Divided council reverses on hotel tax


This is an expanded version of an earlier-posted article. 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.

Last week, the council had approved an ordinance on a 4-1 vote to place the proposed increase, to be effective January 2012, on the Nov. 2 ballot, with Councilman Andy Cohen opposed. Consideration of the matter at Tuesday's meeting was the legally required "second reading" of the ordinance. Both votes require a two-thirds majority to pass, which means four votes on a five-person council.

Since last week, the council has 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 at this week's meeting 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. At last week's meeting, 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.

At the July 20 council meeting, 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 the January 2012 effective date.

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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Posted by Hank Lawrence
a resident of Menlo Park: Sharon Heights
on Jul 28, 2010 at 6:04 pm

The worst time to raise taxes is is an economic downturn. In an economic downturn the tax elasticity is well above 1. This means that if you decrease the tax rate the tax base will increase disproportionately resulting in more tax revenues.

The Stanford Park Hotel and the Rosewood Hotel have been very beneficial for Menlo Park. To cause them economic hardship will directly correlate to decreased tax revenues.

The new council that will be seated in December should actually pull this measure and substiture another measure that states that it will only raise the tax rates if the occupancy rates at both hotels average greater than 90%. Otherwise we should leave well enough alone.

Like this comment
Posted by hanging around
a resident of Menlo Park: Central Menlo Park
on Jul 28, 2010 at 8:46 pm

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."

Her statement is really remarkable. According to her, Council should have gone ahead with this, just because McClure had to spend his valuable time writing up the motion. Just where does she come from?

For her information, that is why they have second readings, so that more information might appear which might change a previous decision. IN this case, Boyle decided that this wasn't the time to raise taxes. Cohen, being the wise one, knew that much earlier.

A major defeat for Kelly and Heyward, who both are tax and spenders. Now I understand that the deficit has ballooned about the last 6 weeks from $500,000 to 2,500,000 and still Fergusson doesn't want to discuss this until after the election.

Like this comment
Posted by Shame On Us
a resident of Menlo Park: Fair Oaks
on Jul 29, 2010 at 12:10 pm

Shame on Us Menlo Park if we vote Ms. Kelly Ferguson to more years of public service. Her liberal taxing and spending ideology will do nothing for us, but get us into trouble. She has no idea how to take care of the taxpayers dollars. And I am a very liberal Democrat!

Like this comment
Posted by No brainer trainer
a resident of Menlo Park: Central Menlo Park
on Jul 29, 2010 at 2:26 pm

This should have been a no-brainer.

Anyone who travels recognizes that they get dinged for such taxes and fees by hotels. On a $300 per night room, the extra 2% would be $6. This should have no effect on a decision to use the Rosewood or not, especially since their guests are dinged $14 a day for Internet access, and $35 a glass of wine. Also the Stanford charges guests a mandatory 'amenity fee' of $15 on top of the room rate, and apparently that doesn't affect their decisions to stay there.

I don't like raising taxes, but this decision should have been a no-brainer and the council unnecessarily left $ on the table.

Like this comment
Posted by POGO
a resident of Woodside: other
on Jul 29, 2010 at 3:10 pm

I'm not fond of increasing taxes on anyone - rich or poor - especially when the economy is trying to recover from a serious recession.

As a frequent traveler, I do not consider taxes when I book my hotel rooms or airline fares. I know that when a hotel room is supposed to cost $200, it'll probably be more like $230 or $240 after taxes.

While it is probably true that people who can afford to stay at the Rosewood probably don't care about the tax, it would be nice to see elected officials tighten their belts. You can't tax your way to solvency.

Like this comment
Posted by Henry Riggs
a resident of Menlo Park: Suburban Park/Lorelei Manor/Flood Park Triangle
on Jul 29, 2010 at 6:27 pm

It may well be that another $6 on your $300 room rate won't make you rethink. Or, maybe like the straw that broke the camel's back, looking over the added charges and seeing $36 in occupancy tax will be the last straw. Hotel managers would know this better than I, so I leave it at that.

What is disturbing is the idea that incremental tax increases are OK because each one is small. Burlingame Hills has seen incremental increases in its sewer connection charge that raised them, incrementally, to over $800 per year. Our sales tax rate has risen, incrementally, to nearly $100 on a $1000 purchase. There need to be limits.

Like this comment
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Jul 29, 2010 at 6:33 pm

What is deeply troubling is that the MP Council's entire approach to a deficit is to eagerly looking for new revenue, i.e. taxes and fees, while ignoring the cutting of expenses.

Why not just CONSIDER saving $7 million/year by outsourcing police services? That would produce both a balanced budget and substantial excess revenue without any tax or fee increases.

Like this comment
Posted by Just Wondering
a resident of Menlo Park: other
on Jul 30, 2010 at 5:36 am


Please stick to the topic - the hotel tax.

Like this comment
Posted by POGO
a resident of Woodside: other
on Jul 30, 2010 at 10:15 am

With regard to the incrementalism cited by Mr. Riggs, it is true that "a small tax here" and "a small tax there" adds up quickly. There is no better example of this than our patchwork of parcel taxes. Each was passed by proponents who say that the cost is equivalent to a Starbucks coffee each day. But four or five of those add up to thousands of dollars a year in taxes.

Mr. Carpenter is also correct. There is plenty of room for our cities and towns to save money before they should consider new taxes.

Cities should live within their means, just like the rest of us.

Sorry, but further commenting on this topic has been closed.

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