Facing yet another major budget shortfall, San Jose leaders are considering a proposal to hike taxes on hotel stays as a means of boosting revenue for city services.
The City Council is set to review a proposed ballot measure Tuesday that would increase the city’s so-called transient occupancy tax, levied on hotel guests, from 10% to 12% — a level that still falls below most other major cities. City officials estimate the hike would raise an additional $10 million in tax revenue each year. If advanced by councilmembers, it will go before voters during the June 2 primary election.
Officials said the proposed tax increase stems from a broader effort to find new sources of revenue for San Jose, which has suffered regular deficits in recent years.
“Over the past quarter-century, the San Jose community has struggled to reconcile its relatively low levels of revenue per capita with the day-to-day service level demands of a major city,” Assistant City Manager Lee Wilcox wrote in a memo laying out the proposal.
The estimated $10 million in additional revenue raised by the 2% tax increase would go to the city’s general fund. That means it could be spent on a variety of city services — everything from public safety, to homeless encampment management, to park maintenance.
If the proposal makes it onto the June ballot, it will need a simple majority to pass. It would then take effect Oct. 1.
All ballot measures for the June primary must be filed with Santa Clara County Registrar of Voters by March 6.
San Jose’s recently launched budget talks have added even more urgency to the hotel tax discussion. As city leaders work out a budget for the coming fiscal year, beginning July 1, San Jose faces a projected deficit of up to $65 million. The shortfall has raised the possibility of significant service cuts and employee layoffs.
“The city is needing to identify a comprehensive approach to the structural deficit challenges it’s facing,” Jean Cohen, executive officer of the South Bay Labor Council, told San José Spotlight. “This (hotel tax increase) is one of many tools that they need to consider to make sure that the city is able to stay open for business.”
Meanwhile, some local business groups are wary of the proposal.
“Taxes to hotels make a room more expensive and really impacts our tourism industry,” San Jose Chamber of Commerce CEO Leah Toeniskoetter told San José Spotlight. “We’ve actively engaged with our hotels, our sports, tourism, arts organizations and entertainment members. We really want to understand how the proposal affects them and the broader visitor-tourism economy.”
Toeniskoetter said the chamber has not yet taken a formal position on the proposal.
San Jose officials have argued the 2% increase likely will not be enough to significantly harm the city’s hotel business. They noted even at 12%, the city’s hotel tax would still remain well below levels imposed in other major cities, including nearby competitors for tourism dollars. For example, San Francisco and Oakland have set their hotel taxes at 14%, according to the memo.
In recent years, San Jose has looked into a number of potential methods to boost cash flow, including changes to its sales tax, business tax and local fees.
In a joint memo issued in response to the proposed hotel tax increase, Councilmembers Pamela Campos, David Cohen, Peter Ortiz, Domingo Candelas have asked staff to provide an update on its work to modify the city’s business tax.
“Notwithstanding prudent actions to reduce expenditures and increase efficiency, the City continues to struggle with chronic budget deficits,” the councilmembers wrote. “Continued cuts risks erosion of core City services, loss of essential staff, and elimination of programs valued by our community.”
The San Jose City Council meets Tuesday at 1:30 p.m.
This story will be updated.
Contact Keith Menconi at [email protected] or @KeithMenconi on X.