The Santa Monica City Council, capitalizing on a boom in hotel construction, has given preliminary approval to a two-percentage-point increase in the city's hotel occupancy tax over local industry objections that the council rushed the motion forward with little public discussion.
The council voted 6 to 1 Tuesday night for the increase, which takes effect Oct. 1 and is expected to bring an additional $897,000 a year to the city.
The dissenting vote came from Councilman Herb Katz, who said raising the tax runs counter to city goals. "We are allowing these hotels to be built, we are encouraging tourists to come . . . and then we tax the hell out of them," Katz said.
But Mayor Dennis Zane said the additional income is what justifies approving new hotel construction.
The measure, which raises the tax imposed on nightly room rentals from 10% to 12%, also prompted City Manager John Jalili and officials with the Convention and Visitors Bureau to trade barbs over who was to blame for hoteliers' dissatisfaction. But all sides agreed that the dispute involved the way the increase was approved and they discounted the long-range impact on business.
The increase coincides with a boom in hotel construction in Santa Monica and a corresponding rise in money generated by the hotel tax. Since 1981, city income has doubled while hotel bed tax revenue has almost quadrupled to a projected $4.5 million this year, said Bob Gabriel, chairman of the Santa Monica Convention and Visitors Bureau.
At the same time, the recent opening of Loew's Santa Monica Beach Hotel and the soon-to-be-completed Park Hyatt and Guest Quarters hotels increase the number of first-class rooms in the city by 80%. The three hotels total 1,800 rooms.
Visitors bureau and hotel officials say the higher tax is ill-timed because tax revenue is already up and the spate of construction may lead to a glut of hotel rooms.
"There are many in our industry asking the question, 'Why?' " said Loew's Managing Director Lloyd Kirsch.
City officials and their consultant have said since the measure was proposed in May that an increase would not adversely affect hotel competition with neighboring cities. The transient occupancy tax, as the bed tax is officially called, is 12% in Los Angeles and Culver City, 11% in Beverly Hills, and 10% in West Hollywood and Marina del Rey, which is part of Los Angeles County.
Although local hotel owners expressed mixed views on how the increase would affect business, they were all rankled at the short notice. On May 23, city officials requested implementation of the tax by July 1. After objections, that schedule was pushed back for discussion in June and implementation in October. But in a May 30 meeting, the council voted 5 to 1 to request that an ordinance be drafted. Gabriel said that order made the increase a fait accompli.
On Tuesday, visitors bureau Executive Director Beverly Moore complained that bookings are made up to a year in advance and that hoteliers would have to pay the difference in tax rates to honor contracts. Gabriel said the city arbitrarily increased the hotel tax because of budget considerations, violating precedent set in 1981, when city and businesses worked together to raise the tax to improve city tourism efforts.
"The feeling was (that) they already made their decision," said Marie Tallman, general manager of Holiday Inn at the Pier.
Hotel owners were also concerned that the new money will not be used for significant tourist-related measures, such as renovating the city's aging Civic Center or improving beaches or parks.
City officials say the tax will go into the city's general fund, with some of it intended for improving and expanding police service.