CARLSBAD — Staring down the barrel of a potential budget deficit, the City Council will not consider a ballot measure for a 1% transient occupancy tax increase.
The council’s action during its Tuesday meeting temporarily kills the prospect of a TOT, or hotel tax, increase, which would have gone to the voters in the November 2024 general election. The council decided against the tax increase to avoid burdening hotels and jeopardizing the city’s competitiveness for lodging and tourism.
However, the council and city staff still must address an estimated $4.2 million budget deficit by Fiscal Year 2028-29, which explodes to $33 million by FY 33-34, according to Carlsbad Finance Director Zach Korach.
As for the hotel tax, councilwomen Carolyn Luna and Melanie Burkholder said before putting any tax increases in front of voters, they want city staff to look at more internal cuts and strategies to address the city’s looming budget deficit.
“I’m concerned about the ripple effect,” Burkholder said. “We need to clean up our own house before we go to our own constituents.”
Before the council was the potential for a 1% or 2% increase in TOT. Korach said each percentage point would generate an estimated $3 million to $3.5 million. So, a 2% increase could yield between $6 million to $7 million, although the tax increase is off the table for now.
In addition, Korach also addressed the city’s possible budget deficit, which now is expected to hit the city in Fiscal Year 2028-29. He said the current forecasts call for a $4.2 million yearly deficit in FY 28-29, ballooning to $10 million in FY 29-30 and rising to $33 million by FY 33-34.
