Press "Enter" to skip to content

Budget panel eyes boost in room tax

To help erase a $494,000 city deficit last year, expenses were, in the words of City Manager Linda Kelly, “cut down to the bone.” With another deficit looming in July, a new budget subcommittee has been formed to find more meat.

“Everything is on the table,” said Chair Joanne Sanders.

The panel has been tasked by the Sonoma City Council with initiating new ways to make and save money.

The Transient Occupancy Tax, levied on hotel rooms, is a tempting source of new revenue. The current 10 percent surcharge goes directly into the city’s general fund, where last year it accounted for nearly 17 percent of city income.

The budget committee, at its January meeting, discussed raising the Transient Occupancy Tax to 12 percent. Based on 2008 tourism figures, the latest available, the increase could generate up to $500,000.

“Property and sales tax are likely to dip or stay flat. The increase could make up shortfalls in the general fund,” Kelly said.

Another group is eyeing that same pot – the Sonoma County Tourism Board. It proposes to direct an additional 2 percent Transient Occupancy Tax into a marketing campaign which promotes Sonoma County nationally.

Sonoma’s seven largest hotels, by number of rooms, would have to agree to join the countywide tourism effort. Currently they contribute, along with the city, to a locally controlled fund used for marketing campaigns specific to Sonoma.

“What seems to work for Sonoma is the regional marketing,” said Wendy Peterson, executive director of the Sonoma Valley Visitors Bureau. One example is a radio campaign to draw visitors from the Bay Area. “The county doesn’t do any of that.”

The Sonoma County Tourism Board argues marketing the county’s assets, with a greater pool of money, will eventually benefit all cities through more rooms booked, more Transient Occupancy Tax revenue and more sales tax.

“There’s the hope that the increased exposure will pay off,” said subcommittee member Carol Giovanotto, the assistant city manager. She bemoaned a lack of hard data showing a direct benefit to the city based on the 2 percent Transient Occupancy Tax investment. “Does it pay to join? There’s no means to evaluate it.”

According to Peterson, the hotel group will not pursue joining the county tourism plan in favor of continuing the current marketing structure. “We’re your partners,” she told the subcommittee. “This partnership is through thick or thin.”

Although the Sonoma County Tourism Bureau is aggressively lobbying the city council for support, the decision by the hotel group not to join would effectively kill that effort.

Any increase in Transient Occupancy Tax is a risk, said Sanders. Higher prices could discourage visitors from booking rooms or extending their visits. “Anytime you increase price it affects demand. This category is price sensitive.”

Sonoma’s current 10 percent Transient Occupancy Tax matches that of Petaluma, Cloverdale and Sebastopol. Santa Rosa and all unincorporated areas impose a 9 percent tax. The fee is 12 percent in Rohnert Park, Healdsburg and Windsor. San Francisco charges 14 percent.

The topic will undoubtedly grow hotter as the budget begins to take shape this spring. “We’ll know what the shortfall is in May,” said Sanders. “When we see the preliminary budget, we’ll know the gap we have to close. Then we can recommend a TOT strategy to the full council.”

While the Transient Occupancy Tax is an enticing source of potential revenue, it wouldn’t hit the city books for at least a year, pending city council OK and public approval as a ballot measure.

Meanwhile, the deficit load will be born by residents, not tourists.

“Lay offs have not been ruled out,” Sanders said. ‘We’re not ready to say no to lay offs.”

The budget subcommittee, in addition to Sanders, Kelly and Giovanatto, includes Councilwoman Laurie Gallian, Trent Hudson of the public works department, and former mayor Stanley Cohen. It meets monthly.