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Costa Mesa weighs up to 3‑point hotel tax increase as hoteliers warn "all‑in" pricing could shift business
Summary
Staff briefed council on options to raise the transient occupancy tax (TOT) by 1–3 percentage points; hoteliers and Travel Costa Mesa asked for an economic analysis, warning that even small increases can shift bookings because buyers compare "all‑in" room prices including taxes and assessments.
City staff on June 9 presented options to increase Costa Mesa's transient occupancy tax (TOT), currently 8% (voter‑approved in 2010), and discussed potential effects on hotel demand and city revenue.
Staff noted FIPAC had recommended considering increases of up to three percentage points and showed a table estimating roughly $1 million in additional revenue per percentage point. "A 1% increase would generate $1 million, a 2% $2 million and a 3% $3 million," staff summarized. They also reminded the council that 10 participating hotels pay an additional voluntary 3% BIA assessment that primarily funds Travel Costa Mesa.
Travel and hotel industry representatives urged caution. Steve Yannerell, general manager and chair of Travel Costa Mesa, told the council that meeting planners and leisure travelers evaluate the "all‑in" price when booking. "That price that you look at for that night, it includes all those taxes," Yannerell said. He and other managers argued that even a small percentage change can push large group business to nearby cities such as Irvine and that the cumulative effect of TOT, BIA assessments and other fees matters to competitiveness.
Dr. Richard Bernard reported a single question in the FM3 survey about a 3‑point increase generated 51% support, 37% opposition and 12% undecided; he called that a modest result and recommended a more thorough TOT‑specific study and polling that includes education and market elasticity analysis.
Council response and next steps: Councilmembers asked Travel Costa Mesa to provide a commissioned tourism economics report and directed staff to retest TOT at multiple levels (1%, 2%, 3%) with voter education tied to the city's facilities and parks needs. Several councilmembers favored a conservative approach (some suggested a 2% cap) and stressed the need to analyze how TOT changes could affect hotel bookings, occupancy and ancillary spending before placing a measure on the ballot.
What it means: Increasing TOT could produce near‑term revenue but may risk shifting business if Costa Mesa's total lodging price becomes less competitive. The council requested further economic analysis and targeted polling before deciding whether to include a TOT adjustment on the November ballot.
