Inn closure sends city tax receipts tumbling
By Jesse Phelps

At this point, city officials probably wish they could just put their whole budgetary crisis to bed. Unfortunately for them, that isn't happening.

A drop-off in revenues from the 10 percent transient occupancy taxes, commonly referred to as "bed taxes," has them scrambling to find ways to alleviate what is becoming a bigger strain on city coffers than expected.

When figuring the city budget for the current year, City Manager Dan Singer took into consideration the May closure of 150 rooms at the Ojai Valley inn & Spa. On his recommendation, City Council allowed the use of $750,000 in general fund reserves to alleviate the expected shortfall for city revenues.

But about six weeks ago, Singer said, the inn decided it would close all of its rooms for a brief period beginning in December. That news, along with bed tax figures published by the Ojai Valley Chamber of Commerce for the year to date, have city staff considering measures including another dip into the reserves or a raise in tax rates. But first, said Singer, the plan is to raise fees for services such as approvals for new construction.

"We're bringing down some changes in our master fee schedule," he said. "These are either new fees or fees that need to be increased."
Singer said that staff did a good job anticipating the shortfall in bed taxes and that his projections "were only off by a fraction" for the year to date. But the closure of the balance of the inn's rooms will create an extra, unanticipated burden.

"We did not project the inn to be closed entirely for six weeks," Singer said. "By the end of the year, we may end up worse than we expected."

Projected or not, the bed tax numbers to date are daunting as well.
A look at the revenues from the last three years shows that, in general, the busiest months for Ojai lodging are those in the summer, with July and August representing the peak months for visitation.

In 2001, according to figures furnished by the Ojai Chamber of Commerce, taxes peaked at $171,467 in August after a haul of $164,831 in July. This was up from January and February returns of $116,636 and $119,860, respectively. By December, the figure for the city was back down to $103,085, the yearly low.

In 2002, the pattern remained consistent. January and February were down roughly 10 percent from the year previous, with returns coming in at $102,725 and $108,737, respectively.

But things picked up once again in March, and revenues again peaked during the vital summer months with an August return of $182,615, a three-year high.

By December, however, the figure dropped below the $100,000 threshold for the first time in the new millennium.

They haven't returned to that level since. In the wake of the inn's expansion, the returns dipped below the $70,000 mark each month, starting in May, reaching a low in September of $44,446, dwon nearly 70 percent from the $132,908 collected in September 2002.

Singer said that the city anticipated that losses from the inn's expansion might be made up through occupancy elsewhere but so far that hasn't been the case.

"We anticipated some increase in (bed taxes) from other facilities and we haven't really seen that, not yet at least," he said. "The other motels and hotels seem to be doing about what they did a year ago or maybe a little less."

The chamber's Scott Eicher said that may be because others in the valley's hospitality industry depend on events at the Ojai Valley Inn & Spa for their own occupancy. "There is a correlation," he said. "They depend a lot on overflow business from the inn."

Singer pointed out that the renovations of the Oaks at Ojai and the El Camino Motel also have a negative impact on returns. "While their rehabilitation is a good thing, that hasn't helped either," he said.

Singer said that the bed tax revenues make up about 40 percent of the total city revenue stream, with the balance coming from sales and property taxes. And Eicher points out that, though the chamber is a valley-wide organization, only tax dollars generated within the city feed Ojai's budget.

Since Ojai is so reliant upon the inn for revenue, he suggested that a partial solution would be to increase the profile of the town as a whole through increased advertising, particularly to niche markets.

The city should focus on ads in localized gardening or horse journals, for instance, where rates may not be as expensive as, say, Sunset Magazine, and increase its presence at trade shows and online.

The key, he said, is marketing to state residents because research shows that 80 percent of tourism in California is from Californians.

Meanwhile, while the October figures have yet to be released, bed tax revenues are expected to increase again, if visitation to the chamber of commerce is any indicator. The chamber's figures for informational requests from visitors during 2003 show an October upswing Eicher credits to Ojai's artistic community.

"The huge bump here in October is because of the Studio Artists Tour and all the visitors that come in," he said.

In addition to the extra dollars spent on gas, food and art, over the past two years, bed taxes have increased an average of 20 percent from September to October, thanks to the tour. And when the inn reopens, many other problems should be solved, said Singer.

He said he thinks the council will be reluctant to dip further into the reserves, but that they will likely "see the wisdom, knowing that this is a very short term problem to get through."

© 2003 The Ojai Valley News

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