Santa Clara voters will be asked in November to approve new taxes on visitors to the two dozen hotels that provide nearly 10 percent of the city’s general fund income.
For this small city that bills itself as the hub of Silicon Valley, the referendum to authorize up to a 42 percent increase in the tax on hotel visitors represents a desperate attempt to heal a gaping pandemic wound.
The proposal on the Nov. 3 ballot, approved unanimously last week by the City Council, authorizes the city to add as much as 4 percent to the its existing 9.5 percent Transient Occupancy Tax, which is levied on each hotel guest.
A couple of problems could thwart this plan: Many of the visitors—and the hotels—might not be around to pay those increased taxes.
After being closed for a few months, Hotel California reopened June 12 with “cautious optimism” of a gradual resuscitation from near death caused by shelter-in-place rules.
The pandemic effect on the hospitality industry didn’t just close doors and layoff employees, it gutted tax revenues and continues to stymie business travel and family vacation plans for at least the entire summer season.
School and university closings and Zoom business conferences, combined with an end to government relief checks make the hotel industry prospects even more bleak.
Across the U.S., hotel occupancy rates fell more than 50 cent this year, to 33 percent in May, according to industry reports.
The American Hotel and Lodging Association predicted more than 8,000 hotels could close by September if business travel doesn’t pick up. Silicon Valley hotel vacancy rates January had been above 75 percent before April.
Cites like Santa Clara, population 129,000, are especially hard hit.
Great America is closed. There will be no fans at Levi’s Stadium for 49ers home games, no events at the Santa Clara Convention Center, no outdoor concerts, and college and school events and classes will be canceled or dramatically curtailed.
Customers of the two dozen hotels in the city usually generate approximately $24 million in Transient Occupancy Tax revenue annually, or nearly 10 percent of Santa Clara’s annual $252 million general fund income.
Transient Occupancy Tax revenues in the first four months of 2020 were down nearly $3 million, from $6.6 million to $3.6 million, from 2019, according to the city.
The city anticipates the damage to continue into the new fiscal year that began July 1, budgeting more than $6 million less from Santa Clara visitors in 2020-21—the cost of a couple dozen police officers.
Lower sales tax receipts also have taken a toll on city coffers in 2020, with the city reporting $10 million less from sales taxes at fiscal-year-end than had originally been budgeted.
Santa Clara has the lowest city Transient Occupancy Tax in the Bay Area. After the 10 percent rate in San Jose and Mountain View, all others are 12 percent or higher. This had been an attraction for travelers and hotel owners to look first to Santa Clara and its proximity to Silicon Valley corporate giants, but even without the pandemic it made sense to look at this “visitors’ tax” as a first source of new revenue.
The city has projected other budget-related issues with property tax revenue down about $1.9 million and sales taxes down approximately $1.2 million, but the Transient Occupancy Tax is the biggest hit.
Meanwhile, as long as the hotels are open, room rates are low, an average of less than $120 per night, according to a survey of this week’s rates posted online.
Of course, that means no indoor dining, no entertainment, no fitness center or hot tub, possibly no swimming pool — at least until the next Sacramento press conference.
Numbers of new COVID-19 infections, new hospitalizations, and increases in fatalities continue in Santa Clara County and beyond. Whether or not hotels stay open, there likely will be little objection to an increase in the Transient Occupancy Tax from city voters.
In this year of illness, hardship and uncertainty, that may be the only prediction in the next several months that will hold up.