By Jon Chown
Scotts Valley voters will be asked in November whether to increase the city’s hotel tax from 11% to 13% under a measure approved by the City Council on June 3.
The proposal would raise the city’s Transient Occupancy Tax, commonly known as the hotel tax, and is projected to generate an additional $400,000 annually for the city’s General Fund beginning in 2027. According to a city staff report, the additional revenue would help support staffing, public safety services, infrastructure maintenance and long-term financial stability.
The city’s current hotel tax rate was approved by voters in 2018 and generates approximately $2.2 million annually, accounting for about 10% of General Fund revenue.
Under the proposed increase, a hotel room costing $160 per night would generate about $20.80 in transient occupancy taxes, compared with $17.60 under the current rate. City staff estimated the increase would add roughly $3.20 per room night.
The increase is sought, according to the report, because Scotts Valley receives only about 6.5% of the 1% property tax levy collected within the city. The statewide average is 11.3%.
The reason goes all the way back to Proposition 13 and Assembly Bill 8 passed in 1979, which permanently fixed local allocations at what the cities, schools and districts were receiving at the time.
Scotts had a population of just 6,800 and was set up to be a low-tax city. Changing the situation would require a California Constitutional Amendment. As a result, Scotts Valley relies more heavily on other revenue sources to fund municipal services.
“I feel like we’re always set up for failure here in Scotts Valley because we just don’t receive enough of our property tax back from our public. We’re actually below the state minimum 7%,” said Council Member Derek Timm. “We had to sue the county to even get to that point.”
According to the report, city staff analyzed whether a higher tax rate could affect Scotts Valley hotels, noting that most other Santa Cruz County jurisdictions levy a 12% hotel tax. Staff concluded that Scotts Valley’s hotel market serves a different customer base than Santa Cruz and generally offers lower room rates.
Scotts Valley hotels typically charge between approximately $145 and $240 per night, while comparable Santa Cruz hotels often range from about $210 to $340 per night. The report’s math showed that the average total TOT tax paid by a visitor to Scotts Valley would be about $20, about $10 less than in Santa Cruz. So, even with a 13% tax rate, Scotts Valley hotels would still be charging less TOT tax in sum than what consumers pay in Santa Cruz.
The report noted that Scotts Valley hotels primarily serve business travelers, Highway 17 commuters, contractors, regional visitors and longer-stay guests seeking lower-cost accommodations. Santa Cruz hotels, by contrast, often benefit from beachfront locations and downtown access.
City officials also evaluated a phased increase that would raise the tax to 12% in 2027 and 13% in 2029. According to the report, that approach would delay the receipt of approximately $400,000 in near-term revenue and could require the city to postpone staffing investments, reduce operational flexibility or seek alternative funding sources.
“Our fiscal needs are immediate and if we delay implementation, we phase it in, we’re only delaying needed revenue that supports staffing services, infrastructure maintenance, public safety and operational sustainability,” said Vice Mayor Steve Clarke.
Staff said the city has spent several years addressing budget challenges through revenue measures and financial planning efforts. The report cited Measure Z, approved in 2020, and Measure X, approved in 2024, as part of broader efforts to stabilize city finances and address service needs.
If approved by voters, the higher tax rate would take effect in January 2027. City officials estimate the increase would generate approximately $200,000 during fiscal year 2026-27 and about $400,000 during future full budget years.
The city expects election-related costs associated with placing the measure on the ballot to total approximately $55,000.
“At the end of the day, this is the responsible decision to sustain services and sustain our fiscal health for this city,” said Mayor Donna Lind.