Palo Alto May Pad Budget With Highest Tax Rate For Hotel Pad

PALO ALTO, CA -- Dinah's Garden Hotel's General Manager John Hutar understands a city's need to pad the general fund -- the foundation of a local government's operation.

Pension employee expenses and infrastructure costs among other challenges have become the straw that broke the camel's back for local jurisdictions -- with Palo Alto joining a handful of cities seeking to get voter approval to raise its room tax from 14 to 15.5 percent. Hutar just doesn't want it broken over his.

The boutique hotel is like a fixture in Palo Alto, but he hopes and isn't quite convinced that will be enough for guests to want to keep coming back if they're paying the highest transient occupancy taxes in California, according to the State Controller's Office.

Measure E has turned out to be such a thorn in the side of Hutar and other hoteliers an advocacy group calling itself the Palo Alto Hotel Council was formed in June to oppose the proposed rate hikes.

"I can't just put (the hotel) on wheels and roll it down the street," he said, referring to operating his El Camino Real establishment across the border to another city.

Tax rates have gone up three times in a decade, and he fears travelers will refrain from booking in his town and get rooms elsewhere.

"While Palo Alto is a wonderful community, it shouldn't have the highest (tax rates) in the state," he said. "That should be Anaheim because it has Mickey Mouse."

Anaheim is currently the highest at 15 percent, followed by Garden Grove at 14.5 percent then Los Angeles and San Francisco at 14 percent. Most cities hover between 10- and 12 percent, per the Controller's Office report issued in 2017.

This year, other Santa Clara County cities also aim to raise theirs. Voters in Los Altos may lift theirs if Measure D passes from 11- to 14 percent, therefore adding an estimated $740,000; Milpitas may add about $5.2 million annually upon raising its rate from 10- to 14 percent, if voters cast their ballot for Measure R; and Morgan Hill hopes to tack on another approximately $270,000 if voters opt for increasing its rate from 10- to 11 percent.

In San Mateo County, Measure QQ is expected to tack on another $1.65 million to the general fund account if voters decide guests to their city can pay 12 percent instead of 10.

Hutar somewhat sympathized with his city, characterizing paying pension costs as "taking a water hose and pouring it into the ocean."

When the issue came up, Hutar believed the City Council already had made up its mind. The $25 million it collects accounts for 11 percent of Palo Alto's total revenue in the general fund, the lifeblood of a city. The additional 1.5 percent is expected to add on $2.55 million each year, according to the impartial analysis written on Measure E. City government workers are limited on advocating for ballot measures and candidates during an election season.

The ballot's written argument in favor of passing the measure declares the hike is needed "because construction costs have dramatically escalated since 2014." The language cites crumbling roads and sidewalks as well as police and fire stations failing to meet earthquake standards as some of the reasons behind the need to pad the general fund budget.

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