A proposal to increase Carlsbad’s hotel-room tax by 2 percent died quickly this week after hotel operators voiced strong opposition, saying it would keep tourists away and cut occupancy rates.
Any increase in the transient occupancy tax, often called TOT, would have to be approved by Carlsbad voters. The earliest that could happen is November 2024, and the election would cost the city between $135,000 and $175,000, according to the San Diego County Registrar of Voters Office.
In April the Carlsbad City Council asked staffers to explore the idea as a way to make up for an expected shortfall in general fund revenues, which pay for police and fire services, street and parks maintenance, and the day-to-day operations of the city. The council also considered a 1 percent sales tax hike and legalized cannabis sales, but ruled out both in April after finding little support from residents.
A 10-year financial forecast presented to the council Tuesday shows that without financial changes Carlsbad’s expenses are growing faster than revenue. At the present pace the city will reach a $4.2 million deficit in fiscal 2028-29 and as much as a $33 million deficit in 2033-34.
“This is only a drop in the bucket of what we actually really need,” Councilmember Teresa Acosta said of the proposed increase. “We have a bigger problem.”
She and other council members said the city needs to look internally for ways to cut costs without raising taxes. The council voted unanimously not to pursue the increase.
Mayor Keith Blackburn said he originally thought the TOT hike would be “an increase paid by tourists,” but in recent months he’s talked with hotel operators and learned that he was wrong.
“The concern was, ‘Please don’t saddle the small businesses with the city’s deficit issues,’” Blackburn said.
The proposed 2 percent hike would add about $6 million annually and delay the onset of a deficit by about one year, staffers said.
The increase would raise Carlsbad’s TOT rate to 12 percent. San Diego’s rate is 10.5 percent, and Oceanside, Coronado and Dana Point charge 10 percent, according to a staff report.
“We strongly believe that it is not the time to implement policies that could disadvantage Carlsbad’s hospitality and tourism industry,” said Fred Tayco, executive director of the San Diego County Lodging Association.
“In 2022 alone, TOT represented $32.4 million of the city’s $207 million of revenue,” Tayco said. “The city should be fostering an environment that encourages travelers to visit Carlsbad, rather than potentially discouraging travel with one of the highest TOT rates in the region.”
Others said the hospitality industry has not fully recovered from the pandemic that began in 2020.
“In our own business since the pandemic we have seen labor costs increase by over 25 percent, insurance by 30 percent and food and other operating supplies over 35 percent,” said Tim Stripe, co-president of Grand Pacific Resorts, which has four hotels in Carlsbad.
“We are all sympathetic to the city’s needs, and we certainly want a sound city government, however I do not agree that the lodging industry should be burdened with having to provide the majority if not all the funds to (cover) the shortfall in the city’s operating budget,” Stripe said.
Carlsbad Chamber of Commerce Executive Director Bret Schanzenbach asked the council to look for other options.
“Group business is most susceptible … and our group business has not fully rebounded since pre-pandemic,” Schanzenbach said.
People planning group trips examine every line item of a travel budget including TOT taxes, he said.
San Diego’s airport gives it a natural advantage over Carlsbad, he said. Also, Oceanside has a growing advantage because of its ocean pier, newly redeveloped downtown and other assets, and has begun hosting events formerly held in Carlsbad.
“They are peeling away business,” Schanzenbach said. “I don’t want to also be a higher tax than they are, to have another reason to possibly push some of our business farther north.”
Carlsbad has other unexplored options for increasing revenue, such as lifting the city’s moratorium on drive-through businesses, he said. One of the main reasons for the moratorium was to reduce air pollution from the idling vehicles.
With more electric and hybrid vehicles on the road, there are fewer reasons to ban drive-through services, he said.
