A group of Petaluma hoteliers are pushing back on a proposal to raise the city’s tax on overnight stays, instead offering an alternative idea to raise revenue while promoting Petaluma as a tourist destination.
City officials have recently floated various revenue generating measures, including a 2 percent increase in the transient occupancy tax, which is collected from guests staying at hotels, inns and permitted vacation rentals. The current TOT tax rate in Petaluma is 10 percent, and an increase would need approval by a simple majority of voters.
Hotel owners representing the Petaluma Lodging Association, however, would like to form a special taxing district, known as a tourism improvement district, which would collect the 2 percent fee.
This mechanism, they argue, is more efficient since all of the new revenue would go towards promoting Petaluma, driving tourism in the city and bolstering the economy. The city’s coffers would get a boost by the increased sales tax receipts from tourist spending and by saving the money it currently spends on promotions, roughly $600,000, according to hotel owners.
“This would be a reliable source to fund sustainable economic development,” said Kirk Lok, owner of the Quality Inn Petaluma. “Not only would hotels benefit, but more importantly all businesses would see an improvement through this investment.”
Since the city currently finances the Petaluma Visitor Program, it’s tourism promotion arm, through the general fund, the city could decide to cut that contribution during lean years, which would only add to economic hardships, Lok said. But revenue generated by the special district would be dedicated to tourism promotion and unable to be reprogrammed by city officials.
Instead of going to the voters like a potential TOT tax increase would, a special district would need to approval by a majority of owners of the city’s roughly seven hotels. Two new hotels, a Hampton Inn at the former Silk Mill building and a Courtyard Marriott in the new Riverfront development, are expected to come online in the near future.
Tourism improvement districts have been successful promoting other cities, including Santa Rosa, Healdsburg and Sonoma, Lok said. Petaluma already has a similar fee-based commercial district, the Business Improvement District, which levies fees on downtown merchants to promote and enhance the tourism and shopping experience through the Petaluma Downtown Association.
Lok said the Downtown Association would be well-positioned to collect fees from a new tourism improvement district.
“The Downtown Association has done a credible job,” he said. “Why invent something new?”
Marie McCusker, who directs the Downtown Association and the Visitors Center, said a dedicated funding source for tourism promotion provides the stability to plan several years ahead.
“I see tourism as a real economic engine,” she said. “I think that, when times are bad, people look at making tourism promotions the first to go. That doesn’t always work. Anything that protects that for the business community, I’m for it.”
To jump start the process, the city first needs to decide whether to ask voters to increase the TOT tax, a debate city leaders are expected to have in the coming weeks. Lok said hotel owners would not add a 2 percent assessment on top of a 2 percent TOT tax increase, a measure they would oppose.
City Councilman Dave King said all options are on the table for raising revenue to shore up Petaluma’s ailing budget. The city’s first priority should be passing a general sales tax increase to support public safety and fund pension obligations, King said.