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|Proposed Santa Monica Hotels Offer Revenue Bounty|
By Niki Cervantes
April 26, 2017 -- Money is tight these days at Santa Monica City Hall.
The City says it can't afford new parks, so it is now considering a future ballot measure to raise money.
The City also couldn't find more funding in its existing biennial budget -- which tops $1 billion -- for affordable housing. So, the City proposed and won a sales tax hike in November that brings its another $8 million annually.
And in March, City Hall was spared digging into its own coffers to further help the homeless when county voters narrowly approved a sales tax hike.
But a huge bounty is potentially headed Santa Monica's way.
Accessing it requires the City Council to approve three large mixed-use projects downtown that feature upscale hotels ("Battle Pits Slow-Growth Residents Against Big Hotels Slated for Downtown Santa," April 25, 2017).
The projects -- which under the proposed Downtown Community Plan (DCP) can rise as tall as 130 feet -- are being fought by neighborhood organizations, watchdog groups and others in the city’s slow-growth movement.
Almost a quarter of a billion dollars in direct revenue and indirect economic benefits would likely stem from the trio of projects in coming decades, according to an analysis by consultants for each of the developments.
The showdown over the hotels and downtown’s future comes as the City Hall, like many other local governments, is facing a possible recession ("Forecast Predicts Slowing in Santa Monica Economy," January 26, 2017).
For Santa Monica, the worst scenario is a deficit of $7.9 million next fiscal year, which begins July 1, that could rocket to $25.1 million by the 2021-2022 fiscal year.
But all versions of Santa Monica’s fiscal fortune hinge on a 3.6 percent rise in revenue each year -- nearly all of it pinned to the hotel tax because other City revenue is mostly stagnant.
Meanwhile, many city employee costs gallop ahead. As of the current budget, city records show jumps of 93 percent for retirement costs involving “miscellaneous” employees alone between 2011-2012 to 2016-2017, reaching $33,576,944.
Salaries and wages for permanent employees jumped 45 percent in the same five years, to reach $198,320,560, City data shows.
Another looming crisis: Total pension cost for the city is $1.5 billion, of which $387 million is unfunded ("Santa Monica City’s Pension Debt Ranked Among Highest in California," February 22, 2017).
Santa Monica, like other cities with a booming tourism industry, is heavily reliant on the transient occupancy tax (TOT), also called the hotel tax, which is 14 percent.
Unlike property and sales/use taxes, which are shared with other governments, the TOT flows directly to the City, providing $47,628,525 last year, or 15 percent of all revenue.
Moreover, hotel taxes do not directly hit residents, supporters note, although tourism can increase costs for such services as policing and traffic control.
But in times good and bad, hotel taxes have provided a generous -- and mostly growing -- revenue stream to Santa Monica, data from the office of state of California Controller Betty T. Yee indicates.
From 2003 until 2015, revenue from hotel taxes in the City rose from $17.06 million to $47.6 million, or a 179 percent jump, according to the state data -- three times higher than all revenues combined.
By comparison, the City of Los Angeles experienced a 119.44 percent increase in hotel tax money in the same period.
Anaheim, home to Disneyland, lagged at a 114 increase in TOT money, while San Diego’s hotel tax revenue increased 109 percent.
San Francisco topped them all, registering a 193 percent jump in the same period, the state statistics show.
Santa Monica is optimistic about the future financial strength its hotel tax will provide, as well as the boost that comes from attracting more than 7 million non-local tourists annually.
"Tourism, which provides a major stimulus to the local economy by creating jobs and producing revenues, continues to exhibit strength," the fiscal forecast, delivered in January, said.
"Transient Occupancy Taxes have increased at an average annual rate of 9.3% over the last six years, and revenues are expected to continue having healthy increases," it said.
Other sources of revenue for Santa Monica are not promising in terms of growth, the report notes.
“Business License Taxes are expected to show some weakness in FY 2016-17 and FY 2017-18, reflecting the loss of several of the largest taxpayers due to relocations, before resuming a moderate growth rate of just under 3% for the remainder of the forecast period,” it said.
Utility Users Tax revenues are “relatively flat” over the forecast period as revenues from telecommunication services continue to drop.
And interest rates, which fell to historically low levels over the last seven years “significantly impacting the City’s investment income,” are starting to rise, although rates are still expected to remain at relatively low levels, the report said.
As the final round of the DCP battle starts tonight, critics and supporters do not seem to have found common ground. City planners regard the last draft as a compromise; many critics aren't buying it ("Santa Monica Downtown Plan Seeks to Strike a Compromise, Officials Say, But Some Remain Skeptical," April 13, 2017).
Last week, a major City Hall watchdog organization called the DCP an invitation to "runaway" development downtown ("Santa Monica Watchdog Group Warns New Plan Primes Downtown for “Runaway” Building and Traffic," April 19, 2017).
The group asked why the City even needs more hotels -- especially since they offer relatively few apartments and even fewer units affordable to lower-income earners.
“Under the DCP, Santa Monica would see intense, fast-tracked development that would result in increased gridlock and congestion," the Santa Monica Coalition for a Livable City (SMCLC) said.
"Easily accessible, public open and park space would lose out to luxury hotels and expensive apartments, in a downtown geared to tourists.”
Proponents of the hotel projects, as well as City officials, have not focused on the potential tug of big revenue from future hotel taxes.
Council Member Terry O’Day averted answering the question posed in a query from the Lookout News. Instead, he focused on other potential benefits.
“Hotels activate our streets, have minimal traffic impact, and can provide amenities for residents,” O’Day said in his reply to the Lookout.
“When appropriate for their neighborhood context, they are a great way to achieve our land use and community goals."
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