The City Council decided Tuesday not to move forward with putting a measure on the ballot for a potential increase in the tax visitors pay when they stay at local hotels and short-term vacation rentals. In April, the City Council requested information about a potential ballot measure to increase the transient occupancy tax in Carlsbad, one of several new revenue sources that have been discussed over the past 18 months. The City Council also asked staff to seek input from local hotel owners and others in the tourism industry.

Since June 2021, when city staff first warned of a potential structural budget deficit in the future, the City Council has requested that staff study potential new sources of revenue and called for city staff to look for more efficient ways of doing business.

At Tuesday’s meeting, staff shared information about how Carlsbad’s hotel tax rate compares to other visitor destinations. At 10%, Carlsbad is tied for the lowest among comparison cities like Newport Beach and Santa Barbara and is comparable to most other cities in San Diego County. Staff also shared feedback from the hotel and tourism industry, which is still feeling the effects of the COVID pandemic and other recent economic conditions. Losing business, especially related to corporate and group travel, to cities with lower taxes was a significant concern reported by industry representatives. A hotel tax increase would generate an estimated $3 million to $3.5 million for every percent the tax goes up.

Also on Tuesday, city staff reviewed steps already taken to reduce ongoing spending and operate more efficiently. Over the past two years, city departments have made dozens of cuts, resulting in ongoing savings of nearly $5 million a year. The city’s current budget includes an increase over last year's maintenance and operations budgets of less than 1%, at a time when inflation was over 6%. By reducing spending, coupled with stronger-than-anticipated revenues, the city now estimates the projected future deficit three years later than previously anticipated. This gives the city more time to consider options.

A structural deficit means the costs to run the city are expected to increase at a faster rate than revenues expected to come in. It does not mean the city currently has a deficit. The financial forecast is a tool that provides early warning signs so adjustments can be made. The anticipated structural deficit is for the city’s general fund, which pays for day-to-day city services.

There are several reasons costs are increasing at a faster rate than spending, including the city’s age, which means more infrastructure needs to be replaced, and decreasing developer fees to help pay for new infrastructure. Based on community priorities, the city has also added over a dozen new programs and services over the past five years, mostly related to public safety, which require ongoing spending to sustain them. New parks and other community amenities have also come online, and those too require ongoing funding to maintain.

Read the city budget
Read the staff report