Cities across the country are deep into reinventing their downtowns in light of changed work-from-home and business travel realities. Sadly, San Jose’s downtown continues to rank near the bottom of numerous proxy metrics of “vibrancy” such as return-to-office rates, sales taxes receipts, retail leasing rates and cell phone usage.
Our City Council needs to stop hiding from this stark reality and apply real leadership, focus and the necessary resources to support recovery and put downtown on a viable and believable path to vibrancy. Current ideas brought forward by city and business leaders comprise a random sprinkling of tactics that do not reflect a cohesive strategy, let alone a vision for building back.
Both long- and short-term strategies are required. For the long-term, the council needs to make major commitments to densify downtown housing as one part of the puzzle. For such housing—at all price points—to be attractive, it needs to be complimented with quality urban amenities including clean parks, retail options and cultural and education resources. In addition, a competitive industries assessment and business attraction strategy are needed to guide economic recovery policies. Obviously, such efforts take years if not decades.
In the interim, our strategy cannot be to just dress up some empty storefronts and hope that things get better. In December, New York City released its 150-page Making New York Work for Everyone plan and last month San Francisco released its Roadmap to Downtown San Francisco’s Future plan. Both documents include strategies and tactics that San Jose should consider. Of course, a fundamental precept should be to build upon what works.
In the past, downtown San Jose has had decent success with special events including the Rock ‘n’ Roll Half Marathon and Color Run; cultural programs such as the Silicon Valley Pride Parade, San Jose Jazz Summer Fest, Downtown for the Holidays; and sports-related gatherings such NHL All Star Weekend and NCAA tournaments. Such programs have proven successful in driving business activity, putting heads-in-beds in our hotels and riders on public transit, increasing sales tax receipts and improving public safety.
An important tool to support downtown recovery in any city is its hotel tax. Unfortunately in San Jose, 40% of the hotel tax—which is largely paid by out-of-town visitors—is siphoned off into the general fund instead of being reinvested into building a robust visitor economy and downtown vibrancy. According to the city’s recently released five-year budget projection, the hotel tax will be about $27.5 million at the end of fiscal year 2023. This is compared to $51.3 million in fiscal year 2019. A drop of more than 46%.
In addition, the hotel tax is not projected to return to real pre-pandemic levels anytime within the next five years.
Now is the time for the city council to demonstrate real leadership and focus these limited resources as an important mechanism to drive downtown recovery. At this critical time, 100% of the hotel tax should be targeted to supporting the sector’s recovery. The hotel tax has historically always contributed a small portion to overall general fund revenues. Since the pandemic it has diminished even further. Currently, the hotel tax is forecasted to continue contributing below 1% of general fund revenues.
Hotel tax revenues as a share of the total general fund:
San Jose states that building “downtown vibrancy” is part of its long-term strategy to create a fiscally sustainable and livable city. Yet, it has no clear plan or funding strategy to accomplish that. While the proposed change will not greatly impact the general fund, it can have a transformative effect on the arts, entertainment, hospitality and visitor industry that helps drive the city’s downtown vibrancy objective.
It’s important to note this objective is not achieved in a vacuum. Visit California, the state’s visitor industry trade group, has reported wide variation in hotel tax revenues across the state. As we have come out of the pandemic, beach and mountain destinations across the state have broken visitation records, while cities like San Jose languish. This directly equates to competitive destinations being able to market more aggressively for visitors and conventions, and to enhance their cultural experiences for residents and visitors.
Helping to restore local budgets for tourism and the arts is the difference between San Jose successfully and equitably building back from the pandemic and seeing the catastrophic losses of the past few years continue far into the future.
Brendan Rawson is executive director of San Jose Jazz.
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