REPORT TO COUNCIL
SUBJECT
Title
Resolution Increasing the Transient Occupancy Tax Rate from 9.5% to 11.5% effective January 1, 2022; 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
The City’s current Transient Occupancy Tax (TOT) rate is 9.5%, which is one of the lowest in the County. On November 3, 2020, Santa Clara voters approved the following ballot measure that allows for an increase of up to four percentage points in the City’s TOT.
This ballot measure, approved by 73.57% of Santa Clara voters, supports essential City services, paid by guests staying in hotels. With this measure, the TOT can be increased from the current rate of 9.5% to up to 13.5%.
As part of the adoption of the operating budget on June 22, 2021, staff was directed to bring forward a separate resolution to increase the TOT rate by two percentage points (of the maximum of four percentage points) effective January 1, 2022. The FY 2021/22 and FY 2022/23 Adopted Operating Budget assumes this increase.
DISCUSSION
The introduction of a resolution to increase the TOT rate by two percentage points from 9.5% to 11.5% is consistent with the City Council direction provided as part of the adoption of the FY 2021/22 and FY 2022/23 Biennial Operating Budget.
The voter-approved tax increase is designed to generate General Fund revenue that is used to continue to deliver high quality City services, prepare for disasters and emergencies, preserve the quality of life in neighborhoods, ensure the safety of our community, and pay for critical infrastructure needs. While up to a four-percentage point increase was approved by the voters, the recommended action increases the TOT rate by two percentage points effective January 2022. This lower increase and later implementation date take into consideration the impacts to the hotel industry as a result of COVID-19 safety precautions. With this increase, the TOT rate would be considered mid-range when compared to other cities in the region as shown in the table below.
Modifications to section 3.25.030 of the Santa Clara City Code are also recommended to reflect the revision to the Transient Occupancy Tax.
To ensure a smooth transition to the new TOT rate, staff has begun outreach with the proposed change recommended in this report. Staff will continue to dialogue proposed revision to the tax rate effective January 1, 2022.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environment Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(a)(4) 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 2021/22 and FY 2022/23 Adopted Operating Budget factors in additional revenue from a two-percentage point increase effective January 1, 2022. This additional revenue is estimated at $1.7 million annually and will increase as the Transient Occupancy Tax recovers from the COVID-19-related impacts.
When the ballot measure was approved by voters in 2020, the expected revenue to be generated was estimated at up to $7 million for an increase of up to 4 percentage points (or $3.5 million for a two-percentage point increase). This estimate was based on pre-pandemic data, and that was communicated to the voters in the impartial analysis.
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.
The hotels citywide 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 9.5% to 11.5% effective January 1, 2022; 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: Deanna J. Santana, City Manager
ATTACHMENTS
1. Resolution increasing the Transient Occupancy Tax rate
2. Ordinance amending section 3.25.030 of the Santa Clara City Code