Sunny weather, beaches and Disneyland are often the first things that come to mind when people think of traveling to California. But as most Californians will tell you, it’s much more than that. From the Central Valley to the Silicon Valley, the State’s unique mix of leisure, culture and commerce work together to draw in more than 250 million visitors each year.
City and county leaders understand, better than most, the impacts travelers have on their communities. They pay close attention to the sales taxes and hotel taxes visitors generate for their municipality; annual revenue that can easily exceed a million dollars even in a small city.
“California has long been a tourist destination, but of the 269 million trips people made to the State last year, 49 million were for business,” said Fran Mancia, vice president of government affairs for MuniServices, one of the nation’s leading municipal tax auditing firms.
According to Visit California, a non-profit dedicated to promoting the State as a business and leisure destination, travelers spent more than $126 billion across California in 2016, a 3.1 percent increase over 2015. But, what should be of more interest to local leaders is that travel spending is expected to increase by more than 4 percent annually over the next three years.
“The reality is, cities and counties need to make smart investments and create policies that will bolster their local businesses – look for win-wins,” said Julia Erdkamp, a client services manager for MuniServices in Southern California. “For example, vacation rental platforms like Airbnb may seem like a nuisance to some, but studies have shown that travelers who utilize these platforms spend more money at local businesses within the jurisdiction when compared to standard hotels.”
While more than half of the tax revenue generated from travel spending went back to the State ($5.3 billion), $4.9 billion was distributed back to local cities and counties. And that doesn’t take into account the number of local jobs travelers support – 1.1 million in 2016.
“It’s a false assumption that only the destination cities benefit from the travel and tourism,” said Mancia. “Cities and counties don’t need to be Anaheim or San Francisco to attract travelers, but they do need to create the right social and economic environments”
Over a year, one pot hole can turn into 20, and what was once a backburner project is now a costly public works road repair. With rising costs from pensions and other liabilities, many municipalities are having a hard time paying for these types of small, essential projects, that often get shelved for more pressing issues.
To address these needs, the City of Compton is weighing out how to use a 1% sales tax increase residents approved last year. Measure P, a 1% sales tax increase that was passed by more than 50% of Compton voters, will push local sales tax revenue up to $7 million annually. Funding from the measure will pay for long-overdue road and sidewalk repairs, enhanced street lighting, and hire more emergency response personnel.
“What we see is that when municipalities are transparent with their residents and business community, and the need is there, revenue enhancement strategies like tax increases and stronger auditing standards are more widely accepted,” said Doug Jensen, senior vice president of MuniServices.
Residents in the City of Lynwood also passed a similar sales tax increase last year. Measure PS raised the City’s sales tax rate by 1%, pushing the overall sales tax rate up to 10%. It is expected to raise $4.5 million annually over the next 10 years, when it will expire at the end of 2026. It was widely approved and was passed by more than 75% of voters.
“Local government is hurting. Plain and simple,” said Jensen. “We are at the point where some cities have made hard decisions and increased service fees or put sales tax increases on their ballots in order to pay for needed projects that have been put on hold for too long.”
Doug and his team are intimately familiar with the revenue problems cities and counties face. MuniServices is one of the nation’s leading municipal tax auditors, was has long served the cities of Compton and Lynwood to audit local sales taxes for underreported. With the new sales taxes in place, MuniServices will review new revenue to ensure the correct amounts are being collected.
“The reality it, it’s not about getting residents and businesses to pay for frivolous things,” said Jensen. “It’s about paying for the pot hole that needs to be fixed, or putting an additional ambulance team on duty. These are things that are easy to put off, but add up and negatively impact communities over the long run.”