REPORT TO COUNCIL
SUBJECT
Title
Resolution Increasing the Transient Occupancy Tax Rate from 12.5% to 13.5% effective January 1, 2025; and Introduction of an Ordinance Amending Section 3.25.030 of the Santa Clara City Code to Reflect the Increase in the Transient Occupancy Tax Rate
Report
COUNCIL PILLAR
Enhance Community Engagement and Transparency
BACKGROUND
In November 2020, Santa Clara voters approved Measure E which authorized the City to levy an additional Transient Occupancy Tax (TOT) rate by up to 4% from the rate of 9.5% to up to 13.5%. The ballot passed with 73.57% of voters supporting the measure. In FY 2021/22, 2 percent of the 4 percent potential rate increase was implemented effective January 1, 2022.
Outreach regarding the remaining TOT rate increase allowed by the voters was conducted in March 2023 with the large hotels in the City. Public discussion regarding the TOT rate increase was also part of the budget deliberations in May and June 2023.
On June 27, 2023, as part of the Council approval of the FY 2023/24 and FY 2024/25 Adopted Budget, direction was provided to staff to bring forward a separate resolution to increase the TOT by one percentage point effective January 2024. This rate increase was approved during FY 2023/24 as directed. The budget also assumed the remaining one percentage point increase that is allowed by voters would be implemented in January 2025.
DISCUSSION
The introduction of a resolution to increase the TOT rate by one percentage point from 12.5% to 13.5% is consistent with the assumptions in the FY 2023/24 and FY 2024/25 Biennial Operating Budget. The TOT rate increase was a critical strategy to balance the General Fund budget.
The voter-approved tax was approved to maintain and protect the level of essential city services including 9-1-1 emergency medical/disaster preparedness, police and fire protection, bicycle and pedestrian safety, roadways and storm drains, and other vital services including parks, recreation, libraries and senior services. The revenue generated from the TOT is collected in the City’s General Fund revenue for these services, which preserve the quality of life in neighborhoods, ensure the safety of our community, and pay for critical infrastructure needs.
In addition to the proposed resolution to modify the tax rate, a modification to section 3.25.030 of the Santa Clara City Code is recommended to reflect the revision to the TOT rate.
To ensure a smooth transition to the new TOT rate, letters were sent to all Santa Clara hotel owners and operators regarding the potential TOT rate increase consideration for the October 22, 2024, City Council meeting. If approved by the Council, staff will provide further notification of the tax rate change and will post information on the City’s website.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environment Quality Act (“CEQA”) pursuant to section 15378(a)(4) of Title 14 of the California Code of Regulations in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
FISCAL IMPACT
The FY 2024/25 Adopted Budget factors in additional revenue from a one percentage point increase in the TOT rate effective January 1, 2025. This additional revenue is estimated at $1.7 million annually.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
Information regarding this proposed increase was presented at the October 1, 2024 Discover Santa Clara Board meeting.
All hotels were also notified of the Council Agenda date for the consideration of the proposed TOT rate increase.
RECOMMENDATION
Recommendation
1. Approve a resolution increasing the Transient Occupancy Tax rate from 12.5% to 13.5% effective January 1, 2025; and
2. Approve the introduction of an ordinance amending section 3.25.030 of the Santa Clara City Code to reflect the increase in the Transient Occupancy Tax rate.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Resolution increasing the Transient Occupancy Tax rate
2. Ordinance amending section 3.25.030 of the Santa Clara City Code