HomeMy WebLinkAbout2023-10-24; City Council; ; Potential Transient Occupancy Tax IncreaseCA Review _AF_
Meeting Date: Oct. 24, 2023
To: Mayor and City Council
From: Scott Chadwick, City Manager
Staff Contact: Laura Rocha, Deputy City Manager, Administrative Services
laura.rocha@carlsbadca.gov, 442-339-2415
Zach Korach, Director of Finance
zach.korach@carlsbadca.gov, 442-339-2127
Subject: Potential Transient Occupancy Tax Increase
Districts: All
Recommended Actions
Receive a report requested by the City Council regarding a potential increase of the city’s
transient occupancy tax rate and provide feedback and direction on next steps, if any.
Executive Summary
The City of Carlsbad prides itself on providing a high level of service to the community, from
well-maintained infrastructure to dedicated police, fire and emergency services, beautiful parks
and a wide array of programs and events that support an excellent quality of life. To sustain this
high level of service, the city must ensure annual costs do not exceed the revenues the city
receives each year to fund these services.
One way the city’s Finance Department monitors the city’s fiscal health is by forecasting
projected spending and revenues over a five-to-10-year period. In spring 2021, when
presenting the proposed fiscal year 2021-22 city budget to the City Council, finance staff
identified a potential structural deficit beginning in fiscal year 2025-26. A structural deficit
means that projected ongoing spending exceeds projected ongoing revenues. Identifying a
possible structural deficit early allows the city to reduce ongoing spending, bring in new
revenues, or both, to maintain long term fiscal sustainability.
The City Council directed staff to research options to generate additional revenue, while the
City Manager worked with all city departments to identify ways to reduce ongoing spending
without affecting the high level of service expected by the community.
The following spring, on April 20, 2022, city staff presented the findings of the revenue study,
which showed a 1% sales tax increase would generate the highest amount of new ongoing
revenue and was supported by a majority of Carlsbad voters. The study also noted that the city
could lose the opportunity to ask voters for a sales tax increase if the state, the county or the
San Diego Association of Governments pass their own sales tax measures. This is because state
Oct. 24, 2023 Item #7 Page 1 of 17
law limits the total amount of sales tax imposed in each county, and several local jurisdictions
have already passed their own sales tax measures.
The revenue study presented in April 2022 also identified a transient occupancy tax increase as
a potential new source of revenue. This is a tax paid by visitors staying in Carlsbad hotels and
short-term vacation rentals. Staff did not recommend this option because a 1% TOT increase
would generate about $3 million to $3.5 million a year in additional revenue compared to a 1%
increase in sales tax, which would generate about $40 million a year.
On April 4, 2023, city staff provided a financial update to the City Council, which showed that a
structural deficit was still projected starting in fiscal year 2025-26. Staff reviewed steps taken to
reduce city spending by finding efficiencies and other operational changes with minimal effect
on the community and reviewed potential future revenue sources. At that time, the City
Council asked staff to explore a transient occupancy tax increase, including getting feedback
from lodging providers, and return with more information and options for placing a transient
occupancy tax increase on the November 2024 ballot.
Staff have completed this research, the findings of which are presented in this report.
Explanation & Analysis
Background
City staff presented information to the City Council in spring 2021 showing a potential General
Fund structural deficit beginning in fiscal year 2025-26 and continuing into future years. The
City Council then asked staff to research potential new sources of revenue to address the
potential deficit. Staff completed a revenue study, which was presented to the City Council
April 20, 2022.
On April 4, 2023, city staff provided another overview of the city’s fiscal condition, which
continued to show a potential future General Fund structural deficit beginning in fiscal year
2025-26. At that meeting, city staff presented several options to address the city’s ongoing
fiscal health, including increasing efficiency, increasing fees to cover the true cost of services,
reducing city services, and asking voters to approve a parcel, sales or transient occupancy tax
increase.
The City Council asked staff to continue to work to find more efficiencies and voted to direct
staff to place an item on a future City Council agenda with more information regarding a
potential transient occupancy tax increase. The City Council directed staff to evaluate the pros
and cons, consider the potential for unintended consequences, gather feedback from tourism
industry representatives, and research the procedural steps, cost and timeline for placing a
measure on the November 2024 general election ballot for voters to decide.
Updated fiscal forecast
Sales and transient occupancy tax revenues have rebounded over the last two years due to
unprecedented inflationary increases sustained by pent-up demand from the COVID-19
pandemic. During this same timeframe, all city departments have found new ways to reduce
ongoing General Fund spending, which has helped mitigate the budget impact of rising costs of
goods and services due to inflation.
Oct. 24, 2023 Item #7 Page 2 of 17
The city’s financial forecast now shows a structural deficit first appearing in fiscal year 2028-29,
three years later than in previous forecasts. While this outcome is good for the city’s short term
financial picture, it’s considered to be unique, one-time in nature. Revenues are expected to
increase on average by 2.5% annually over the next 10 years, while expenditures are expected
to increase on average by 4.0% annually, meaning the city’s structural deficit has been delayed,
not eliminated.
10-year forecast
Rising costs
Several factors contribute to anticipated increases in expenditures:
•Aging infrastructure, decreasing developer fees
o As the city approaches a time when most of the major new development has
occurred, revenue from development fees will decrease significantly.
o City infrastructure, originally funded by those fees, is now aging and needs
maintenance or replacement.
•New community facilities and amenities
o The fiscal year 2023-24 Adopted Capital Improvement Program Budget included
$97.7 million in new appropriations, with a total of $798 million planned to fund
245 projects over the next 15 years.
o In addition to the cost to build these projects, many will require ongoing costs to
operate and maintain. These include Veteran’s Memorial Park, Robertson Ranch
Park, Fire Station 7 and the Monroe Street Pool.
•Increasing population, denser housing
o Carlsbad’s caps on growth are no longer enforceable due to new state housing
laws. This means Carlsbad’s population will continue to increase, along with the
need to provide services to more people.
Oct. 24, 2023 Item #7 Page 3 of 17
o To provide Carlsbad’s share of regional housing needs, most of the new
development will be apartments and condominiums, which do not provide as
much property tax revenue as single-family homes.
• Trends in other costs
o The cost of compensation required to attract and retain city employees and
increasing claims against the city (general and workers’ compensation-related)
have increased. The financial forecast utilizes recent cost trends to forecast
future costs.
Reducing ongoing spending
As detailed in the staff report presented to the City Council April 4 (Exhibit 1), the city has taken
many prudent steps to reduce operational costs and better align the city budget with City
Council priorities. This has included eliminating department contingency budgets, reducing
department budgets based on historical savings and implementing more efficient and cost-
effective ways of providing services. Over the past two years, city staff have reduced ongoing
operating expenses between 2% and 3% during a time when inflation was between 6% and 8%.
Any additional reductions to ongoing spending would likely require reductions in city services
that could be noticeable to the community. If additional spending reductions are needed to
address the structural deficit, staff will disclose any anticipated public impacts so the City
Council can make an informed decision.
Revenue enhancement options
Cities have several options to consider in determining how best to close an anticipated funding
gap, including postponing major new projects, finding more efficient ways to deliver services,
eliminating services that aren’t core to the city’s mission and expanding the revenue base.
In 2021, the City Council directed staff to study potential new sources of revenue. City staff
hired a firm specializing in municipal revenue studies and strategy, Terris Barnes Walters Boigon
Heath Lester Inc., or TBWBH Props & Measures, to identify and assess revenue enhancement
options for the City of Carlsbad. The firm’s findings and recommendations were presented to
the City Council on April 20, 2022.
A couple of the report’s key findings and observations were that:
• The majority (58%) of Carlsbad voters would either “definitely” or “probably” support a
1 cent-on-the-dollar sales tax measure.
• Voters’ priorities include:
o Maintaining parks, open spaces and recreation facilities
o Maintaining streets and roads
o Keeping trash and pollution out of waterways and off beaches
o Keeping public areas and facilities clean and graffiti-free
o Providing adequate 911 emergency response and fire protection and prevention.
• Legalizing and taxing recreational cannabis sales was not supported by a majority of
Carlsbad residents.
Oct. 24, 2023 Item #7 Page 4 of 17
As noted previously, other types of revenue enhancements available to the city include, but are
not limited to, increasing transient occupancy tax, levying a parcel tax and establishing
financing districts.
Transient occupancy tax
Transient occupancy taxes are assessed on occupants of hotel, motels, resorts and short-term
vacation rentals in Carlsbad. These revenues comprise approximately 15% of the city’s General
Fund revenues and totaled $34.3 million in FY 2022-23.
Carlsbad’s transient occupancy tax rate is 10% and has not been increased since 1990. The City
Council could decide to ask voters to increase this tax. Each 1% increase is projected to
generate an additional $3 million to $3.5 million in General Fund revenue each year.
The chart below shows a 2% increase in transient occupancy tax would postpone by one year
the beginning of a structural deficit and reduce the overall amount of the deficit in future years.
Forecast showing effect of 2% transient occupancy tax
Lodging-based assessments
Some cities impose assessments on lodging businesses to pay for marketing activities for the
city as a destination or for other services that benefit the businesses. Carlsbad has two such
assessments:
• All overnight stays are subject to a 2% assessment through the Carlsbad Tourism
Business Improvement District.
Oct. 24, 2023 Item #7 Page 5 of 17
•Businesses may choose to opt into the 1% per room night assessment collected through
the Carlsbad Golf Lodging Business Improvement District.1
Because a city might impose a transient occupancy tax as well as such assessments, a city’s all-
in combined rate of both lodging tax and assessments provides a more meaningful basis for
comparison than simply comparing the tax rates.
Analysis of competitive cities
After consulting with local tourism industry stakeholders, notably from the destination
marketing association Visit Carlsbad, staff researched the transient occupancy tax and lodging-
based assessments of 10 Southern California cities that are competitive with Carlsbad from a
tourism perspective. This was essential to understand and measure the possible implications a
transient occupancy tax increase might have on Carlsbad’s’ competitiveness as a tourism
destination.
The cities are:
•Anaheim
•Coronado
•Dana Point
•Huntington Beach
•Laguna Beach
•Newport Beach
•Oceanside
•San Diego
•Santa Barbara
•Santa Monica
Comparing Carlsbad to other destination cities in Southern California rather than to only other
San Diego County cities is useful because groups looking for locations for conferences or events
might weigh Carlsbad against other popular tourist destination cities in the broader region or
beyond and may be more sensitive to cost than individual travelers.
Nearby coastal cities such as Oceanside, San Diego and Coronado are naturally competitive
because of the regional nature of tourism, and travelers intending to visit Southern California
often evaluate several options in the region before choosing one.
Other Southern California cities, such as cities like Anaheim, Santa Monica, Newport Beach, and
Santa Barbara, were included based on similarities in the attributes that determine
competitiveness in the hospitality and tourism sector. For example, Carlsbad has more than
5,000 available rooms, far more than any other city in North County. Large groups and
conferences that require large numbers of rooms will compare Carlsbad with other cities with
similar or greater capacity.
1 All assessment funds go to benefit hotel and lodging businesses in the city in the form of marketing, grants and
special programs. City services are not funded by the additional assessment on hotels, which has been approved
by a majority of hotel and lodging businesses in Carlsbad.
Oct. 24, 2023 Item #7 Page 6 of 17
Other factors in selecting the cities used for comparison were:
• Average daily room rate
• Variety in lodging and venue options
• Coastal Southern California location
• Proximity to major airports
• Range of community attractions and available amenities.
In terms of the all-in lodging tax/assessment rate, Carlsbad stands at 12%-13%, depending on
whether a property chooses to be a part of the voluntary golf assessment as part of the
Carlsbad Golf Tourism Business Improvement District.
The table on the following page shows the all-in rate, the transient occupancy tax rate, the type
of tourism-related special district (if any), any add-on assessments and the sales tax of the 10
cities selected for comparison.
Oct. 24, 2023 Item #7 Page 7 of 17
Current tourism-related taxes in comparison cities
City All-in rate
Transient
occupancy tax
Tourism-related
district
Add-on/
Assessments1 Sales tax
Anaheim 17% 15%
Tourism
Improvement
District
2% 7.75%
Santa Monica 15%-17.1%
Hotel: 15%-
17.1%
n/a
Add-on from $2
to
$6.50,
depending on
room rate
10.25% Short-term
rentals:
17%-19.1%
Santa Barbara 14% 12%
Tourism
Marketing
District
2% 8.75%
Laguna Beach 14% 12%
Tourism
Marketing
District
2% 7.75%
Huntington
Beach 14% 10%
Tourism Business
Improvement
District
4% 7.75%
Newport Beach 13% 10%
Tourism Business
Improvement
District
3% 7.75%
Oceanside 13% 10%
Tourism Business
Improvement
District
2.5% until 2025 8.25%
San Diego 12.5% 10.5%
Tourism
Marketing
District
2% (70+ rooms) 7.75%
Carlsbad 12%
13% opt-in 10%
Carlsbad Tourism
Business
Improvement
District
2%
7.75% Carlsbad Golf
Lodging Business
Improvement
District
1% (opt-in)
San Diego 12.5% 10.5%
Tourism
Marketing
District
2% (70+ rooms) 7.75%
Coronado 11% 10%
Tourism Business
Improvement
District
1% 7.75%
Dana Point 10.5%-11% 10%
Tourism
Improvement
District
$3 per room
night 7.75%
1. Nightly room rate
Oct. 24, 2023 Item #7 Page 8 of 17
With its current transient occupancy tax rate, Carlsbad’s all-in rate ranks in the bottom third of
those in the cities selected for comparison.
With a transient occupancy tax increase of 2%, the all-in lodging tax/assessment rate for
properties – not including golf properties – would rise to 14%. This would align Carlsbad with
the rates in the middle of the competitive set, like those in Huntington Beach, Laguna Beach
and Santa Barbara.
With a transient occupancy tax increase of 4%, Carlsbad would align with rates in cities at the
higher end of the competitive set, like those in Santa Monica and Anaheim.
Hospitality, lodging and tourism industry feedback
Staff are regularly engaged with the hotel and lodging industry and seek feedback to maintain a
vibrant industry. In addition to the normal course of engagement, staff held two research
sessions with industry representatives. All 42 Carlsbad hotel and lodging businesses were
notified at least three times through direct outreach to hotel owners or general managers. The
two engagement sessions were held on Oct. 16.
Staff presented an overview on the City Council direction to staff to research a transient
occupancy tax measure, the city’s fiscal status, research related to Carlsbad competitiveness in
tourism, and the effect of such a measure. Hotel industry participants had an opportunity to
provide input on the topic. Three industry representatives attended the sessions, including the
two largest generators of transient occupancy tax receipts, LEGOLAND California Resort and the
Omni La Costa Resort & Spa. The President and CEO of Visit Carlsbad also attended.
Feedback from industry stakeholders on the potential transient occupancy tax increase in
Carlsbad covered several key themes:
There is notable concern about Carlsbad’s competitiveness in the group tourism sector, which is
a key driver of the industry’s success and subsequent revenue generation in non-summer
months. Large group bookings not only benefit the hosting hotel but also drive higher demand
and occupancy in nearby properties. The industry stakeholders noted that some cities that have
increased their transient occupancy tax have used a portion of the funds to support tourism-related
activities or have amenities such as a convention center that help maintain their competitiveness. The
point was that putting part of a transient occupancy tax increase toward efforts that support
tourism could enhance its appeal and mitigate the increase’s impact on their businesses.
More than one participant noted that when juxtaposed with San Diego, which would have a
lower transient occupancy tax rate and boast proximity to the airport and other amenities,
Carlsbad's position would become less competitive for attracting larger groups.
The perception is that this would be further exacerbated by the fact that all Carlsbad hotels
with group space already voluntarily contribute an additional 1% through the golf assessment,
making their cumulative rate even higher. They also noted that group occupancy in Carlsbad
has not fully rebounded since 2019, lagging by four percentage points.
The participants did not comment on the potential impact to leisure travelers.
The financial implications of the proposed TOT increase were also highlighted. Stakeholders
noted the costs associated with placing the measure on the ballot and its minimal impact on
Oct. 24, 2023 Item #7 Page 9 of 17
the city's budget. Some suggested that a sales tax might be a more effective and equitable
solution because it would distribute the tax burden more broadly, impacting both residents and
visitors, all of whom use city services and infrastructure. They underscored the data that
showed that even a modest sales tax increase could generate substantially more revenue than
a transient occupancy tax increase.
Finally, the industry stakeholders called for updated city polling to gauge public sentiment on
potential revenue measures, including alternatives, such as a sales tax increase.
City staff also engaged representatives of the local business community, Chamber of Commerce
and Visit Carlsbad, who expressed similar concerns.
Anticipated revenue and performance outcomes
Staff identified increases in sales tax, transient occupancy tax, and/or lodging-based
assessments in the comparable cities that were adopted since 2010. Staff then collected
transient occupancy tax and sales tax revenue data for the one year before the increase and for
four years after the increase – where available – to determine whether any negative impacts on
the lodging/tourism industry could be attributed to the tax and/or assessment increases.
Exhibit 2 shows the transient occupancy tax revenue in the 10 comparable cities before and
after tax and/or lodging-based assessment increases. Exhibit 3 shows the sales tax revenue in
the comparable cities before and after such increases.
These analyses show no evidence of these increases in lodging-based taxes or assessments
curtailing the transient occupancy tax or sales tax revenues generated in any of the comparable
cities.
The only downward turns in transient occupancy and/or sales tax revenues noted were those
occurring during either the Great Recession (fiscal year FY 2010-11) or the COVID-19 pandemic
(FY 2019-20 and FY2020-21).
Transient occupancy tax evaluation
Cities considering options to enhance General Fund revenue often use established evaluation
criteria to evaluate their options. These criteria are listed below, followed by staff’s evaluations
of a potential transient occupancy tax measure:
Adequacy and certainty – Does the option sustainably generate annual needed
revenue? Is the option subject to significant variation?
•A 1% increase in the city’s transient occupancy tax rate is expected to generate
$3 million to $3.5 million in General Fund revenue each year. Research shows
that variability in transient occupancy revenue generation correlates to the
broader economic trends that impact the tourism industry. When the economy
is strong, leisure, group and corporate travel is strong; however, the opposite is
typically true when the economy is weak, so transient occupancy tax revenues
will likely fluctuate with changes in the economy.
Equity and fairness – Is the fiscal burden appropriately spread and proportionate to
surrounding communities? Does the option avoid highly skewed economic incentives?
Oct. 24, 2023 Item #7 Page 10 of 17
• The city has added several new or expanded city operations and services in
recent years, which directly benefit the local hospitality and tourism industry.
• The following is a partial list, which includes new investments in public safety,
community services and sustainability.
Public safety
o Homeless Response Program
o Police body worn cameras
o Beach lifeguard program
o Trail ranger program
o Lagoon patrol (on-water)
o Expanded public health role (due to pandemic)
Community services
o New community special events
o New and expanded park amenities
o Intergenerational Parks & Recreation programs
o Expanded city arts and culture programs
Sustainability
o Community Choice Energy electrical service
o New environmental initiatives
o Sustainable Mobility Program
• The hospitality and tourism industry activity has a direct and proportionate
impact on city infrastructure and demand for city operations and services, such
as streets, parks, and public safety, which includes police and fire protection,
lifeguards and homelessness response and services.
• Constructing, operating and maintaining city capital improvement projects
directly benefits the hospitality and tourism industry by making the city more
attractive to visitors.
Transparency – Is information on revenue and the tax system and how it operates easy
to find and understand?
• While there is a degree of complexity in the taxes and assessments applied to
lodging in Carlsbad, as discussed above, this information is readily accessible and
clearly communicated on the city’s website and can be found on most hotel and
booking websites and is relatively simple to understand for both operators and
visitors.
Simplicity – Does the option require multiple ballot measures (potentially causing voter
confusion and fatigue)? Would the option be highly burdensome, costly, or complicated
to administer (by the city of those who pay the assessment)?
• A general transit occupancy tax increase could be accomplished with a single
ballot measure and passed by a simple majority vote. Assessing an increased
transit occupancy tax rate would have no significant administrative impact.
Oct. 24, 2023 Item #7 Page 11 of 17
Ballot measure process
A two-thirds vote of the City Council, – four out of five – would be required to place any local
tax measure on the ballot. In California, all taxes imposed by local governments are classified as
either general or special taxes and must be put before voters as local ballot measures for
approval.
•A general tax is any tax levied to fund general government purposes and which goes into
the local government entity's general fund. General taxes must be approved by a simple
majority of voters (50% plus one vote), and must be put before voters at a regular,
general election.
•A special tax is any tax levied for a specific purpose such as transportation, fire or police
safety, parks and recreational facilities or homeless services. Special taxes must be
approved by a two-thirds supermajority of voters.
It would be up to the City Council to decide whether any potential increase in the transient
occupancy tax would be a general tax or a special tax.
The deadline for submitting a resolution to the County Registrar of Voters requesting a measure
to be placed on the Nov. 5, 2024, general election ballot is Aug. 9, 2024.
Additional steps
Should the City Council decide to direct staff to further explore placing a transient occupancy
tax measure on the ballot, staff recommend the following steps:
Phase 1 (three months)
•Develop impartial informational messaging and a plan for engaging key audiences,
including leaders in the local hospitality/tourism industry, and others who may
perceive their business to be directly impacted by a potential transient occupancy
tax measure
•Prepare answers to frequently asked questions
•If it’s deemed necessary, design and conduct a scientific opinion survey of likely
voters to assess feasibility of the proposed ballot measure
•Conduct a demographic analysis of Carlsbad voters
•Analyze past election results to understand voter turnout trends and other relevant
voting patterns
•Research other local tax proposals that may be heading to the ballot that could
compete with the proposed measure
•Develop recommendations regarding the optimal election date, ballot language, and
other important ballot measure features.
Costs
o $7,500 a month for consultant services for three months $22,500
o Scientific survey of likely voters (if needed)$30,000
Total: $52,500
Oct. 24, 2023 Item #7 Page 12 of 17
Phase 2 (three months)
• Develop impartial informational content for city website, social media and
newsletters, including a public-facing fact sheet, talking points and presentations for
the public
• Produce and distribute impartial informational materials to educate and inform
voters on the city’s funding needs
• Develop strategies and plans to inform internal and external stakeholder groups,
including elected and appointed leaders, employee groups, business leaders,
neighborhood leaders, faith community leaders, taxpayer groups and others
• Finalize ballot measure features, including the proposed tax rate, structure and
duration of the proposed tax, and the types of programs and services to be funded
• Work with the City Attorney to consider potential taxpayer accountability
protections, such as independent public oversight and public reporting, and develop
the ballot question
• Develop the resolutions and ordinances required for calling the election
• Present recommendations and documents to the City Council for its approval
Costs
o $7,500 a month for consultant services for three months $22,500
o Mailings and informational advertising (estimated) $25,000
Total: $47,500
Staff have obtained a proposal from Team CivX, a consultant firm operated by one of the
former principals at TBWBH Props & Measures, the firm that assisted the city in conducting
previous sales tax measure research efforts in 2021.
Upon the City Council’s direction, staff are prepared to engage Team CivX to assist with the
scope of work generally described above at a cost not to exceed $100,000.
Fiscal Analysis
Completing the tasks outlined above is estimated to cost up to $100,000. The General Fund’s
non-departmental contingency has sufficient funds available to cover this amount.
The Registrar of Voters has provided a cost projection of $135,000 - $175,000 for a measure to
appear on the November 2024 general election ballot. If the City Council decides to place a
ballot measure on a ballot, funding authorization for the associated cost would be requested at
that time.
Each 1% increase in the city’s current transient occupancy tax rate, if approved, would generate
an additional $3 million-$3.5 million annually. The additional revenue generated would
positively impact the city’s forecast, however, it would only delay the timing for which total
expenditures eventually exceed total revenues by one to two fiscal years.
Oct. 24, 2023 Item #7 Page 13 of 17
Options
Staff are requesting that the City Council consider the city’s financial outlook and the analysis
above and provide feedback and direction on any desired next steps.
Options for the City Council include, but are not limited to:
1. Take no further action at this time.
2. Direct staff to engage consultant resources to complete the Phase 1 scope of work
outlined above, to evaluate the feasibility of passing a transit occupancy tax measure
and return to the City Council for further direction. This is a necessary step to place a
transient occupancy tax on the ballot, but would not commit the City Council to doing
so.
3. Provide other direction as desired.
Next Steps
Staff will carry out the City Council’s direction with the appropriate steps, as described above.
Environmental Evaluation
In keeping with California Public Resources Code Section 21065, this action does not constitute
a project within the meaning of the California Environmental Quality Act in that it has no
potential to cause either a direct physical change in the environment, or a reasonably
foreseeable indirect physical change in the environment.
Exhibits
1. Financial status update staff report - April 4, 2023 (on file in the Office of the City Clerk)
2. Transient occupancy tax revenue generation in comparable cities before and after tax
and/or lodging-based assessment increases
3. Sales tax revenue generation in comparable cities before and after tax and/or lodging-based
assessment increases
Oct. 24, 2023 Item #7 Page 14 of 17
Exhibit 1
Financial status update staff report - April 4, 2023
(on file in the Office of the City Clerk)
Oct. 24, 2023 Item #7 Page 15 of 17
Exhibit 2
City Tax/assessment
increase Notes
TOT revenue
one year before
increase
TOT revenue
one year after
increase
TOT revenue
two years after
increase
TOT revenue
three years after
increase
TOT revenue
four years after
increase
Anaheim
Tourism Improvement
District established -
2010
Collects 2% assessment on
hotel rooms in distirct $80,055,000 $82,605,000 $90,376,000 $102,936,000 $110,134,000
Golf Lodging Business
Improvement District
established - 2012
Voluntary $2 per room-night
assessment on participating
businesses (in addition to
$1/room-night assessment
from Tourism Business
Improvement District)
$26,386,000 $29,301,000 $31,464,000 $33,202,000 $35,232,000
Tourism Business
Improvement District
assessment increased -
2020
Raised from $1 per room-
night to 2%$18,829,684 $32,356,591 $34,232,023 FY22-23 not
available Not available
TOT increased - 2012 Raised from 8% to 10% $8,902,884 $12,442,925 $13,763,729 $13,818,817 $14,577,717
Coronado Tourism
Improvement District
assessment increased -
2015
Raised from 0.5 to 1%$12,442,925 $13,818,817 $14,577,717 $15,264,023 $15,650,765
Dana Point
Number of hotels
participating in Tourism
Investment District
increased - 2019
Increased from four hotels to
11 $13,653,000 $10,686,000 $8,747,000 $16,195,000 FY22-23 not
available
Huntington
Beach
Tourism Business
Improvement District
assessment increased -
2019
Raised from 3% to 4%$8,810,000 $10,763,000 $9,253,000 $15,754,000 FY22-23 not
available
TOT increased - 2017 Raised from 10% to 12%$10,754,654 $14,708,047 $14,649,273 $11,939,790 $15,252,045
Tourism Business
Improvement District
established - 2020
Collects 2% assessment on
hotel rooms $14,649,273 $15,252,045 $21,111,332 FY22-23 not
available
FY22-23 not
available
Tourism Business
Improvement District
assessment increased -
2014
Raised from 2% to 3%$16,500,285 $20,369,158 $21,083,199 $22,382,361 $22,857,737
Number of hotels
participating in district
increased - 2018
$22,382,361 $24,697,446 $21,097,384 $16,886,197 $26,677,331
Oceanside Sales tax increased -
2019 Raised by 0.5% $7,944,470 $7,359,497 $9,282,023 $14,841,517 FY22-23 not
available
San Diego No increases N/A N/A N/A N/A N/A
Santa Barbara Sales tax increase
approved 2017 Increased by 1%$22,379,000 $22,650,000 $23,421,000 $18,168,000 $18,807,000
Santa Monica
Sales tax increased -
2016
(TOT increased
3/1/2023, no data
available)
Sales tax raised by 0.5%
(TOT raised from 14% to 15%
on hotels, from 14% to 17%
on short term rentals)
$51,021,000 $60,631,000 $60,763,000 $48,625,000 $20,692,000
Carlsbad*
* Carlsbad Golf Lodging Business Improvement District's voluntary assessment increased from $2 per room-night to 1% in July 2023. Revenue data not yet available.
Transient occupancy tax revenue generation in comparable cities before and after tax and/or lodging-based assessment increase
Coronado
Newport
Beach
Laguna Beach
Oct. 24, 2023 Item #7 Page 16 of 17
Exhibit 3
City Tax/assessment
increase Notes
Sales tax
revenue one
year before
increase
Sales tax
revenue one
year after
increase
Sales tax
revenue two
years after
increase
Sales tax
revenue three
years after
increase
Sales tax
revenue four
years after
increase
Anaheim
Tourism Improvement
District established -
2010
Collects 2% assessment on
hotel rooms in distirct $57,449,000 $55,034,000 $58,589,000 $62,793,000 $68,581,000
Golf Lodging Business
Improvement District
established - 2012
Voluntary $2 per room-night
assessment on participating
businesses (in addition to
$1/room-night assessment
from Tourism Business
Improvement District)
$26,386,000 $29,301,000 $31,464,000 $33,202,000 $35,232,000
Tourism Business
Improvement District
assessment increased -
2020
Raised from $1 per room-
night to 2%$36,491,172 $49,794,348 $54,747,787 FY22-23 not
available Not available
TOT increased - 2012 Raised from 8% to 10% $2,746,600 $3,258,208 $3,493,272 $4,041,392 $3,338,149
Coronado Tourism
Improvement District
assessment increased -
2015
Raised from 0.5 to 1%$3,258,208 $4,041,392 $3,338,149 $3,383,032 $3,602,816
Dana Point
Number of hotels
participating in Tourism
Investment District
increased - 2019
Increased from four hotels to
11 $5,385,000 $5,383,000 $5,294,000 $7,062,000 FY 22-23 not
available
Huntington
Beach
Tourism Business
Improvement District
assessment increased -
2019
Raised from 3% to 4%$33,844,000 $44,616,000 $51,162,000 $57,652,000 FY22-23 not
available
TOT increased - 2017 Raised from 10% to 12%$5,345,953 $6,124,970 $6,581,928 $5,583,948 $6,023,953
Tourism Business
Improvement District
established - 2020
Collects 2% assessment on
hotel rooms $6,581,928 $6,023,953 $7,980,085 FY 22-23 not
available NA
Tourism Business
Improvement District
assessment increased -
2014
Raised from 2% to 3%$20,764,204 $24,832,412 $33,937,986 $33,702,895 $36,373,253
Number of hotels
participating in district
increased - 2018
$33,702,895 $37,168,063 $36,232,969 $38,956,275 $46,164,860
Oceanside Sales tax increased -
2019 Raised by 0.5% $22,671,661 $37,051,162 $43,376,175 $48,981,222 FY 22-23 not
available
San Diego No increases N/A N/A N/A N/A N/A
Santa Barbara Sales tax increase
approved 2017 Increased by 1%$21,932,000 $25,203,000 $48,603,000 $44,465,000 $49,770,000
Santa Monica
Sales tax increased -
2016
(TOT increased
3/1/2023, no data
available)
Sales tax raised by 0.5%
(TOT raised from 14% to 15%
on hotels, from 14% to 17%
on short term rentals)
$54,803,000 $68,480,000 $73,709,000 $64,666,000 $64,302,000
* Carlsbad Golf Lodging Business Improvement District's voluntary assessment increased from $2 per room-night to 1% in July 2023. Revenue data not yet available.
Carlsbad*
Sales tax revenue generation in comparable cities before and after tax and/or lodging-based assessment increase
Coronado
Laguna Beach
Newport
Beach
Oct. 24, 2023 Item #7 Page 17 of 17
Transient Occupancy Tax
October 24, 2023
Jason Haber, Intergovernmental Affairs Director
Zach Korach, Finance Director
Matt Sanford, Economic Development Manager
1
ITEM 7: POTENTIAL TOT INCREASE
RECOMMENDED ACTION
Receive a report requested by the City Council regarding
the potential placement of a transient occupancy tax
measure for the Nov. 5, 2024, general election ballot and
provide feedback and direction on next steps if any.
2
•Background
•Updated financial forecast
•Research findings on potential transient occupancy
tax increase
•Options for next steps
OVERVIEW
3
ITEM 7: POTENTIAL TOT INCREASE
FINANCIAL HEALTH
4
ITEM 7: POTENTIAL TOT INCREASE
5
•Financial forecast provides early indicators of needed
adjustments
•Provides city with time to explore options, make
thoughtful decisions
•Part of the city’s long-term approach to financial
sustainability
FORECAST
6
ITEM 7: POTENTIAL TOT INCREASE
TIMELINE
7
May 2021
Staff presents forecast showing structural
deficit starting in FY 25/26
City Council directs staff to research
potential sources of new revenue
April 2022 April 2023
Staff provide findings of
revenue study
No additional action
Staff presents updated forecast
showing structural deficit starting in
FY 25/26
City Council directs staff to research
potential transient occupancy tax
increase
October 2023
Staff presents updated forecast
and findings of TOT research
WHAT’S CHANGED?
•Aging infrastructure, decreasing developer fees
•New programs and services
•New community facilities and amenities
•Increasing population, denser housing
•Other costs trending upward
8
ITEM 7: POTENTIAL TOT INCREASE
STEPS TO ADDRESS DEFICIT
•Increase efficiency
•Grant funding opportunities
•Reduce or eliminate nonessential services
•Cost recovery
•Reduce service levels
•Ask voters if they want to approve new revenue sources
9
ITEM 7: POTENTIAL TOT INCREASE
10
Inflation
6.4%
Proposed General Fund
M&O Budget
0.7%
11
12
$3.5 M
-3.8 M
-$5 M
$800,000
FY 25-26
FY 26-27
FY 24-25FY 23-24
JUNE 2022 FORECAST
FY 22-23
$460,000
$9.4 M
$5.8 M
13
$3.5 M
$13.2 M
-$4.2 M
FY 25-26 FY 26-27FY 24-25FY 23-24 FY 27-28
$1.9 M
FY 28-29
OCT 2023 FORECAST
CURRENT 10-YEAR FINANCIAL FORECAST
14
STEPS TO ADDRESS DEFICIT
Underway and continuing
•Increase efficiency
•Grant funding opportunities
•Reduce or eliminate nonessential services
•Cost recovery
Other steps
•Reduce service levels
•Ask voters if they want to approve new revenue sources
15
ITEM 7: POTENTIAL TOT INCREASE
REVENUE OPTIONS
16
WHAT OTHER CITIES HAVE DONE
17
18
WHAT OTHER CITIES HAVE DONE
No tax measures passed in
past 15 years
Tax measures passed in
past 15 years
APRIL 4, 2023
CITY COUNCIL DIRECTION
•Staff were directed to research a TOT rate increase including:
o Impact on the tourism industry
o Effect on the city budget
•Staff have researched:
o The effect of changes in TOT on competitor city budgets
o The TOT rate of competitor cities
o The impact on competitiveness, if any, on peer cities that have increased TOT
o Cost and process to place measure on November 2024 ballot
19
CARLSBAD ECONOMIC MIX
•Carlsbad’s GRP is $16.6B
•Five Key Industries
–Cleantech
–Life Sciences
–Sports and Active Lifestyle
–Tech
–Tourism
•Tourism represents approximately $1.1B of Carlsbad’s GRP
20
CARLSBAD HOTELS
AND LODGING
ESTABLISHMENTS
Carlsbad is home to
•42 Hotels and Loding
Establishments in the City
•417 Short Term Vacation
Rentals
21
TOURISM TREND
22
TOURISM TREND
23
WHAT SETS CARLSBAD APART
•Sense of place
•Pride in look, feel, and infrastructure
•Understanding the value of the experience for residents,
workers, and visitors
•Comfort to go out and enjoy amenities
•Mobility options
•Safety
•Streets, roads, public safety, recreation, and events
24
OUR COMPETITION
Factors include:
•Geography (Southern California)
•Mix of available lodging options
•Total capacity of lodging establishments in the city
•Nearby amenities
•Proximity to major infrastructure like airports
25
OUR COMPETITION
26
COMPETITIVE POSITION - TOT
City All-in rate Base TOT Rate
Anaheim 17%15%
Santa Monica 15%-17.1%15%
Santa Barbara 14%12%
Laguna Beach 14%12%
Huntington Beach 14%10%
Newport Beach 13%10%
Oceanside 13%10%
San Diego 12.5%10.5%
Carlsbad 12%10%
Coronado 11%10%
Dana Point 10.5%-11%10%
27
TOT INCREASE SCENARIOS POSITION
City All-in rate Base TOT Rate Percent Increase Revenue
Anaheim 17%15%
Santa Monica 15%-17.1%15%
Santa Barbara 14%12%
Laguna Beach 14%12%
Huntington Beach 14%10%
Newport Beach 13%10%
Oceanside 13%10%
San Diego 12.5%10.5%
Carlsbad 12%10%0%$0
Coronado 11%10%
Dana Point 10.5%-11%10%
28
TOT INCREASE SCENARIOS POSITION
City All-in rate Base TOT Rate Percent Increase Revenue
Anaheim 17%15%
Santa Monica 15%-17.1%15%
Santa Barbara 14%12%
Laguna Beach 14%12%
Huntington Beach 14%10%
Newport Beach 13%10%
Oceanside 13%10%
Carlsbad 13%11%1%$3m
San Diego 12.5%10.5%
Coronado 11%10%
Dana Point 10.5%-11%10%
29
TOT INCREASE SCENARIOS POSITION
City All-in rate Base TOT Rate Percent Increase Revenue
Anaheim 17%15%
Santa Monica 15%-17.1%15%
Santa Barbara 14%12%
Laguna Beach 14%12%
Huntington Beach 14%10%
Carlsbad 14%12%2%$6m
Newport Beach 13%10%
Oceanside 13%10%
San Diego 12.5%10.5%
Coronado 11%10%
Dana Point 10.5%-11%10%
30
TOT INCREASE SCENARIOS POSITION
City All-in rate Base TOT Rate Percent Increase Revenue
Anaheim 17%15%
Santa Monica 15%-17.1%15%
Carlsbad 15%13%3%$9m
Santa Barbara 14%12%
Laguna Beach 14%12%
Huntington Beach 14%10%
Newport Beach 13%10%
Oceanside 13%10%
San Diego 12.5%10.5%
Coronado 11%10%
Dana Point 10.5%-11%10%
31
TOT INCREASE SCENARIOS POSITION
City All-in rate Base TOT Rate Percent Increase Revenue
Anaheim 17%15%
Carlsbad 16%14%4%$12m
Santa Monica 15%-17.1%15%
Santa Barbara 14%12%
Laguna Beach 14%12%
Huntington Beach 14%10%
Newport Beach 13%10%
Oceanside 13%10%
San Diego 12.5%10.5%
Coronado 11%10%
Dana Point 10.5%-11%10%
32
COMPETITOR CITIES THAT RAISED TOT
•Cities that have raised TOT did not see an impact to
their TOT revenue in the near nor long-term
•Cities that added a tourism focused assessment did not
see a negative impact to their TOT revenue and instead
saw growth
•TOT revenue was impacted by COVID-19 in all
competitor cities
33
INDUSTRY INPUT
•Group travel is most sensitive to price shock
•Other cities could use a TOT differential to their competitive
advantage
•Other cities use a portion of TOT in addition to a tourism assessment
to support tourism
•A sales tax increase would be more equitable with residents, visitors,
and the tourism industry all contributing
•New polling should be done to look at sentiment for TOT increase in
comparison with other revenue areas, like Sales Tax
34
PROCESS FOR A BALLOT MEASURE
•A two-thirds vote of the City Council (4 votes) is required
to place any local tax measure on the ballot
•General tax requires 50% + 1 vote to pass
•Special tax requires a two-thirds vote to pass
•Deadline for submitting measure for Nov. 5, 2024, ballot:
August 9, 2024
•San Diego Registrar of Voters estimated cost:
$135K -$175K
35
PROCESS FOR A BALLOT MEASURE
•Phase 1: Ballot Measure Feasibility (3 months)
•Develop impartial informational messaging
and stakeholder engagement plan
•Research and assess feasibility
•Research competing measures
•Develop and present recommendations: optimal
election date, ballot measure language & features
•Estimated cost: $52,500
36
PROCESS FOR A BALLOT MEASURE
•Phase 2: Public Education, Ballot Measure Preparation
(3 months)
•Develop public-facing informational content
•Educate and inform voters on city's funding needs
•Finalize ballot measure features
•Develop City Council resolution and ordinance
•Estimated cost: $47,500
37
OPTIONS FOR CITY COUNCIL
1.Take no further action at this time.
2.Direct staff to engage consultant resources to complete the Phase
1 scope of work to evaluate the feasibility of passing a transit
occupancy tax measure and return to the City Council for further
direction.
•This is a necessary step to place a transient occupancy tax on
the ballot, but would not commit the City Council to do so.
3.Provide other direction as desired.
38
ITEM 7: POTENTIAL TOT INCREASE
ITEM 7: POTENTIAL TOT INCREASE
RECOMMENDED ACTION
Receive a report requested by the City Council regarding
the potential placement of a transient occupancy tax
measure for the Nov. 5, 2024, general election ballot and
provide feedback and direction on next steps if any.
39
Questions & Discussion
40
CARLSBAD HOTELS
AND LODGING
ESTABLISHMENTS
Carlsbad is home to
•42 Hotels and Loding
Establishments in the City
•417 Short Term Vacation
Rentals
50