When tens of thousands of visitors arrive on the Monterey Peninsula for large special events, do you wonder: where do visitors stay and do the citizens of Monterey County benefit from large special events?
"Hotel Tax" Revenue
Though locals complain about tourists, we benefit from tourism. One of the largest to Monterey County is payment of Transient Occupancy Tax (TOT), sometimes called “hotel tax.” The State, through Revenue and Taxation Code 7280, authorized counties and cities to levy a tax on anyone occupying a room, rooms, or other living space for less than 30 days. There are exemptions for employees of foreign, federal, or California State, or city governments on of cial business.
Code 7280 grants the power to impose TOT to any California County Board of Supervisors or City Council. The tax is based on the amount charged per night, multiplied by the number of nights. If a hotel decides that during a large special event rooms will be rented at a premium, then the room rate and TOT will soar.
The Taxation Code does not impose a cap on the TOT rate. In general rates vary from 3.5% to 15% with the state average around 10%. Unincorporated parts of Monterey County levy a 10.5% TOT. The hotel tax in incorporated cities in Monterey County vary: Carmel, Pacific Grove, Monterey, Salinas, and King City levy 10%; Seaside, Marina, Sand City, and Soledad levy 12%. By comparison, San Francisco and Los Angeles collect 14%.
How much TOT is collected?
In fiscal year 2015-16, Monterey County collected $22.8 million, Monterey City collected $20.8 million, Carmel collected $5.9 million, Pacific Grove projected $3.8 million, Seaside collected $2.7 million, and Salinas projected $2 million. For each of these jurisdictions, TOT was a large part of their budgets. In general the three largest sources of revenue were property tax, TOT, and sales tax. TOT is dependent on levels of tourism. During economic downturns, TOT collections fall. Since 2012, collections have improved and grown steadily.
Does TOT revenue benefit local residents?
TOT was originally meant to compensate local jurisdictions for increased public service costs incurred when serving tourists, such as: law enforcement, parking, trafic congestion, roads, bridges, sewer and water, public transit, lanfill, public safety, emergency response, plus administrative costs to respond to these impacts.
However, for most jurisdictions it is dificult to trace where TOT goes. In general, TOT flows into General Funds. From there the money flows to various services such as fire, police, library, parks and recreation, building and planning, administration, and capital projects.
Exceptions are Monterey County, and the cities of Carmel and Monterey where a special tax was imposed to be used for a specific purpose. In Monterey County, part of its TOT revenue is earmarked: 6% for the Monterey County Convention & Visitors Bureau, 1.98% for the Arts Council, and 0.98% for the Film Commission. These earmarks eventually end in the General Fund.
In 2013, the County added a Road Fund as a bene ciary of the TOT formula. This Fund started at 20% of TOT revenue and is set to increase by 1% each year until it reaches a cap of 25% in June 2018 and remains separate from the General Fund.
In Carmel, the rst 6% of TOT revenue goes to community, cultural and recreation activities (e.g., Sunset Center, Forest Theater, parks, public facilities, municipal structures, parking lots). If revenue remains of the first 6%, TOT pays for the acquisition and improvement of parks, recreation land, and other municipal purposes. The rest of TOT (94%) is added to the General Fund for usual and current expenses. In the City of Monterey, 16% of TOT is restricted for the Neighborhood Improvement Program. The remainder goes to the General Fund.
What is TID and where does it go?
Monterey County and its municipalities also collect a Tourism Improvement District (TID) assessment (or Hospitality Improvement District assessment). The difference between a tax and an assessment is: a tax is a charge against an individual or landowner that pays for public services and facilities that provide general benfits; an assessment is an involuntary charge levied on property to pay for public improvements because the landowner receives a specfic benefit from these improvements. Assessments are not based on the value of the property, and government cannot divert it for other purposes.
While TOT is based on the cost of a hotel room, the TID is based on the number of nights the room is occupied. Monterey County TID varies from $1 to 2 per night; in Salinas, the TID can vary from $1.50 to $2.50 per night. So if a hotel decides that during a large special event, rooms will be at a premium, then the hotel may impose a length of stay requirement (i.e. three night stay for a one day event), and the amount of TID will soar.
TID goes to the Monterey County Convention & Visitors Bureau (MCCVB) to market the County as a tourism destination, and benefit its lodging businesses. So tourists are paying to increase the number of tourists in the future. In FY 2015-16, MCCVB received $4,094,439 in TID. In addition, they got an additional $2,778,349 from County and municipality General Funds. The largest funders were the County and the City of Monterey.
Are there other tourism levies?
In the City of Monterey, a special assessment is levied to pay for the rehabilitation and upgrade of the Monterey Conference Center. The Center is considered important to attracting large special events as it has the largest meeting facilities on the Monterey Peninsula. The three hotels adjacent to the Center are assessed 4.25% of all rent. In the rest of the City, any full-service hotel providing food and beverages in addition to lodging are assessed 1.6% of all rent. Hotels not in the above categories are assessed 0.80% of all rent.
In the cities of Carmel and Monterey, grant programs support special events. Monterey budgeted $30,000 for FY 2016-17 for local organizations and causes which benfit Monterey residents or for large scale events based in the City.
Carmel has similar grants administered by the Carmel Community Activities & Cultural Commission. Unfortunately this year, requests exceeded the budget. Carmel cut by 30% requests from local organizations (e.g., Carmel High School, Sand Castle Contest, Lions Club Easter breakfast, Art Festival), and asked them to pay the rest of the fees owed to the City. They also cut the Concours on the Avenue request by 95% (saying that other organizations may want to take Concours' place).
Are TOT, TID and other levies sustainable major revenue streams for Monterey County?
There are a number of problems with counting on tourist levies for local government income:
First, tourism levies fluctuate with the economy, so local governments should have strong contingency plans for periods of economic downturns.
Second, while local ordinances exempt campsites and time-share estates, short term rentals (STRs) are not exempt. Until Monterey County and some its municipalities enact ordinances regulating short term rentals, local governments are missing out on additional revenue.
Third, in the name of transparency, local government should do more to inform residents the benfits they derive from tourism and special events. Local governments could highlight projects and benfits which levies pay for in order to prevent backlash.
Fourth, the voters have the right to approve tourism levies. Local government may be tempted to say “let’s raise more revenue by raising the TOT.” However in 1996, California voters approved Proposition 218 which required that increasing TOT tax be approved by a majority vote of the public. And any TOT special tax which speci cally designated uses for the funds would require a 2/3rds voter approval.
Kemay Eoyang, Kemay.Eoyang [at] gmail.com
For more information go to:
www.co.monterey.ca.us/taxcollector/TOT_Intro. html, www.ci.seaside.ca.us/207/Transient- Occupancy-Tax, www.cityof salinas.org/ le/883/download, www.codepublishing.com/CA/Monterey/? Monterey35, www.cityofpaci cgrove.org/ about-city nance, www.codepublishing.com/ CA/CarmelbytheSea/?Carmel03/Carmel0332. html&?f, www.ci.marina.ca.us › Departments › Financesandcity.org/wp-content/.../ORD-16- 06-Increase-the-Rate-of-TOT-from-8-to-12.pdf, https://ballotpedia.org/Soledad,_California,_ Hotel_Tax,_Measure_F_(November_2016), www. kingcity.com › City Departments