents of the city. The proceeds of the transient occupancy tax remain under local control, rather than going to the state.

Additionally, the measure states that the Menlo Park City Council may adjust the rate of the tax either upward or downward by resolution without a vote from city residents at any time, as long as the tax rate does not exceed 15.5%.

The Menlo Park’s City Council placed Measure CC on the ballot in an effort to raise additional local funds to balance the city’s budget.

An impartial analysis of the measure prepared by Menlo Park’s city attorney says that the revenue collected from the transient occupancy tax could be used for “any valid municipal government purpose,” such as maintaining and repairing streets, enhancing emergency preparedness, maintaining parks and open spaces and maintaining city recreation programs, among other things.

The measure would also require that the revenue generated by the measure be audited by an independent auditor annually.

Arguments in favor: Measure CC would help Menlo Park maintain city services

The arguments in favor of the measure, which were submitted to the San Mateo County by a group of Menlo Park residents, state that the measure would help Menlo Park maintain its “essential local services and quality of life without taxing residents.”

The arguments state that voting yes on the measure would “ensure out-of-town visitors pay their share to keep our small town quality of life.”

“Why should we, Menlo Park residents, foot the entire bill for the local services and infrastructure visitors use while in our city?” asks the arguments from the group of local residents.

A July 9 city staff report about the proposed transient occupancy tax rate increase states that a 15.5% transient occupancy tax would provide an estimated $3.6 million in additional tax revenue for the city.

The city’s 2024-25 budget included a deficit of about $820,000, and forecasts indicate that the city will continue to have budget issues in the future.

Menlo Park recently lost several revenue streams, resulting in the budget deficit. A major revenue loss came last year when the city lost the ability to collect the Utility Users Tax from its residents after a San Mateo County Superior Court Judge ruled in favor of a class action lawsuit that challenged Menlo Park’s collection of the tax. The plaintiffs claimed they were owed a refund on their tax because the city failed to prove that it was necessary for the city’s financial health.

Menlo Park’s current five-year forecast of the city’s general fund indicates that there is a long-term deficit in the city’s revenue due to these lost revenue streams, which will result in the need to balance the budget with the city’s reserve funds over the next five years. Staff analysis indicates that the additional revenue from an increased transient occupancy tax would preserve nearly $18 million of the city’s reserve funds over the next five years.

Menlo Park, along with other cities in the county, has lost significant funding due to the county’s loss of state Educational Revenue Augmentation Funds.

“There’s this very complicated formula by which we get funding from the state through ERAF,” said Vice Mayor Drew Combs at the meeting. “San Mateo County is one of the two counties in the state that relies on the state to make direct payments. Given its own budget constraints, the state has decided not to prioritize making those payments.”

The City Council and proponents of the measure say that the revenue from this increased transient occupancy tax will help Menlo Park avoid cutting services to residents, while not charging increased taxes to any residents. They say that increasing the transient occupancy tax is the best way to maintain the current level of services for residents given the other lost revenue streams.

According to the argument in favor, the measure will help Menlo Park retain local control over local dollars. “The state can’t take a penny of Measure CC funds. Yes on CC gives you, the Menlo Park taxpayer, control over local funds to maintain our safety and infrastructure.”

“I want to highlight that without locally controlled funds, the city may be forced to reduce or cut services, which affect quality of life,” said Assistant City Manager Stephen Stolte in a presentation about the measure to the City Council. “Without any intervention, 100% of our emergency contingency reserve would be depleted in fiscal year 2028-29.”

‘I want to highlight that without locally controlled funds, the city may be forced to reduce or cut services, which affect quality of life.’
Menlo Park Assistant City Manager Stephen Stolte

The measure requires that any funds collected from the transient occupancy tax be spent locally for local priorities. Priorities identified by the City Council include street maintenance, emergency preparedness, parks and recreation programs, 911 services, park maintenance and city cleanliness.

Compared to other nearby jurisdictions, proponents say that Menlo Park currently has a relatively low transient occupancy tax rate. According to the July 9 staff report, almost half of jurisdictions in the “immediate region” currently have a higher transient occupancy tax than Menlo Park.

This measure would bring Menlo Park’s hotel tax in line with Palo Alto’s 15.5% rate, which is currently the highest in the region.

Proponents say that the phased approach to the increase outlined in the measure would give hotels the opportunity to adapt to the changing tax.

Opposing arguments: Measure CC would negatively impact hotels

Hotel representatives have expressed concern over the proposed tax increase, saying that it will negatively impact their businesses, which are already struggling in a post-pandemic landscape.

During the July 9 City Council meeting, several representatives from local hotels told council members that the tax increase proposed is “extremely high.” They also said it will contribute to furthering low hotel occupancy rates in the city, which have been flagging since the COVID-19 pandemic.

Avi Haksar, managing director at the Stanford Park Hotel, said that his hotel’s room occupancy rate was 76% in 2017, which is a “healthy” level for an upscale hotel, but that in 2023 it was only 65%. Haksar said that business travel, a staple clientele for Menlo Park hotels, has particularly declined since 2020.

“The last few years have been extremely, extremely challenging for the local hotel business,” he said. “Now you put inflation and wage increases on top of that, and our operating costs have increased while our occupancy has not gone up that much. We’re desperately trying to make every single thing work while (having) less occupancy.”

The last few years have been extremely, extremely challenging for the local hotel business. Now you put inflation and wage increases on top of that, and our operating costs have increased while our occupancy has not gone up that much. We’re desperately trying to make every single thing work while (having) less occupancy.
Avi Haksar, managing director at the Stanford Park Hotel

Haksar also said that Menlo Park has gained many new hotel rooms in recent years, contributing to the difficult landscape for hotels in the city. “Since 2017 we’ve had close to 1,300 new (hotel) rooms that have been brought in,” he said.

Haksar also said in an interview with this news organization that local hotels are worried that raising the transient occupancy tax to be in line with Palo Alto’s — the highest in the region — will ultimately negatively impact the amount of taxes that the city can ultimately collect.

“Every room that we take away from Palo Alto is basically new tax in the city’s coffer,” he said. “So wouldn’t it make more sense to keep … our taxes below Palo Alto, so that customers will come to us in Menlo Park? … If we want to be competitive, we should be less than (Palo Alto).”

Philip Meyer, the managing director of the Rosewood Hotel on Sandhill Road echoed Haksar’s concerns, saying that keeping the tax rate lower in Menlo Park gives local hotels a competitive advantage over nearby hotels in Palo Alto, which helps them recover from the pandemic travel slump.

Haksar said that with inflation, as room rates have increased, hotels have remitted more tax to the city than they did before the pandemic, even with decreased occupancy rates. Menlo Park made $7.7 million in fiscal year 2017-18, and $10.5 million from its transient occupancy tax in fiscal year 2023-24.

The Rosewood Hotel on Sandhill Road in Menlo Park in 2013. Almanac file photo.

Though the tax is not imposed directly on hotels, Haksar says that since they are required to charge the tax to customers, it increases room rates, making the hotels less attractive to travelers who could choose a cheaper hotel one town over.

Local hoteliers also argue that Palo Alto is an outlier in the region, and that Menlo Park should not be using it as a target.

“Even the airport is at 14%, San Francisco is at 14%,” said Haksar. “Menlo Park is definitely not San Francisco.”

Haksar and other local hotel managers have advocated for a more “approachable” increase to a rate between 12% and 14%.

Campaign Finance

Measure CC has received little attention and no fundraising.

Menlo Park City Clerk Judi Herren confirmed that no committees in favor of or opposed to the ballot measure have been created. Therefore, no money has been spent on this race for either side.

Check out the rest of our election coverage