For those of you who are interested, confused or curious, here's some nuts and bolts information about the hotel business and specifics about Sonoma's relationship with hotels from an economic standpoint.
Glossary:
1. TOT: TOT stands for Transient Occupancy Tax, which is the tax added to overnight guest bills. The Sonoma TOT is 10%. The County (unincorporated area such as Boyes Hot Springs) TOT is 11%. Jurisdictions in the Napa Valley vary between 12-14%. An increase in Sonoma's TOT requires a ballot measure, which can be initiated by the City Council, and must be approved by a majority of the voters.
2. TID: TID stands for Tourism Improvement District, and Sonoma's recently created TID fee is 2%, which is also added to overnight guest bills. The money collected is submitted to the City of Sonoma monthly, alongside the submitted TOT. The TID did not require voter approval to be created, but was created by a vote of the hotels. The City then transfers the collected TID funds to the Visitor's Bureau, who under direction of the TID allocates the expenditure of the funds for promotion. It is estimated that the TID will produce $450,000 yearly in funding for promotion.
3. Visitor's Bureau Funding: The Bureau's annual funding comes from various sources. The County of Sonoma provides $90,000; the successor to the City's Redevelopment Agency provides $218,000; the TID provides $450,000; and the bureau generates additional revenue through membership fees and advertising and promotional fees.
4. Annual Occupancy Rate: This rate is computed by the City of Sonoma using the aggregate occupancy rate (number of rooms rented divided by the number of rooms available) reported by all licensed overnight lodging operators within city limits. Occupancy rates vary monthly; occupancy rates for individual operators are not reported publicly. Historically, the city does not publicly report this rate based on lodging type, but only reports an aggregate number for all lodging types.
5. Average Daily Rate (ADR): The average room price at a lodging. The ADR can be computed daily, monthly or yearly.
6. High-Season/Low Season: This term describes the yearly tourism dynamic, varying from high to low occupancy. During the high-season, occupancy is high due to tourist demand being higher, and low-season reflects lower tourism demand. In general, the ADR gets lowered in the low-season to attract more visitors by offering "deals."
Discussion:
The TOT collected by the city has increased due to several factors; an increase in the ADR, and an increase in the number of rooms available. The Annual Occupancy Rate has remained within the 60-67% range over the past decade or so, as the number of rooms has increased from roughly 250 to nearly 550. There is an inverse relationship between the Annual Occupancy Rate and the number of rooms available; an increase in the number of rooms suppresses the Annual Occupancy Rate. Moreover, economic forces such as recession or a robust economy greatly influence tourism patterns despite any local promotional efforts.
The TID is not an allocation of city funds, but as explained during its proposed formation, was intended to replace the expected loss of Redevelopment Agency funding. Ironically, the successor Agency approved a continuation of the funding of $218,000 for three years. Historically, the City has reserved an increase in room fees and taxes for an increase of its own TOT; TOT income goes directly into the General Fund for city use. By granting the TID 2%, the city redirected funds it could have instead generated as TOT. We believe this was a serious error; at minimum the TID funding should have been contingent on the actual loss of redevelopment funds.
Interestingly, the city recently reported an increase in collected TOT for the last half of 2012. The first funds for the TID were not transferred to the Visitor's Bureau until October of 2012, so it is unlikely that the TID had any effect on this TOT increase, an example of how an improving economy affects the tourism dynamic overall. Directly connecting TID promotion to a TOT increase will be nearly impossible, and subject to inferential conclusions, at best.
That during high-season rooms are hard to come by on the weekend is no surprise; it's called high-season for a reason. Sonoma is one hour's drive for 5-million people, and high-season weekend demand will, and always should, outstrip supply. If this were not the case, the ADR would have to drop as supply outstripped demand, as it does in low-season. It is impractical and economically unwise to build supply to meet peak demand; if done, low-season occupancy would be disastrously low, risking business failure to some properties with high fixed-costs. In this sense, scarcity of supply during peak demand periods increases ADR and generates higher TOT.
Publicly, the five large hotels in Sonoma have gone on record as a group opposing our initiative. That as a group they oppose additional regulation limiting their growth in rooms is understandable. Privately, however, I've been told by one large hotel manager that our initiative will instantly increase the value of their hotel. By slowing the growth of large hotels in Sonoma, the existing hotels will enjoy both higher occupancy and higher ADR. These in turn will increase the TOT collected by the city.
Lastly, our opponents claim the City of Sonoma is in dire financial straits. This is not true. The recession of 2008 plus the elimination of the city redevelopment agency has certainly required a re-alignment of priorities and planning. Moreover, the city council has made some unwise decisions, such as eliminating long-standing Lighting and Local Park District fees which generated several hundred thousand dollars each year for the General Fund. The local sales tax was increased by one-half percent, producing more than three-quarters of a million dollars yearly. City staff has wisely reduced costs through attrition , efficiencies, and consolidation of positions in government.
However, rescinding the TID and placing an increase of TOT to 14% on the ballot (and every such increase has been approved by the voters) would generate an instantaneous $900,000+ in collected TOT (up 40%!) for the General Fund. Growing TOT does not require new large hotels and the negative impacts they produce of noise, crowds and traffic, just some sensible decision-making.
