TOT - City of San Diego

May 19, 2017 - Center Expansion, additional road repair and maintenance, and expenditures to better address the ... reasonable based on historical data.
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OFFICE OF THE INDEPENDENT BUDGET ANALYST REPORT Date Issued:

May 19, 2017

IBA Report Number:

City Council Docket Date: May 22, Item Number:

17-21

2017

150

Discussion of the Proposed Ballot Measure to Increase the Transient Occupancy Tax (TOT) OVERVIEW On April 5, 2017, the Rules Committee received a report from the Office of the Mayor outlining a proposal to increase the City’s TOT to finance: the proposed Phase III Contiguous Convention Center Expansion, additional road repair and maintenance, and expenditures to better address the City’s significant homelessness issues (Proposal). While the staff report provided preliminary information for discussion of the Proposal, it did not include draft ballot language or revenue projections for the Committee to discuss. Reflecting on information provided in the days leading up to the Rules Committee meeting, our Office issued Report 17-14 (Attachment 1) to provide additional information and raise questions for Committee consideration. Committee members made numerous comments and raised several questions about the Proposal. Although the action requested by staff was to direct the City Attorney’s Office to work with the Mayor’s Office to prepare a draft ordinance for Council consideration in June, the Committee supported the IBA’s recommendation that the item be heard by the Council in May to allow the full City Council additional time to review, discuss, and provide input on the Proposal. The Proposal continues to be developed and is scheduled for City Council discussion on May 22, 2017. A new staff report has been docketed with draft ordinance language and projected revenue and expenditure detail. Our Office has reviewed the staff report and draft ordinance docketed for Council discussion on May 22nd. Additionally, we have reviewed the May 12th memorandum responding to questions raised in the May 1st memorandum from Councilmembers Bry, Ward, and Gomez related to the Proposal. This report discusses information provided in the staff report and also highlights key provisions of the Proposal that have been added or clarified since the Rules Committee meeting. The report concludes with recommendations for the Council to consider and potentially request for inclusion into the draft ordinance. OFFICE OF THE INDEPENDENT BUDGET ANALYST 202 C STREET MS 3A SAN DIEGO, CA 92101 TEL (619) 236-6555 FAX (619)-236-6556

FISCAL/POLICY DISCUSSION Key Elements of the Proposal If approved by two-thirds of the voters, the TOT collected by hotels in the City would be increased by 1%, 2%, or 3% (depending on the geographic location of the hotel) beginning on April 1, 2018. The tax increase would continue for a period of up to 40 years from the last day of the month in which long-term bonds are first issued to finance the Convention Center expansion (currently projected for FY 2020). Staff estimates $55 million of new TOT revenue would be received in the first full fiscal year of the tax increase (FY 2019). Annual tax revenue is projected to grow by the TOT percentage growth projections included in the FY 2018 - 2022 Five-Year Financial Outlook and thereafter by an annual average growth rate of approximately 3.3% (extrapolated from historical and cyclical TOT growth patterns). The IBA believes the forecasted rates of TOT growth over the term of the proposed tax increase are reasonable based on historical data. If actual growth rates are higher or lower than projected, revenue from the tax increase could be significantly higher or lower than projections. Revenue from the tax increase is to be apportioned in the following percentages: Convention Center Revenue Account (64%), Street Repair Revenue Account (18%), and Homelessness Revenue Account (18%). The table presented in attachment 1 of the staff report (Attachment 2) projects total revenue of $5.2 billion over the proposed 42 year TOT increase through FY 2060. Additionally, the table shows the projected annual allocation for each of the three defined e