Room Tax Uses Not Limited, City Is Told

The San Diego City Council may use revenue from a hotel room tax increase for any public purpose if the funds are first deposited in the city’s general fund, City Atty. John Witt said Thursday.

Witt’s opinion, which was issued in response to questions from District 7 council member Judy McCarty, could pave the way for council competition over how to use the about $7 million that a 2-cent increase in the “transient occupancy tax” would raise.

McCarty last week proposed increasing the 7% room tax to 9%, and spending all the receipts to help finance the $1.5-billion secondary sewage treatment system that the city must install to comply with federal law. McCarty said Thursday that she will formally make that proposal when budget deliberations begin early next month.

Mayor Maureen O’Connor has proposed raising the room tax by as much as 2 cents to finance improvements in Mission Bay and Balboa parks, a Soviet arts festival, local arts groups and a city office of protocol.

O’Connor said that the $7 million that would be generated by a 2-cent increase in the transient occupancy tax is far too little to significantly reduce the price of the new sewage treatment system. Even if the revenue is used to pay off bonds over 30 years, it would generate about $50 million, far less than the $1.5-billion cost of the sewage system, she said.

Intent to Promote City

O’Connor also said that the original intent of the 1964 ordinance enacting the tax was to promote the city. She said she has already made plans for a workshop on spending the money.

“Two cents is not going to solve the sewer problem,” O’Connor said. “What’s going to solve the sewer problem is the federal government paying their fair share.”

Witt’s memo, dated Wednesday but released Thursday, told council members that the increase could not be designated for a particular purpose without approval of two-thirds of the city’s voters in order to comply with the provisions of Proposition 13.

But, if the money is first deposited in the city’s general fund and then spent for public purposes, no vote is necessary, Witt said.

‘It’s a Little Crazy’

“It’s a little crazy, but that’s the way it worked out according to the wording of Proposition 13 and the judicial interpretation” of Proposition 13, Witt said.

Now, a local ordinance mandates that the city spend 4 cents of the 7-cent tax to promote San Diego by, for example, supporting the San Diego Convention and Visitors Bureau (ConVis), said Pat Frazier, the city’s director of financial management. Another penny is spent on quasi-promotional programs such as an anti-litter campaign.

The remaining 2 cents are deposited in the city’s general fund and devoted to various purposes, Frazier said.

Although a 1-cent increase in the tax would generate about $4 million, the existing ordinance requires that 20% of that revenue be given to ConVis and several other organizations, leaving about $3.5 million for other purposes, Frazier said. However, the council could change the ordinance when it approves a tax increase, she said.