Gilroy council agrees to explore raising hotel tax, asks staff to draft capped ballot option

The Gilroy City Council directed staff on Sept. 15 to pursue analysis and draft potential ballot language to raise the city's transient occupancy tax (TOT), including an option that sets a legal cap and allows the council flexibility to adjust the rate within that cap.

Finance Director Harjo Tsonga told the council the city's current TOT rate is 9% and that each one-percentage-point increase would produce roughly $200,000 a year based on preliminary fiscal 2024-25 receipts of about $1.5 million. Tsonga noted the city's TOT was established in 1971 at 5%, was raised to 9% in 1983, and that Gilroy's effective rate including the city's 2% Tourism Business Improvement District (TBID) is roughly 11% compared with higher rates in other county cities.

"Each 1% increment in TOT would generate approximately $200,000 in additional general fund revenues," Tsonga said, explaining that any increase would require voter approval and that the city could pursue a general tax (50%+1 majority) or a special tax (two-thirds threshold). He recommended the council consider timing and election costs and pointed to November 2026 as a plausible election date if the council wishes to proceed.

The council's discussion focused on whether to pursue a straightforward rate increase or to place a capped-authority measure on the ballot that would give the council room to make future adjustments without returning to voters for every change. Councilmember Fugazi asked staff to research other cities that have used a cap model; Tsonga said staff would return with examples and recommended legal language.

Public comment included a presentation from Michelle Collins, president and CEO of the Gilroy Chamber of Commerce, who urged clear ballot language describing that the tax is paid by visitors and collected on short-term room rentals. Resident John Volleton and others raised concerns about long-term rentals and short-term rental compliance; Tsonga said enforcement of short-term rental remittances is limited but that a state bill (discussed as Senate Bill 346 in the meeting) could require platforms to provide operator data and remit taxes should it be enacted.

Councilmembers expressed general support for exploring a measure. Councilmember Marks and others emphasized partnering with Visit Gilroy and the chamber on messaging and urged staff to return with cost estimates for polling, likely ballot and ordinance language, and comparisons showing what has worked in neighboring jurisdictions.

Council direction is advisory; no final ordinance or ballot measure was adopted at the meeting. Staff said it will return with more detailed fiscal estimates, legal counsel's recommended ballot language options (including a capped authority approach), outreach steps, and an estimated schedule for a November 2026 ballot if the council chooses to place a measure.

Next steps: staff will research comparative examples, provide sample ordinance/ballot language and cost estimates for polling and election placement, and return to council with a proposed timeline and materials to support a November 2026 placement if directed.