3 board members working at a conference table

Hotel execs brace for battle against Measure E

September 7, 2018

By Gennady Sheyner,
Palo Alto Weekly.

Stanford University's graduation season typically brings flush times to the Cardinal Hotel, with guests booking rooms at the downtown Palo Alto hotel months in advance.

Last year, however, the hotel's general manager, Stephanie Wansek, witnessed a strange, new phenomenon: vacancies. This year, it happened again, Wansek told the Weekly.

"Normally, in my 20 years here, we had been sold out every year by March or April," Wansek said.

Other hotel executives also have seen demand cool off, according to Wansek. So when the City Council began to float the idea of raising the city's hotel tax (formally known as the transient-occupancy tax, or TOT) for the third time in 11 years, the move caught their attention. Since then, the group of hotel executives -- which includes members from the Cardinal, Westin, Sheraton, Dinah's Garden Hotel and Zen Hotel -- have been meeting regularly to talk about Measure E, which would raise the transient-occupancy-tax rate from 14 percent to 15.5 percent.

"Everybody around the table said their occupancy is off -- is either flattening or down," Wansek said.

Palo Alto isn't the only city looking to move ahead with a hotel-tax hike in November. Los Altos voters will consider raising their city's TOT rate from 11 percent to 14 percent; in Morgan Hill, voters will weigh in on increasing it from 10 percent to 11 percent.

There is a reason why hiking the hotel tax is such a popular proposition. Voters are far more likely to support tax increases if the costs are borne by out-of-town guests -- a long-held truism that was confirmed by a poll the city of Palo Alto commissioned last spring. Conducted by the firm FM3, the poll indicated more than 60 percent of voters would likely support a higher hotel tax, well above the simple majority required. By contrast, only 40 percent indicated that they would support a parcel tax to pay for the city's infrastructure projects and only 27 percent favored a sales-tax increase. In short, raising the hotel tax is simply the easiest thing for a revenue-hungry city to do.