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SLO Weighs Increase in Bed Tax as Hotel Occupancy Falls

City Lodging Committee Says That Would Hurt Business

November 6,2017-

Hotel occupancy across San Luis Obispo County fell this past August, typically the busiest month of the year for the lodging industry.

Screen Shot 2017-11-06 at 11.38.15 AMAccording to Smith Travel Research (STR) the 8.4% decline in occupancy year-over-year in San Luis Obispo County was at least better than harder hits town like Cambria and San Simeon who saw a drop from 82.8 to 75.6 (-8.7%) in Cambria and 75.4% vs 63% (-16.4%) in San Simeon.

The City of San Luis Obispo saw a drop of 7.2% – 76.6 % occupancy this year compared to 82.5%  in August 2016.

Even booming Paso Robles, not so impacted by Hwy 1 closures, saw a decline from 88% to 76.7% occupancy in August. Both Santa Barbara and Monterey saw a modest drop and California as a whole, fell slightly from 80.7% to 80.2%.

Most of the summer was like that on the Central Coast, statistics shared regularly at the City of San Luis Obispo’s Tourism Business Improvement District Board (TBID).

The city TBID meeting in October heard discussion of the city’s Fiscal Health Response Plan that will be taken up up the SLO City Council in November and December in preparation for the new fiscal year budget next July.

Leaders are under the gun to balance a potential cut in expenses and raising city revenues to pay for what is expected to be a $8.9 million shortfall over the next three years due to rising retirement benefits for city employees.

To help bridge the gap the city would like to raise revenue from an attractive source – visitors. That would include bringing in more sales tax dollars from visitors as well as increasing the tax haul from overnight accommodations, bed tax or transient occupancy tax (TOT).

But how do you do that when fewer visitors are staying here overnight?

Earlier this year City Manager Katie Lichtig reported that in the last fiscal year bed taxes (TOT) grew by 5 percent, a strong year for hotels. But this fiscal year, that growth is 1 percent. An increase in average room rates has led to lowered occupancy and reduced growth, reported Lichtig.

The city is facing some tough realities as less sales tax comes in from brick and mortar stores due to the popularity of internet shopping. As to local hotel stays, more hotels being built and new short-term home rentals further divide the number of overnight stays.
What is a tourism board to do?

According to the SLO tourism board’s October minutes “ The two main items discussed was the support for the collection of the TOT & TBID assessments for all short-term rentals operating within the city and the idea of an increase in TOT as a new revenue source.

The committee stated that TOT & TBID assessment should be collected from all properties operating as short-term rentals and the revenue would be very impactful. Since they are operating as a lodging business within the city – legally or not- they should be paying collecting and remitting all fees and taxes required by lodging businesses in the city.

The committee also discussed their perspective as the lodging industry representatives in addressing the option to increase TOT as a source of new revenue. The committee felt very strongly that the increase in TOT would not be received well by the lodging businesses. They stated that it should become their burden to cover the new revenue and that an increase in their tax rate could likely negatively impact stays in SLO by giving a competitive advantage to other destinations locally that have a lower TOT rate.”

The TBID members “felt like an increase in TOT would directly reduce SLO’s appeal to family and budget conscious travelers. They expressed concern that in raising TOT the city could find that we reduce overnight stays and could potentially reduce the amount of TOT collected – even at a higher rate.”

The city charges a 10% bed tax and collected $6.8 million in the fiscal year 2014-15. The TBID is expected to be reauthorized November 7 at the city council meeting. The TBID board meets again November 8.

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