Of course I am a little prejudiced, having served on its city council and planning commission in the past, nevertheless, news reports of coastal Orange County’s City of Dana Point’s plans for the New Year help us understand why Obama actually beat McCain here in John Campbell’s Congressional District, of which Dana Point is a part.  My hope in the New Year is that leaders in adjoining coastal cities won’t catch the "tax and regulate" flu that is now endemic on the Dana Point City Council and Planning Commission.

     Dana Point is site to a lovely harbor and beautiful ocean views.   It also is the locale of several luxury hotels.  The City’s revenues, which have always been in tip-top shape, are largely tied to sales taxes associated with the hotel industry, namely, a "transient occupancy tax" of 10% added to traveler’s hotel bills.  This "TOT" tax is stuck on top of the normal sales tax of 8.75% in Dana Point.  So, a typical unsuspecting visitor to Dana Point has taxes of 18.75% added to their hotel bill.  For the Marriott Laguna Cliffs least expense room on the internet to stay tonight ($189, and a bargain) the tax per night for this evening would be $35.44.  The cost of a nice dinner at Harpoon Harry’s.

     However, on January 1, a new, additional tax of $3 per room that was enacted with votes from "Republicans" on the council, will go into affect.   The tax rate on the same Marriott Laguna Cliffs Hotel room, in percentage terms, will jump to over 20%.   The tax is intended to "help market Dana Point as a destination city."  It is being implemented at a time when sales tax revenues are down 40% from last year because of the depression in the travel economy, and in the wake of the bankruptcy of the St. Regis Monarch Beach Resort a few months ago.

     Advocates of the tax say "marketing Dana Point as a destination city" by City government employees (who have a union, an ample retirement system, and something close to life tenure) is necessary to increase travel and tourism because of the economy, poor City branding by the hotels, and because the hotels themselves want the tax.  But the explanation is not entirely accurate, and the need to grow government to do this work is not really necessary.  The desire to increase TOT taxes or find other new hotel tax vehicles has been around City Hall not just in these bad times, but also in the good times a few years ago.  The Council resisted new taxes such as these in the past, citing such facts as the huge marketing departments that Ritz-Carlton, Marriott, the St. Regis brand, and Hilton Hotels (the Doubletree) already have working for their properties in Dana Point, the fact that marketing is usually not a good function of government, and that the local hotels could do the same thing privately by raising rates and pushing the extra dough through to the Chamber of Commerce or some other trade association to do the "marketing," the fact that there is already a huge infrastructure of organizations promoting tourism in Orange County in general (Disneyland, Knott’s Berry Farm, you name it) that the City contributes to.

     A few years ago I had a chance to talk to former New York Mayor Rudy Giuliani about hotel taxes.  When Giuliani was elected, New York’s travel and tourism industry was moribund.  His plan to fix this problem was not to raise hotel room taxes.   Instead, he reduced and eliminated added fees on rooms.  The effect was to help make New York’s hotel rooms, including the luxury hotel rooms, more competitive.   And importantly, visitors felt less "ripped-off" by their trip to New York, by not having to see quite such a long list of unanticipated government charges added to their bills.  Giuliani told me these little extra charges didn’t help New York, they hurt the city.  As the hotels became more competitive with lower added on fees, tax revenue actually grew.

     I am pretty sure that the new Dana Point hotel tax won’t make any dent at all in changing the economic outlook for the hotel industry in 2010.   What I do know is that it will grow government; and that once government grows, it becomes near impossible to reverse the damage to taxpayers.

     But that’s not all from Dana Point in the New Year!  As the new hotel tax goes into affect, the City also is planning to implement what it terms "performance standards to regulate short-term vacation rentals."   Property owners beware!  Now, if you want to rent your property, you will need to apply to the City for a permit, which can be revoked.   During the permitting process, all the neighboring properties will get a notice that you plan to rent your property.  You’ll have to insure parking, and that not more than 2 people per sleeper sofa or bedroom stay overnight.  These new regulations create new liabilities and burdens on property owners where they don’t belong.   The real problem sought to be addressed is noise and over-crowding.   Well, the City already has regulations that deal with those issues — all the City needs to do is enforce its laws when problems occur!  These new regulations seek to shift the burden off of the City’s code enforcement division, where it belongs, and onto the back of the property owner, reducing rights, and making property ownership less desirable and more expensive.

     …And I’m pretty sure Dana Point will soon figure out how to help "market" and tax those "short-term vacation rentals," too!

This entry was posted on Saturday, December 26th, 2009 at 12:00 am and is filed under Blog Posts.