TAX NEWS - 2010

California Tax: Petaluma to debate hiking hotel tax

Petaluma's City Council is set tonight to tackle three issues for the November ballot, including a controversial proposal to increase the city bed tax.

A hike in the so-called transient-occupancy tax, or hotel tax, surfaced during budget discussions as a way to increase general-fund revenues, which pay for the bulk of city salaries and services.

At its regular meeting, the council also will discuss ballot language for two measures, in one instance supporting a measure to extend the city's urban growth boundary to 2025 and in the other opposing a citizens' effort to force a rollback in wastewater rates to 2006 levels. Public hearings on those issues are scheduled for the July 12 meeting.

Hotel tax measures traditionally have been considered relatively easy to pass because voters aren't assessing themselves. But in rough economic times, some voters are leery of any new taxes.

Regardless, the measure may not even make it to voters. Council members aren't united in their support of it, and the lodging industry is solidly opposed to it.

The city currently charges a tax of 10 percent per night in stays at the city's seven hotels, inns and campgrounds. City staff studied a possible increase of 2 percentage points, to 12 percent. An additional 2 percent is charged and goes to a countywide tourism fund.

An increase of 2 percentage points would raise an estimated $220,000 a year, City Manager John Brown said. Last year, the tax raised about $1.1 million, down from a high of $1.48 million in 2007-08.

Councilman Mike Healy opposed putting the issue on the council agenda. He said the tax could be considered a special tax, one which proceeds are earmarked for a specific purpose. Special taxes require a two-thirds vote of approval from the electorate.

A general-purpose tax requires a majority vote of citizens, but needs a two-thirds approval of the City Council.

"I think it's virtually impossible for voters to approve it at the two-thirds level and I think it will be defeated at the 50 percent level," Healy said.

A two-thirds vote of the council, five out of the seven members, may not be possible. Along with Healy, Mike Harris has voiced opposition, and David Rabbitt has said he has concerns.

Tiffany Renee said she wants a discussion of the overall policy of how hotel tax money is spent.

The municipal code restricts use of the funds solely to "promotional purposes" that the council finds will "contribute to the growth, enlargement and prosperity of the city."

Brown said it appears the hotel tax historically has been treated as a general tax.

"If it does move forward," Renee said, "I'd like something that we can begin to allocate for specific projects, like the veterans parade, Butter and Egg Days."

City funding for both of the popular events was cut this year.

Renee said voters may feel more inclined to approve a special tax if they are guaranteed how the money will be spent. "The more carefully crafted the proposal is, the better success it will have if it has to be a specific tax," she said. "Hopefully, we can craft an ordinance that hoteliers and residents can get behind."

Councilman David Glass said the council wouldn't support an increase if the lodging industry is opposed, which it is, according to several letters to the city in the past month from hotel owners. Hoteliers have said such an increase would put them at a disadvantage in attracting business and leisure travelers.

An increase to 12 percent would put Petaluma's bed tax among the highest in the county.