The Petaluma City Council will meet tonight to discuss, among other things, increasing the Transient Occupancy Tax (TOT). This is a terrible idea and if you care about Petaluma and its economic prosperity, I encourage you to attend the meeting and voice your opposition.
For those of you who are unfamiliar with the TOT, it is an additional tax applied to hotel guests, on top of all the other taxes and fees. Remember the last time you reviewed your vacation hotel bill and wondered why it was more than you had planned? Remember how the great rate you found on Hotels.com ended up being not so great when the final tally came in? This can usually be attributed at least in part to TOTs.
Cities love TOTs for two main reasons. TOTs are relatively easy to pass since they appear to only affect non locals, who don’t get a local vote. It is also fairly easy to pass off on tourists because compared to the cost of meals, tacky T-shirts and shot glasses, the TOT flies under their radar.
Sounds good so far, right? The city gets added tax revenue, and it doesn’t come out of our pockets. “But wait, there’s more! If you call today…” The TOT money is used to promote our city through grants to organizations and events that the city deems responsible for bringing tourists into town, like museums, parades, festivals and visitor’s centers.
Section 4.24.220 of the Petaluma Municipal Codes reads, “All fees and revenues collected (through the TOT)…shall be used for such promotional purposes as the council shall find will contribute to the growth, enlargement and prosperity of the city and will forward, encourage, advance, help, aid and assist in the growth, enlargement and prosperity of the city.”
The problem with raising the TOT comes in many forms.
1) The TOT is no longer allocated for its intended use. The TOT has been rolled into the city’s general fund. (Without the Petaluma voter permission.) The argument that tourists use our city services, yet pay no property taxes or user fees to support Petaluma’s infrastructure is a bogus one since tourist’s pay a good portion of the sales tax collected by and added to the city’s general fund.
2) Due to the faltering economy we need to find ways to bolster the general fund (and cut costs), but hijacking the TOT means local events and organizations that bring tourists into town no longer receive TOT funding – funding that wouldn’t exist if not for their events. If we don’t bring tourists into town, we do not grow sales tax revenues – the biggest contributor to the city’s coffers.
3) Local hoteliers tell me that raising the TOT puts a strain on already pricey hotels rates. The problem is that the hotels can’t charge any more for their rooms. They are already having enough trouble driving business, and rumor has it that at least one of the major hotels is in serious financial trouble, and if not already in receivership, is on the brink of bankruptcy. This means that any increase in the TOT is going to come directly out a hotel’s purse…a purse that could be better used to help promote the hotel, and Petaluma, in order to attract more guests (which in turn will bring in more sales tax revenue.)
The main issue here is something called “Price Elasticity of Demand” (PED). PED is an economic principle/formula that illustrates how an increase in price affects demand. In simple terms, if there are reasonable substitutes, or the consumer can “go without,” a price increase will have a highly negative affect your sales. The “Elasticity” of demand determines how negative. Demand for a product is “inelastic” if an increase in price produces little to no decrease in demand. Insulin is one such product. Demand for a product is “elastic” if an increase in the price produces a large decrease in demand. Luxury items, such as jewelry, dining out and travel fall into the “highly elastic” category. Some items fall into one category in their general form but crosses over into the other once you get down to the specific items. We cannot survive without food (PED for groceries is “inelastic”) but our demand for Twinkies, what with all the tasty alternatives, has a PED that is “elastic.”
Most travel to Petaluma is a luxury; hence it falls into the “highly elastic” PED category. If the price of lodging is increase by even a small amount, there will be a considerable decrease in demand. People will “go without” or else they will find a reasonable substitute. They may simply bypass Petaluma and spend their dollars (and related sales tax revenues) in another city. There are plenty of great places to visit within striking distance of us, but as we know, none are as special as Petaluma. We need to promote our town, which will bring tourists who spend money, which will not only support local businesses but will also increase sales tax revenues. Since the city is no longer allocating the TOT for “promotional purposes” this puts the burden and associate costs on local hoteliers and businesses. The real kicker is that the proposed TOT increase will likely be rolled into the general fund, not used for its intended purpose of promoting Petaluma to tourists.
Don’t be distracted by the claim that other cities have higher TOT rates. There are cities with greater TOT rates but that doesn’t mean the total cost of lodging is higher, so comparing our TOT rates to other cities’ is a red herring argument. Their TOT could be twice our rate yet people will still substitute travel to those cities over Petaluma if the total cost is less. With hotel prices so readily available on the Interwebs, shopping for alternatives to Petaluma is easier than ever, and in our current economy the decision will come down to a few dollars and some common sense. Other cities have car shows, parades, antique and gallery shopping and great dining choices but until these tourists visit Petaluma, they won’t understand what makes our city so unique. Once they visit they will continue to visit, creating the tax revenue we so desperately need. We can’t entice tourists to visit Petaluma if our hotel fees outpace the plethora of alternatives.
Petaluma wants to allocate even more tourism dollars to the general fund instead of letting hotels use those funds to promote their establishment and the town. Tell the city council that you are not in favor of this kind of fiscal policy. Healthy local businesses make for a healthy city. With elections coming, don’t forget who voted to help local businesses and who voted to hurt them.
The city council meeting begins at 7pm at city hall (11 English St.) There is a “public comment” session at tonight’s meeting, with a 3 minute time limit per speakers. If you cannot attend the meeting I strongly encourage you to call or email our city council members to make sure your voice is heard so they can best represent your wishes and needs.
City council information can be found at: http://www.cityofpetaluma.net/cclerk/council.html
City coucil meeting agendas, minutes and videos can be found at: http://www.cityofpetaluma.net/cclerk/archives.html