Hotel Del Mar, property tax boom; sales tax continues slow recovery

DEL MAR – The city of Del Mar, dependent on tourism, forecasts healthier finances for the year ahead thanks to the recovery of two main sources of income, local taxes on hotels and properties, but sales taxes continue to recover more slowly from the COVID-19 pandemic.

Despite a revenue loss of $1.9 million over the past two years due to the Transient Occupancy Tax, also known as TOT or Hotel Tax, the city is now experiencing a revenue boom exceeding even the pre-pandemic period.

After a string of record months for hotel tax revenue in the spring, the city earned $1.2 million more in the third quarter than last year and about $133,000 more than the same period in 2019. According to Del Mar Chief Financial Officer Monica Molina, the city expects to see that revenue increase in the 2022-23 fiscal year.

“This source was one of the two general fund revenues that were hit the hardest during the pandemic,” Molina said. “On the plus side, he recovered faster than expected.”

The recovery is set to continue with the reopening this month of the Del Mar Hotel, the city’s iconic beachfront inn, now rebranded as the Del Mar Beach Hotel after a massive two-year renovation.

City staff shared these revenue projections and other updates with the Del Mar City Council on Monday while discussing the biennial budget passed in June 2021, adjusting the city’s projected revenues and expenses for the Next year.

While sales tax is a smaller source of revenue for the city’s general fund, representing 10% of the fund versus 18% of the TOT, the city has suffered greater financial losses during the pandemic in this area at 2, $2 million.

Unlike the hotel sector, sales tax still lags behind pre-pandemic levels. The city brought in more than $2 million in annual revenue the year before the pandemic, with an expected total revenue of $1.8 million this year.

City staff expect revenue to rise slightly next year to around $1.9 million, with hopes for further growth in the 2023-24 fiscal year.

“While improving, this revenue stream is slowly recovering,” Molina said. “It is expected to return to pre-pandemic levels in 2024.”

Del Mar officials are also waiting to see how the sales tax will fare from the San Diego County Fair since the city receives a portion of that revenue. While this year marks the fair’s first large-scale return since 2019, the shorter 21-day run is expected to generate less revenue than average.

Since the fair runs from June 8 to July 4, a small portion of its sales tax revenue will accrue in the 2022-23 fiscal year beginning July 1. According to City Manager Ashley Jones, the remainder will be counted as part of the 2021-22 fiscal year.

This year’s property tax revenue, which represents 41% of the general fund, was up about 4% from the previous year. As part of next year’s budget, the city is cautiously planning another 4.4% increase.

The city also adjusted the list of capital projects slated to receive funding over the next year, adding about $525,000 to additional priority projects identified at a goal-setting workshop in March.

These include a lot renovation project at Powerhouse Park, improvements to walkways and ramps at the Beach Colony apartment complex, emergency power systems for intersection signals, as well as from the initial design and evaluation of San Dieguito Drive, the 20th Street Guarded Driveway and the Hoska Avenue Driveway.

Save for the future

With finances appearing to be on the mend, the city will resume annual contributions to various crucial reserve funds this year after deferring payments during the first two years of the COVID-19 pandemic.

Planned contributions for this year include approximately $607,000 to the Pension Reserve Fund, $100,000 to the Equipment Replacement Fund and $200,000 to the Housing Reserve Fund.

With this contribution, staff expect the pension reserve to have a balance of approximately $4.4 million at the end of the 2022-2023 financial year, enough to cover three years of pension payments if needed. .

The pension fund is a particular pressure point for the city, with about $13 million in projected retirement benefits currently unfunded.

In the coming months, the City Council will discuss its pension reserve policy in order to establish an annual contribution amount to maintain the stability of the reserves. The choice between saving money for pensions and spending funds on ongoing projects is a tough one every year, but many board members worry about not having enough reserves.

“It’s worth having a political discussion, but I’m really reluctant to reduce contributions to the pension fund. We have just gone through two years of very heavy blows on this pension fund, and there are many good reasons … why we really need to pay attention to these contributions, ”said Councilor Terry Gaasterland.

COVID-19 Fund

Like many jurisdictions, Del Mar is planning how to use the federal government’s remaining COVID-19 recovery dollars, known as American Rescue Plan Act (ARPA) funds. The city received $1 million of those funds, with the second half due to arrive this month.

Although there are many areas of financial need in the city, ARPA funds have several restrictions and are primarily intended for one-time use. The money cannot be allocated to pension funds or replenishment of reserves and cannot be allocated to the budget before it arrives.

As the city awaits his arrival, staff have offered to invest the money in a new fire truck, which is estimated to cost between $850,000 and $1 million.

Jones also advocated that the money be used at least partially for road repairs and maintenance, noting that there are also funds in the city’s equipment reserves that could be directed to the fire truck.

“We had really cut the city’s road repair and maintenance budget drastically during the pandemic, and I would say that from a city management perspective, our streets and roads are one of the things that we constantly hear from our residents, and that’s another eligible use of the money,” Jones said.

However, other primary equipment needs compete for limited equipment reserve funds over the next year, including the city’s financial software system, which will cost about $1.5 million to replace.

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