Voters to decide on hotel bed tax increase next year

The Embassy Suites is currently Downey’s only major hotel. Photo by Alex Dominguez

DOWNEY - Downey’s voters next year will get to decide whether they want to implement a 13 percent tax on travelers staying in local hotels.

A Transient Occupancy Tax (TOT) – also known as a hotel bed tax – is charged to travelers when they rent accommodations in a hotel, inn, motel, or lodging for a period of less than 30 days. It is calculated as a percentage of the rent for the occupancy of a structure or any portion of a structure.

Currently, Downey’s TOT stands at 9 percent, receiving approximately $1.7 million in annual revenues. However, this is at the lower end of the rate spectrum when compared to several surrounding communities of similar scope.

According to staff reports, monies gained from an increase to a 13 percent rate would aid in covering overrun costs related to Measure S, which is funding park and infrastructure repairs. Staff also addressed a greater need for funding for residential road and right-of-way rehabilitation.

However, any new added revenue would not be tied to any particular project, and could be delegated during annual budget discussions.

City staff determined that increasing the TOT would increase revenue without affecting Downey’s residents, who will not have to worry about paying this tax unless they decide to stay in a hotel within the city.

Initially, staff recommended that the council consider upping the rate to 12 percent. This number fluctuated between 12 and 14 percent as council continued to discuss, before eventually settling on 13 percent.

At 13 percent, it is projected that the city will receive $2,38 million in annual revenue, amounting to a $680,000 and 40 percent increase. At an average room rate of $136, the approximate cost to a transient staying in the city would be $17.62, a $5.42 increase.

Councilman Alex Saab said that 13 percent was “fair.”

“I don’t think 13 percent is unreasonable, frankly,” said Saab. “We certainly don’t want to chill people from staying in our city, but I don’t think this is one of those things; I don’t think 13 is that big a difference.”

It is  uncertain how Downey will choose to enforce this tax on Airbnb-type establishments, but City Attorney Yvette Garcia alluded that this would be taken care of as the item was prepared for next year’s ballot.

“Part of the process in developing the ballot measure itself is to look at our current ordinance and to modernize it,” said Garcia. “Back in 1998, Airbnb wasn’t even on the radar; now it is. That is going to be part of the process of developing the ballot measure, is to look at our current ordinance and to modernize it.”

Downey’s TOT hasn’t been updated since 1998.

The TOT will now be left to be decided by Downey’s constituents when they go to the polls in November 2020. It will require a majority vote – that is 50 percent plus one – to pass.

Downey currently has two major hotels in development.