I wanted to respond to a few comments on my last post. Reader Clif Williams wrote (emphasis mine):

The 2% assessment for tourism promotion was voted on and assessed by hoteliers on themselves per proposition 218 rules. This is the same process used by communities to assess themselves for landscape maintenance of road medians in certain communities. It isn’t a “tax” because the City doesn’t allocate the fund and the money does not come into the General Fund.

First, let’s deal with this question of whether this is a self assessment. This is important because it makes it sound like it isn’t a tax on visitors, but rather a sacrifice the hotels are making. Look at the facts: When person stays in a hotel room in San Diego, they pay 10.5 percent of their bill to the city and this additional 2 percent to a district set up to market San Diego tourism.

Williams calls that a self assessment. But is it?

The idea is that this is like a normal business improvement district or maintenance assessment district that pays for, as he says, “landscape maintenance of road medians” and other things. In business improvement districts, like Little Italy, businesses pay a fee to a common pot, which is used to improve or promote the area for the good of neighborhood commerce.

For these businesses, participating in the business improvement district is a cost. And it’s one they have to incur even though their competitors might not have the same cost. That’s a self assessment. A restaurant in Little Italy might be part of the business improvement district, but it cannot just pass the cost of it on to their customers. Why? Because if they do, another restaurant in another neighborhood might offer demonstrably lower prices. They have to be judicious and competitive.


We Stand Up For You. Will You Stand Up For Us?

Here’s how Vlad Kogan put it in another comment:

In BIDs, businesses come together and vote to increase the amount THEY pay. They don’t vote to increase the amount their customers pay. (Of course, they could individually try to pass on these higher cost to their customers in the form of higher prices, but their ability to do so would be constrained by market forces.)

The hoteliers did not want to do this. They wanted to have the benefit of a shared common pot but pass the consumer the bill. They knew they had to all do it or else one of them would have a competitive advantage.

So they agreed to all put a 2 percent fee on their customer’s bills. It’s a tax. It is exactly like the transient occupancy tax. It’s just a private tax controlled by the hotels, not the city. It’s a great deal for them as they can fully control it.

They’ll argue it is a self assessment, as the 2 percent represents money they could have charged their customers. But that’s the point. It’s not guaranteed they could have. They would have had to test the market like good old capitalists.

Reader Fryefan wrote this (emphasis mine):

Unless there are anti-trust or failure-to-inform problems, hotels, individually or in collaboration, could assess a 3% “Let’s Improve Fryefan’s Retirement Income” fee on room charges–they are private businesses and can charge electricity surcharges, access to the health club fees, or anything else their customers will tolerate.

That’s the point, customers have little choice but to tolerate the fee. All hotels with 70 or more rooms in the city assess it. That’s 183 hotels to be exact. Usually, the right to pass a levy onto residents or visitors is reserved for the government. This, essentially, is a private tax. And that it’s controlled by the businesses that have to deal with it, and have to see a return on the investment, is exactly why it enjoys the support of people so ardently opposed to other new taxes in the city — leaders like Councilman Carl DeMaio and Kevin Faulconer.

Ultimately, it was a city decision. The city had to administer the vote of the hoteliers to decide to do this and the City Council had to sign off on it. If Fryefan is actually a fan of former City Councilwoman Donna Frye, he might want to know that she voted against it.

You can contact me directly at scott.lewis@voiceofsandiego.org or 619.325.0527 and follow me on Twitter (it’s a blast!): twitter.com/vosdscott.

    This article relates to: Government, News, Opinion, Scott Lewis on Politics

    Written by Scott Lewis

    I'm Scott Lewis, the editor in chief of Voice of San Diego. Please contact me if you'd like at scott.lewis@voiceofsandiego.org or 619.325.0527 and follow me on Twitter (it's a blast!): @vosdscott.

    28 comments
    T.J. Zane
    T.J. Zane subscriber

    Scott, I share fryefan's belief that if the extra amount is only paid by travelers/tourists and is not paid by every taxpaying resident of San Diego then it is not a "tax" in the traditional sense... folks can call it whatever they'd like... a fee, a levy, a tax, an assessment, etc... I tend to think of it more as a "fee for users of hotels"

    TJZane
    TJZane

    Scott, I share fryefan's belief that if the extra amount is only paid by travelers/tourists and is not paid by every taxpaying resident of San Diego then it is not a "tax" in the traditional sense... folks can call it whatever they'd like... a fee, a levy, a tax, an assessment, etc... I tend to think of it more as a "fee for users of hotels"

    Clif Williams
    Clif Williams subscriber

    These "fees", "taxes", "assessments", "mello-roos" and others are just part of the system of financing we have created in California. It is complicated, not always equitable, and open to interpretation. But it is our system, nonetheless, and since we know medians need to be maintained, schools built, trash dumped, and regions marketed, to keep our neighborhoods looking nice, hotel rooms filled, and City healthy, we play within the system we are given to get something done. Because in the end, that is what matters.

    cwilliams
    cwilliams

    These "fees", "taxes", "assessments", "mello-roos" and others are just part of the system of financing we have created in California. It is complicated, not always equitable, and open to interpretation. But it is our system, nonetheless, and since we know medians need to be maintained, schools built, trash dumped, and regions marketed, to keep our neighborhoods looking nice, hotel rooms filled, and City healthy, we play within the system we are given to get something done. Because in the end, that is what matters.

    Clif Williams
    Clif Williams subscriber

    In addition, I can't just "pass along" these costs and recoup my fees in the price I sell the house for later. Someone is going to pay the market rate for a home in my area, just like they are going to pay the market rate for a hotel room. Just as with a hotel room price, the advertised price will never be marketed with the extra fees, charges and everything else that gets added at the end. Sure people could choose to buy a house in a different area and not pay these fees (although they are pretty standard in newer areas of San Diego). People could also decide to go on vacation in LA instead of San Diego, they have beaches too. Oh and by the way, I don't think anyone cared that it would be harder to raise a general property tax for the City when my MADs and Mello-Roos districts were created.

    cwilliams
    cwilliams

    In addition, I can't just "pass along" these costs and recoup my fees in the price I sell the house for later. Someone is going to pay the market rate for a home in my area, just like they are going to pay the market rate for a hotel room. Just as with a hotel room price, the advertised price will never be marketed with the extra fees, charges and everything else that gets added at the end. Sure people could choose to buy a house in a different area and not pay these fees (although they are pretty standard in newer areas of San Diego). People could also decide to go on vacation in LA instead of San Diego, they have beaches too. Oh and by the way, I don't think anyone cared that it would be harder to raise a general property tax for the City when my MADs and Mello-Roos districts were created.

    David Cohen
    David Cohen subscriber

    Anti-tax initiatives and "legislated" laws have led to this bizarre situation--with more likely to follow.

    fryefan
    fryefan

    Anti-tax initiatives and "legislated" laws have led to this bizarre situation--with more likely to follow.

    Vlad Kogan
    Vlad Kogan subscriber

    Unless you really believe the TMD is a user fee or a special assessment (which would be a ridiculous belief), then you can only describe as a tax.

    vkogan
    vkogan

    Unless you really believe the TMD is a user fee or a special assessment (which would be a ridiculous belief), then you can only describe as a tax.

    Scott Lewis
    Scott Lewis administrator

    TJ - so it's not taxes that bother you as you fight them across the region, it's who gets to control the revenues they generate?

    scottlewis
    scottlewis

    TJ - so it's not taxes that bother you as you fight them across the region, it's who gets to control the revenues they generate?

    T.J. Zane
    T.J. Zane subscriber

    I think I may need to change my moniker to FryefanFan...

    TJZane
    TJZane

    I think I may need to change my moniker to FryefanFan...

    tim19620
    tim19620

    Something doesn't smell exactly right here. I'd like a recount..... Not one complaint? From anyone? If it sounds too good to be true... I'd like to see the vote count of 183 yea's to zero nays.

    timothy villalobos
    timothy villalobos subscriber

    Something doesn't smell exactly right here. I'd like a recount..... Not one complaint? From anyone? If it sounds too good to be true... I'd like to see the vote count of 183 yea's to zero nays.

    Scott Lewis
    Scott Lewis administrator

    It would certainly increase the trust those companies have in how that revenue is spent.

    scottlewis
    scottlewis

    It would certainly increase the trust those companies have in how that revenue is spent.

    David Cohen
    David Cohen subscriber

    Anti-trust comes into play only if the actions are anti-competitive. Hotels compete significantly through pricing. Voluntarily adding 2% doesn't affect competition, bidding, or market allocation--the "Big Three" of anti-competitive law.

    fryefan
    fryefan

    Anti-trust comes into play only if the actions are anti-competitive. Hotels compete significantly through pricing. Voluntarily adding 2% doesn't affect competition, bidding, or market allocation--the "Big Three" of anti-competitive law.

    fryefan
    fryefan

    Maybe each of the hotels needs a sign saying "Thank our TMD (you need not bother with what it is)--it may be the reason your organization's convention or family's vacation brings you here."

    David Cohen
    David Cohen subscriber

    Maybe each of the hotels needs a sign saying "Thank our TMD (you need not bother with what it is)--it may be the reason your organization's convention or family's vacation brings you here."

    Scott Lewis
    Scott Lewis administrator

    Also, if this assessment is not a tax, are you also saying the TOT is not a tax?

    scottlewis
    scottlewis

    Also, if this assessment is not a tax, are you also saying the TOT is not a tax?

    Vlad Kogan
    Vlad Kogan subscriber

    I'll add this: If hoteliers believe the economic impact projections for the expansion, they should have no problem voting to add an assessment to their annual business license fees (perhaps through some zoned method, where those closer to the center pay more), since the benefits from the expansion would outweigh these costs. In other words, the fact that they, rather than the out-of-town visitors, have to pay should not stop the project from going ahead -- that is, if the economic impact projections are to be believed...

    vkogan
    vkogan

    I'll add this: If hoteliers believe the economic impact projections for the expansion, they should have no problem voting to add an assessment to their annual business license fees (perhaps through some zoned method, where those closer to the center pay more), since the benefits from the expansion would outweigh these costs. In other words, the fact that they, rather than the out-of-town visitors, have to pay should not stop the project from going ahead -- that is, if the economic impact projections are to be believed...