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The Pleasanton City Council unanimously directed staff to return next month with final ballot language for a hotel tax increase, signaling a strong possibility for the revenue measure to be advanced for the November general election.
If the measure is placed on the ballot and ends up getting a simple majority approval by residents, the tax increase could generate up to nearly $3 million per year, once the full increase to 12% is realized in two years.
“Since our city’s TOT tax rate is lower than our neighboring jurisdictions in Alameda County, I believe this modest increase will align Pleasanton with our regional market standards without significantly impacting hotel demand,” Councilmember Craig Eicher said during the June 2 meeting.
“It will ensure our city captures a fair value per visitor activity while remaining competitive for tourism and business travel,” Eicher continued. “It allows our city to generate new, recurring revenue without raising taxes on local residents or local businesses and it will help diversify our city’s revenue base and reduce reliance on volatile sources like poverty tax or sales tax.”
Aarón Zavala, assistant to the city manager, began last week’s presentation by going over the city’s ongoing structural budget deficit that is currently projected to range from $4.4 million to $8.3 million each year for the next several years. He also pointed out a $44 million annual infrastructure gap.
Two years ago, the city placed a revenue measure — Measure PP — on the November ballot in order to begin addressing that budget deficit. The measure sought to increase the city’s sales tax by half a cent.
However, despite receiving majority support from the council at the time — except for then-councilman Jack Balch, who had concerns over the proposed measure at the time — Measure PP failed to get enough votes from residents.
Since then, the city has been eyeing other potential revenue streams to tap into, like the transient occupancy tax, which is more commonly known as a hotel tax or a TOT. Zavala said the TOT is a tax on short-term stays at hotels and motels.
According to Zavala, Pleasanton has the lowest TOT compared to other cities in Alameda County at 8% — the majority of others have a TOT between 10% and 14%.
The tax, Zavala said, is paid by people who stay at those hotels and motels, not by Pleasanton residents. He said the revenue obtained from those taxes would directly go toward general city services.
After directing staff to explore the TOT increase, the council gave staff the green light to begin developing ballot language this past February, which resulted in the draft that was presented to the council June 2.
The proposed measure would increase the city’s TOT rate from 8% to 10% starting July 2027. The measure also stipulates an additional increase from 10% to 12% would take effect the following year. Zavala said the city decided to take a phased approach because that was the preferred option by hoteliers who said it would make it easier for them in terms of transitioning.
“We did do a significant amount of outreach with the hotel industry and had conversations along the way … in an effort to garner neutrality,” outgoing City Manager Gerry Beaudin said during his last council meeting before he left for his new job in Alameda.
“We weren’t trying to get support, necessarily, understanding that a new tax on their business at a time when hotels fully haven’t rebounded from the COVID years is challenging,” Beaudin added. “So this was a way for us to compromise with the hotels.”
If passed, this could generate approximately $1.4 million per year in additional revenue once the 10% rate takes effect, and approximately $2.8 million per year once the 12% rate takes effect. All of that would go toward the city’s general fund and be used to maintain city services.
According to Zavala, 67% of 251 residents who responded to a recent survey support a TOT increase. He also noted how Hayward and Newark recently passed similar TOT increases last year.
During the meeting, the council voiced its unanimous support for placing the hotel tax measure on this year’s November ballot. But what didn’t receive unanimous support was phasing the increase over two years.
Apart from longtime residents Kelly Cousins and Valerie Arkin voicing their support for going straight from 8% to 12% during public comments, councilmembers Julie Testa and Jeff Nibert were also against the two-step approach.
“I think it’s a no-brainer,” Testa said regarding the placement of a hotel tax increase on the November ballot. “The concern simply is that it’s still not enough. It doesn’t come anywhere near what we would have been taking in on an annual basis from the sales tax.”
That’s why Testa said it also didn’t make sense to implement the tax increase in two phases, which is why she had proposed altering the ballot language to increase the tax from 8% to 12% the first year. She said while it wasn’t much, delaying the roughly $2.8 million until the second year is unnecessary and went as far as calling it “irresponsible”.
Her main argument was that the city needs all the money it can get as soon as possible and increasing the tax right away to the 12% — a take she said she has been pushing over the last few meetings where the potential ballot measure has come up — wouldn’t have had a huge impact on the hotels in the city.
Zavala noted that the city did provide an alternative single-step increase to 12% and said that while it would generate that $2.8 million in projected revenue faster, the larger increase could impact hotel operators and guests who would have to assume that sudden increase.
Eicher said he was against the single-phased increase approach because he wanted to be sensitive to the hotels and the impact the sudden and large increase would have on them. Mayor Balch and Vice Mayor Matt Gaidos also disagreed with increasing the tax from 8% to 12% because of the fact that the city polled its residents on the two-phase approach and had those conversations with hoteliers about the impacts of a single-phased increase.
“Having no business opposition and having (the two-phased approach) pass is a bit more conservative, but it’s a bit more prudent of a path I think that would lead to success,” Balch said.
The debate ended with Nibert bifurcating the recommendation for the two-phase approach.
While Nibert eventually conceded and voted alongside the other three councilmembers to support the two-phase approach, Testa maintained her position saying it did not make sense to delay the revenue that would have been generated by the 8% to 12% immediate increase. She was the sole councilmember who voted no on the two-phased increase approach.
As far as getting the revenue measure on the ballot, Zavala said the estimated cost to the city would be anywhere from $243,000 to a little over $340,000.
Following last week’s approval, staff will now return on July 7 to request that the council adopt a resolution and related ordinance to place the TOT increase on the November ballot. After that, the city will have until August to submit the ballot measure to the county ahead of the Nov. 3 general election.
