Merced considering hotel tax increase for November ballot. Here’s why businesses may support it

By Victor A. Patton l July 3, 2024

Should Merced hotel guests pay a bit more for their stay, in order to help promote the Gateway to Yosemite as a destination spot?

That question may soon be before Merced voters to answer. 

The City Council voted unanimously to direct city staff to work on language for a potential November ballot measure to increase the city’s transient occupancy tax rate. 

Merced’s current transient occupancy tax, which has been in place for around two decades, adds a 10% charge to the bill of hotel guests staying 30 days or less. 

Mayor Matt Serratto said the city brings in roughly $2 million annually from transient occupancy taxes – revenues that go directly to Merced’s general fund. “If for example more hotels were built or occupancy rates went up, then there would be more revenue,” Serratto said.

Details about the potential ballot measure still need to be worked out. The council on Monday discussed increasing the transient occupancy tax rate to a maximum of 12%. If the council ultimately decides to place a measure on the ballot and it passes, any increase over the 10% would support creating a Tourism Business Improvement District (TBID).

The role of a TBID would be to promote the Merced region as a destination spot, presumably to help draw more visitors to the city via attractions like Yosemite National Park. 

Edwin Kainth, president of the Merced Hotel and Lodging Association, told city leaders he’s “perfectly fine” increasing the transient occupancy tax – provided the extra money goes toward a Tourism Business Improvement District.

Kainth referenced the Fresno-Clovis Tourism Business Improvement District as a successful TBID example. “(Fresno hotels) are doing great occupancy because they have (had a) TBID in place for the last 20-25 years,” Kainth said, adding that TBIDs also exist in Turlock and Modesto. 

“We are kind of left behind because we do not promote Merced as a destination.” 

Local hotel operators would also be willing to kick in an amount equal to the percentage increase from an assessment, according to Kainth, in order to support the TBID. “I think maybe in the beginning we can start with 1% or 1.5%,” Kainth said. 

Colton Dennis, executive director of the Merced Multicultural Arts Center, told the council he hopes some of those transient occupancy tax funds can benefit promoting the city’s burgeoning arts scene. 

Dennis said he has seen examples in California where TBIDs have partnered with arts communities. “Tourism and arts go hand-in-hand. It promotes our culture, it promotes who we are, it’s like a calling card,” Dennis said. 

November too soon for ballot?

Still, with a little more than four months left before Election Day, some wonder whether the council is rushing to put the issue on the ballot. 

Councilmember Shane Smith said while he supports the ideas behind a transient occupancy tax increase, thus far there has been no analysis on what the market impact would be on occupancy rates, among other things. 

“We don’t have any polling data. We haven’t had a discussion about what other ballot tax increases we might want to put to the voters in the near term. I hear a lot of talk about a quarter-cent sales tax to fund parks,” Smith said.

“I don’t see why we need to rush into this without having that kind of deliberate discussion and all the data that we want to see, so that we can hit November,” Smith added. 

Serratto responded to Smith’s concerns by saying the council can always consider reducing the transient occupancy tax if there is a negative impact on occupancy rates. 

“Just saying the maximum (amount of increase) allows for the needed flexibility,” Serratto said. “If this gets postponed two to four years down the road, it could cause a lot of issues. We’ve been talking about this for quite awhile.” 

Serratto estimates every 1% increase of the transient occupancy tax would generate an additional $200,000 for the city at current revenues. He noted most cities have a transient occupancy tax of 10% to 12%. 

Fresno’s transient occupancy tax is 12% and Modesto’s is 9%.

The transient occupancy tax issue is expected to return to the City Council on July 15. If placed on the November ballot, the measure would require a 50% plus one vote in order to pass.