The Fiscal Year (FY) 2019-20 adopted budget for Transient Occupancy Tax (TOT) revenue was $1.3 million, but the City anticipates a shortfall of $300,000 or 22% due to the COVID-19 pandemic. The City projected a $100,000 shortfall for FY 2020-21 resulting in a budgeted revenue of $1.4 million. The City has experienced stagnant sales tax revenue and declining development revenue in the past few years while continuing to compete with increasing expenditures. An increase in the TOT rate will help the City diversify its revenue stream.
The City currently imposes a 10% TOT on individuals occupying hotels and motels within the city. The City’s TOT rate is relatively low compared to several nearby jurisdictions. For example, the cities of Los Angeles and Diamond Bar impose TOT at the rate of 14%, Los Angeles County at 12%, Riverside at 13%, Chino at 8% and Ontario at 11.75%. The cities of Yorba Linda, Pomona, Corona and Orange all currently impose TOT at the rate of 10%.
Based on the budgeted revenue of $1.4 million a year, staff estimates that for each 1% increase in TOT the city will collect an additional $140,000 in annual General Fund revenues.
If the Council would like to place a TOT increase on the November 3, 2020, ballot, it would need to adopt the necessary documents by August 7, 2020. As a general tax (meaning it is deposited into the City’s general fund and can be used for any lawful local government purpose) any proposed increase in the TOT would require approval by a majority of the electorate pursuant to Proposition 218 (California Constitution, Article XIII C). In order to place a general tax increase on the ballot, a resolution proposing the tax must first be approved by a two-third vote of all members of the City Council; that is, four of the five Council Members. (Gov’t Code § 53724.)