John Thomas is a long-time Laguna Beach resident, business owner, former chair of the Laguna Beach Audit Review & Measure LL Oversight Committee, board member of the South Laguna Civic Association, and member of the South Laguna Water/Sewer Advisory Committee.

It’s Time To Act! according to resident John Thomas.

Read what John had to say to our City Council about our City financial challenges related to tourism and spending, and the question he poses directly to them – ”How are we going to pay for all the stuff we want to do?”

Considering the Strategic Planning the city is currently doing, the question arises: Is this the year that Laguna Beach confronts and addresses its biggest financial challenge?

A large share of the taxes paid by residents is not used to pay for services or capital improvements that directly benefit residents, but is instead diverted to cover the substantial costs the city incurs due to the high number of visitors to Laguna.

A 2017 study showed that, at that time, revenue the city received that was attributable to tourists was $23 million less than the added costs the city incurred due those visitors. Since that time the city budget and number of visitors have grown, so it is likely that the shortage is much greater today.

City leaders and staff have acknowledged this problem, and despite some early efforts, there has been little progress made in reducing this large subsidy by residents of visitors. Now is the time to act. The City Council could put on the November 2024 ballot a measure that will narrow the gap between revenue and costs associated with visitors. The number of ambitious and costly items currently under discussion by the City Council makes it even more important to reduce the visitor subsidy. The aggregate cost of some of these items could exceed
hundreds of millions of dollars. Without correcting the drain on city revenue due to visitor costs, it will be financially challenging for the city to proceed with even the most important projects. Three of the best possibilities for generating meaningful amounts of revenue for the city are 1) an adjustment in the business license fee structure that increases city revenue from the most tourist-focused businesses; 2) revising the current hotel tax to be on par with one-third of Orange County hotels, and 3) expanding pay parking for nonresidents to areas that are within walking distance of the beaches while allowing residents to continue to park for free in residential neighborhoods.

Alternatives would be to either raise taxes on residents, lower the level of city services provided by the city government, or borrow a lot of money.

The solution with the biggest potential revenue impact could come from a revised business license fee focused on tourist-focused businesses. Though only a small percentage of visitors stay in Laguna hotels and pay hotel tax, approximately 70% of visitors to Laguna spend on food and beverages in town. This means that Laguna’s tourist-focused restaurants are a key point of contact with visitors and these businesses are an opportunity to create a collection mechanism for visitor revenue to cover visitor costs. These bars and restaurants could be the stars in this effort, Laguna’s toll booth. A business license fee based on 1% of the gross revenue of these restaurants could currently generate over $4 million per year for the city government and a very high proportion of this revenue would come from the visitors patronizing these restaurants. With time, a visitor-targeted business license fee could slowly increase from 1% to a maximum of 5% over the course of 5 years and could eventually cover perhaps 60% of the current imbalance.

The revised fees could be designed to have little or no change for businesses that are primarily resident serving. And fees for smaller businesses could be much lower than for the larger tourist focused businesses. As is, our business license fees are among the lowest in California so there is substantial room to adjust this fee without being out of line.

A second way to generate revenue from visitors is to expand pay parking for nonresidents to areas throughout the city that are within walking distance of the beaches while allowing residents to continue to park for free in residential neighborhoods. And the third way could be to update Laguna’s current 12% hotel tax to match the third of the hotel rooms in Orange County that charge 15%. As a top Orange County visitor destination, it seems only fair that Laguna’s total hotel tax should be in line with other top Orange County tourist destinations.

Combining the redesigned business license fee with an increased hotel tax and expanded paid parking areas could, in time, cover more than 75% of the overall shortage, thereby reducing the subsidy of residents to visitors, leaving more city revenue available to serve residents, and freeing up funds for the many projects on the city council priority list.

This is an election year. Now is the time for the City Council to act to close this huge financial gap and reduce the subsidy of visitors by residents. A solution will likely require a ballot measure. And a plan and ballot measure will take time to develop. Now is the time to get started, and it is the City Council that needs to take the action to do that.

Supporting Documents below:

1. Full letter to City Council
2. Original Guest Column at the Laguna Beach Indy
3. Balancing the Costs and Revenue Study
4. Coastal City Comparisons
5. City’s Visitors Inpact Report

Do you agree with John? Do you have other ideas on how to address our City tourism
financial challenges?