.Capitola’s New TOT Tax Strategy

Most election cycles have their surprises. Four years ago, one of the biggest ones came out of Capitola, where a transient occupancy tax (TOT) was before voters. The tax on visitor lodging would have posed no direct cost to local residents and would have brought the tourist tax from 10 percent up to 11 percent, the same level that both the city and the county of Santa Cruz had approved two years prior, each with little fanfare.

However, Capitola—which is one of the more conservative (well, less liberal, anyway) areas of the county—voted against the 2014 measure by a sizeable margin after an opposition campaign formed. The city never clearly articulated how the money would be spent or why it was really needed.

Not deterred by the embarrassing showing, the Capitola City Council is pursuing a TOT measure again for the upcoming November election. This one would raise the TOT up to 12 percent and Mayor Mike Termini is optimistic about its chances at the polls—which may seem surprising, given that the new version now needs to score more than 20 percentage points higher than Measure M earned in 2014. While the first TOT measure needed only a simple majority to pass, the new one needs a two-thirds of the vote.

But in contrast to the confusion and ambiguity that surrounded the 2014 measure, Capitola city leaders have this time around outlined that most of the money will go to the general fund, but with 20 percent going to local business groups and marketing. Ted Burke, co-owner of Capitola’s Shadowbrook restaurant, says that could more than offset the risk to the industry. Burke was among those who campaigned against the previous measure, but he’s now a vocal supporter of the new version. He’s particularly pleased that 17.5 percent would go to child education programs.

“As a business owner, who for more than 40 years has made children the primary recipient of our community giving, I have even more reason for support,” Burke says via email.

In 1978, California voters passed Proposition 13, which among its provisions required two-thirds of voters to support any special-use tax like the new TOT measure. That requirement doesn’t apply, though, to general-use measures, like Capitola’s previous version.

For the most part, left-leaning activists and local government officials alike have long derided the variety of ways that Prop 13 makes it difficult to raise revenues.

But 40 years later, it also presents a strange irony in the electoral landscape. Generally speaking, a city government may go to voters and say “We have a detailed plan for this money, and this is how we’ll spend it,” and they’ll need two-thirds of the vote to pass it. But a local government can also go to the ballot and say, essentially, “More cash, please?” and only need a simple majority.

In any case, cities are increasingly strapped financially, thanks largely to burgeoning pension costs. This November, voters from Watsonville will weigh in on a TOT measure raising their transient occupancy tax to 12 percent, and the Scotts Valley City Council has approved its own measure to raise the TOT there to 11 percent.

In Capitola, Burke remembers the previous TOT measure getting jammed onto the 2014 ballot by the council at the last minute. He says that this year, the city did a much better job of outreach with the business community.

Even Mayor Termini won’t deny that the 2014 effort felt “rushed” and “icky.”

“In hindsight it was good that it didn’t pass,” Termini says. “This year’s is a better measure.” 


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