City officials seeking to replenish Palo Alto's dwindling income may tap into an industry that is still shaking off its doldrums.
City leaders are considering asking voters to raise the rate of the Transit Occupancy Tax (TOT) -- a 10 percent tax hotel and motel guests pay as part of their bills.
"It's an appropriate thing for the community to discuss," Vice Mayor Bern Beecham said. In November, Redwood City residents approved upping that city's TOT rate to 10 percent, on par with Palo Alto's.
But the city's efforts to boost its parched coffers may not sit well with hotels and motels who have been in the throes of a turbulent economy.
The volatile hotel tax contributes a considerable amount to Palo Alto's budget: Officials hope to garner $7.5 million this year, 6.2 percent of the city's $120.7 million general fund.
Although Palo Alto reaped profits from the booming hotel industry in the late '90s, revenue from the tax plummeted after Sept. 11 and the dot-com collapse. The city collected $9.5 million in 2001-2002, but only received $5.3 million in 2002-2003.
During the first quarter of this fiscal year, the hotel tax intake dropped another 12.4 percent, raising concerns among prognosticators in the city's finance department.
Tony Carasco, the chair of Palo Alto's Chamber of Commerce board, would rather the city study whether lowering the rate would be more beneficial to the city's bottom line.
Doing so would bring down the price of a room, possibly making Palo Alto's digs more attractive with competitors in Los Altos and Menlo Park, Carasco reasoned.
"We have to be competitive with them or we're going to be at a disadvantage," he said.
If the city does consider raising the hotel tax rate, Carasco said, it should use some of the funds to support tourism, like San Francisco and other cities do.
"Palo Alto does nothing," he said.
City leaders insist they will not try to raise the TOT until the industry experiences a significant turnaround -- and then stabilizes.
There are mixed signs, but some managers believe that is already starting to happen. Higher-end hotels, especially, report the number of guests have been increasing in recent months.
"It's solid enough to call it a trend," said Barbara Gross, general manager at the Garden Court Hotel. "We feel like we're cooking again."
The current occupancy rate at the Garden Court is approaching 70 percent, Gross said, a vast improvement over past years. Just how low did it go?
"I don't want to share that information publicly," Gross said, revealing the desperation hotel operators once felt.
At the other end of town, among the less expensive hotels along El Camino Real, some managers are less hopeful.
"Compared to last year, it is much less," Ashok Shah, manager of Howard Johnson Express Inn, said of occupancy rates. He estimated that occupancy has fallen 60 percent since last year.
At the nearby Super 8, Manager Prateek Decai said business is slow, but overall the year has been "a little better."
"At Christmas time -- always, every year -- you just don't have much business," he said. But October was surprisingly successful. Overall this year, Decai said, "it's pulling up -- but then it goes up and down and up."
Bill D'Agostino can be e-mailed at bdagostino@paweekly.com
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