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Budget: Sonoma Finishes Year With Surplus, But Business Owners Face a Different Economic Climate

Additional revenue may be needed to offset redevelopment agency costs; hoteliers say additional marketing is needed to stay competitive

City staff presented an optimistic portrait of Sonoma's financial future Wednesday, reporting that the city ends the fiscal year with an over $84,000 surplus and roughly $4 million in reserves, a ready message after a tumultuous year.

But the , which was championed by Mayor Laurie Gallian to investigate new revenue sources for the city, may be necessary; the city faces an uncertain financial future – where additional revenue may be needed – largely due to statewide changes to redevelopment agencies, which usher in about $10 million annually to Sonoma’s downtown project area.

In June, the state legislature and Gov. Jerry Brown dissolved redevelopment agencies, unless cities pay a fee – dubbed ‘ransom’ – to the state.

Sonoma agreed to , which, , will cost the city a one-time payment of $1.5 million and $400,000 annually – all of which must be factored into the new city budget.

Even more complicated: Brown’s legislation is facing legal challenges, adding uncertainty to the revenue until a decision is reached.

At least the city is ending the year ahead. Earlier this year, from reserves to balance the 2010-2011 budget. (The money was repaid before the end of the year, staff said.) City spending was also under estimates, running .3 percent, or $33,786, lower than expected.

City funds have been largely unaffected by the Great Recession; the top three revenue sources remained relatively steady in recent years:

  • Property Tax (24 percent of the General Fund): The mortgage crisis hasn’t affected Sonoma’s property values – which rose between 2004 and 2008, before leveling off at just over $2.5 million per year.
  • Sales Tax (19 percent): The City charges an 8 percent sales tax, which is less than many County districts: Rohnert Park and Cotati charge 8.5 percent, while Sebastopol charges 8.25 percent.
  • Transit Occupancy Tax (21 percent): The city recoups a 10 percent Transit Occupancy Tax (or TOT) from each hotel room sale. Carol Giovanatto, assistant city manager, called the tax “the lifeblood of [Sonoma’s] economy.  The tax rose with new buildings in projects after 2003, but bottomed out after 2010 at just under $2.5 million.

Though the city’s TOT share has stayed relatively steady, the prominent financial troubles of several area hotels – namely, the Fairmont Sonoma Mission Inn, which was put up for sale last month – worry hoteliers, who say they’ve been forced to cut room rates drastically, earning the same gross with more guests, to keep up sales.

In July, a group of local hoteliers petitioned the council to create a ‘Tourism Improvement District,’ by raising the TOT rate by 2 percent and using the additional funds, about $440,000.  They were denied.

And the hoteliers, who attended the meeting en masse, are still worried about their industry's financial future.

“We have a serious problem, with 36 percent of our rooms underused,” said Norman Krug, who operates the .

At 10 percent, Sonoma has the lowest TOT rate in Sonoma County – Napa County averages 14 percent – and is the only city, other than Healdsburg – not to have a Tourism Improvement District.

“We’re grossly being outspent by Napa,” said Dan Parks, owner of the .  

City staff question the efficiency of the Tourism Improvement District model, arguing that the increase in business is untested, and the additional marketing budget would have to bring in over $4 million in additional sales for the City to regain the $440,000.

“We don’t know if they’re reaping benefits by advertising,” said City Manager Linda Kelly.

But industry workers see a direct and significant correlation between marketing dollars and room sales. Bill Blum the longtime general manager at Macarthur Place, said the hotel saw a big spike in RevPar – an industry calculation, which combines room price with occupancy rate – after partnering with the for a marketing push in 2004.

“The one thing I know for sure is that a healthy tourism industry in Sonoma means a healthy city…more jobs, more sales tax, more occupancy tax, healthy businesses and fewer empty storefronts,” said Blum.

Despite Sonoma’s steady and long-unchanged rates, officials were hesitant to increase taxes except for a specific ‘quality of life project’ – .  

“I’m unconvinced that it’s foretold that we have to raise any revenue,” said Mayor Pro Tem Joanne Sanders. “We’ve just been told we have a budget surplus, and I’d like to see how the economy improves.”

But Sonoma Mayor Laurie Gallian disagreed – arguing that such financial fore planning is crucial for municipalities in fiscally uncertain times.

 “Sonoma deserves to have a quality of life that people are paying to be here to have,” said Gallian. “One of the things that predicates [this]…is how fiscally alert we are to the changing seasons of economic downturns.”

Pamela Hawken (C) 2012 November 04, 2011 at 10:16 PM
(Continued from above comments) The Chamber of Commerce could initiate a program that would encourage downtown merchants to improve their store's appearance and perhaps monthly or bi-annual awards could be given to that do. There are many other things that can be done to improve the downtown experience--not just for tourists but for locals--and everyone would benefit directly and indirectly through increased tax revenues, and just as importantly, a cleaner and more pleasant place to hang out with friends and family, etc. I would like to see Sonoma stand out and have the reputation of the being one of the most BEAUTIFUL towns in Northern California to live and visit. The will to make improvements and a bit of community spirit and elbow grease could go a long way to make it happen.
Irene Morgan November 05, 2011 at 05:37 PM
Actually, I find the area around the Plaza very pleasant and often enjoy strolling there. But I guess differences of opinions are what makes life interesting. The budget surplus is good--there will be surprise things that come up during the year and it is good to have the funds on hand to take care of them.
Suzanne Barbara November 06, 2011 at 06:14 PM
With tourism raising such a significant part of the revenue on which our city depends, we probably need to be somewhat sensitive and consider some of the issues raised by the hotelliers.
Dee Baucher November 11, 2011 at 07:30 PM
Our town depends upon the revenue generated by tourism, and thus the image of the plaza and its surrounding areas is very significant to us all. Agree with the opinion that financial investment into ongoing aesthetic improvements will pay huge dividends in terms of tourist enjoyment and profitability for all the associated businesses. Sonoma can not afford to become complacent with its image and tourist amenities, if it wants to retain its status as a desired destination for discriminating visitors.
will ackley November 22, 2011 at 02:36 AM
This food truck revolution has been interesting to watch develop in other citys. a handful of caterers, a couple of desert venders,live music cob pizza oven. i see it possibly behind the community center so they could benefit from the rental spaces. one nite a week(friday nite)so as not to ruffle the local restaurants to much. Theres not much to do in slonoma after six most nites and the friday nite event would be a wonderful casual community gathering to showplace some of our culinary talents. It wont solve all our problems but could make sonoma a more interesting place to hang out for locals and tourists alike.

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