New hotels could sustain city programs
Original post made by Karen White on May 31, 2006
Anyone who looks at the numbers will understand the fiscal crisis that is upon us. One can ask why this has happened, but pointing fingers only blocks progress.
Working with other community leaders, I have decided to respond to my concerns with action, to be assertive in urging a focused action plan to halt and reverse serious drops in city revenue.
In recent months we have looked into retaining or attracting businesses that provide sales tax and other revenues. Now we are exploring ways to bring more folks to Palo Alto or keep visitors around a bit longer.
The "Destination Palo Alto" task force (of which I'm honored to be a member) is taking a proactive look at Palo Alto as the crown jewel of the Peninsula that we believe it to be.
The question seems simple: Does the family who visits to watch a Stanford football game or the business person who travels here to meet with clients know all there is to see and do in Palo Alto if they stay an extra day or two?
But the critical underlying question is: Why should Palo Altans be asked to tolerate draconian service cuts when, by being proactive, we can uncover revenue sources that do not harm our quality of life?
Looking at the big picture, hotels can play a central role in bringing vital new revenue to the city. As residents, we can no longer take for granted that our community services covering everything from police to parks to library services and more can be sustained, not with the city's infrastructure reserve leaking as badly as it is.
How bad are the leaks? Our sales tax revenues plunged from $25.6 million in fiscal year 2000-01 to $18 million in the 2002-03 "bust" year. They have climbed back to a projected $20 million or so this year, ending June 30, but are still millions shy of where they were.
In addition, our hotel-based transit-occupancy tax (TOT) has fallen off a cliff, plummeting from $9.4 million in 2001 to $5.7 million in 2005.
We must do something now to reverse that. Every penny of the 10 percent TOT we take in funnels straight into city coffers to support what we need as a community. Hotels are high revenue producers for the city and bring minimal negative community impacts on schools, roads, libraries and other civic facilities.
Further, studies show that hotels are low trip-generators unlike residents, hotel guests generally drive during non-peak hours.
And visitors from out of town eat at our restaurants and shop at our stores, so we get a sales tax bonus at the same time.
The need is real. In 1998 we learned that we were $100 million behind in taking care of our city's libraries, community centers and virtually every civic building in town. This estimated backlog has almost doubled since then.
We're facing a $28 million backlog for street repairs alone.
We need to spend $10 million to $14 million per year just to keep up with ongoing deterioration to our community facilities. In recent years, we have been spending at the low end of this range, but only by severely depleting our infrastructure savings account.
This account is currently draining so quickly that it will be completely dry by mid-2010 if we don't do more right now to refill it.
Doing the math: Palo Alto needs to bring in an additional $3 million per year to cover infrastructure needs or we'll continue to face ever harder (and more controversial) choices about which service cuts we should suffer. Slash library hours? Suffer delays in emergency response times? Sacrifice the Junior Museum and Zoo? Close library branches? Close the Art Center?
Or can we find new sources of revenue to support the services we both need and rely on as vital strands in our community fabric?
Here are two steps the city can take now to jump-start new revenue from hotels:
1) Adopt land-use incentives to spark the development of new hotels along El Camino Real at or near Stanford Shopping Center, in Stanford Research Park or other locations where hotels make sense. Hotel incentives can be set at a level to match the economic benefit to developers from building housing, now the most profitable use for sites being redeveloped.
But housing brings ongoing costs and impacts new pressures on our schools (students are being "overflowed" from some schools even now), libraries, parks, streets that hotels do not.ݼP>
2) Adopt land-use policies to protect hotels where they are currently located, to help protect today's hotel sites from being converted to housing. Had land-use incentives been in place to bringݥconomic benefits into closer alignment, we could potentially have kept the Rickey's site for a hotel a revenue producer of $1 million to $2 million every year instead of watching it flip to housing, a revenue drain on the city.
We should revise our zoning ordinance now to encourage hotel development. Neighboring cities are not waiting for us to catch up. Menlo Park is considering a major conference center at Sand Hill Road and Highway 280. The impressive new Four Seasons has just opened in East Palo Alto.
So let's not allow a discussion about hotel incentives in Palo Alto to become mired in complex and protracted discussions about Pedestrian-Transit Oriented Development being considered for certain parts of town.
As has been said, "the future is now."
Land-use incentives could bring from one to three hotels during the next few years, as market demand allows. With adequate incentives in place, a developer can reasonably consider building a hotel instead of other uses when it's time to redevelop a site.
New hotels near shopping districts will maximize revenue from both hotel tax and sales tax. What's important is this: Putting adequate land-use incentives in place at common-sense locations can mean developers will deliver hotels instead of more housing, more residents, more costly community impacts.
Palo Alto civic leaders should be commended for beginning a conversation about tourism, and for launching efforts to preserve the city's sales-tax base and, now, its even more lucrative (and threatened) transient-occupancy tax.
Let's take a strategic view and seize today's opportunity to bring in new revenue while minimizing community costs and impacts a kind of "Smart Revenue." Taking steps now to encourage hotel development where it makes sense would be a good way to start the ball rolling. Encouraging our civic leaders to move ahead, and quickly, will be in the best interests of us all.
(First published in the Palo Alto Weekly on May 31, 2006)
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