Budgeted in General Fund $ 83,177, % $ 94,421, % Budgeted outside of the General Fund 59,944, % 48,699,

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1 Hotel Room Tax Description The Hotel Room Tax (or transient occupancy tax ) is a 14 percent tax levied on hotel room charges. The tax is collected by hotel operators from guests and remitted to the Treasurer/Tax Collector. Many local governments impose this tax to recover some of the costs of governmental services associated with nonresidents. When the hotel tax was introduced in 1961, the tax rate was 6 percent, and it has increased incrementally to the current rate of 14 percent, established in August Authorizing Statute(s) Article 7, Sections of the Business Tax and Regulation Code (Municipal Code). Annual Appropriation Ordinance Administrative Provisions (FY , Sec , FY , Sec ). Amount & Allocation FY FY Municipal Code Adopted Budget $ Allocation % $ Allocation % General Fund Unallocated (discretionary) $ 57,537, % $ 70,149, % Moscone / Convention Facilities $ 31,917, % $ 26,751, % Grants for the Arts $ 14,670, % $ 12,651, % War Memorial & Performing Arts $ 8,911, % $ 8,407, % Convention & Visitors Bureau $ 7,760, % $ 7,321, % Yerba Buena Gardens (SFRA) $ 5,620, % $ 5,620, % Low-Income Housing Programs $ 5,735, % $ 600, % Fine Arts Museum $ 4,707, % $ 4,440, % Cultural Centers $ 2,217, % $ 2,091, % Cultural Equity Endowment $ 2,054, % $ 1,938, % Asian Art Museum $ 1,867, % $ 1,761, % Steinhart Aquarium $ - 0.0% $ 1,272, % Administration (Tax Collector) $ 125, % $ 118, % TOTAL $ 143,121, % $ 143,121, % Budgeted in General Fund $ 83,177, % $ 94,421, % Budgeted outside of the General Fund 59,944, % 48,699, % TOTAL $ 143,121, % $ 143,121, % NOTES FY AAO Section Hotel Tax Reallocations: [1] $3,041,512 from Moscone Convention Facilities to General Fund Unallocated Fund (discretionary). [2] $1,188,885 from Grants for the Arts to General Fund Unallocated (discretionary). [3] $5,135,000 from Low-Income Housing Programs to General Fund Unallocated (discretionary). [4] $1,272,765 from General Fund Unallocated (discretionary) to Steinhart Aquarium. Page 1 of 7

2 HOTEL ROOM TAX - REVENUE ALLOCATION FY Adopted Budget Cultural Equity Endowment Cultural Centers 1.4% 1.2% Asian Art Museum 1.2% Steinhart Aquarium 0.9% Administration (Tax Collector) 0.1% Fine Arts Museum 3.1% Low-Income Housing Programs 0.4% Yerba Buena Gardens (SFRA) 3.9% Convention & Visitors Bureau 5.1% War Memorial & Performing Arts 5.9% General Fund Unallocated (discretionary) 49.0% Grants for the Arts 9.1% Moscone / Convention Facilities 18.7% This compared to FY budgeted allocation as follows: Cultural Equity Endowment 1.4% Cultural Centers (1) 1.5% Fine Arts Museum 3.3% Low-Income Housing Programs 0.4% Yerba Buena Gardens (SFRA) 4.1% Convention & Visitors Bureau 5.4% HOTEL ROOM TAX - REVENUE ALLOCATION FY Adopted Budget Asian Art Museum 1.3% Administration (Tax Collector) 0.1% General Fund Unallocated (discretionary) 47.2% War Memorial & Performing Arts 3.1% Grants for the Arts (1) 10.0% Moscone / Convention Facilities 22.1% Page 2 of 7

3 Hotel Room Tax revenues are cyclical and dependent upon economic activity, including convention bookings, business travel and tourism. The recovery assumed in the FY budget did not materialize and by June 30, 2003 only $128.6 million was actually received and recognized for FY compared to the $160.2 million assumed in the budget. As illustrated in the table below, Hotel Room Tax revenue grew rapidly up until FY During the 1990s, total Hotel Room Tax revenues nearly tripled. Since FY , this single source of revenue grew from $19.0 million to $188.4 million in FY The economic downturn that began in late 2000 / early 2001 resulted in a steep decline in business travel, causing occupancy rates in the Financial District in particular to decline. Compounding that downward pressure, the September 11th attacks caused a sharp decrease in air travel and related tourism, exacerbating sagging occupancy rates and triggering steep discounting in average daily room rates. In FY , hotel room tax revenue declined by 29.8 percent from the prior fiscal year. Since then, the prolonged downturn and lackluster recovery have resulted in relative revenue weakness, with revenues off nearly one-third from the FY peak of $188.4 million. Total Hotel Tax Fiscal Year Revenue ($1,000s) FY $ 19,014 FY ,819 FY ,558 FY ,858 FY ,272 FY ,323 FY ,711 FY ,981 FY ,099 FY ,921 FY ,102 FY ,414 FY ,557 FY ,032 FY ,246 FY ,481 FY ,101 FY ,960 FY ,649 FY ,163 FY ,518 FY ,102 FY ,377 FY ,226 FY ,590 FY ,231 Budget FY ,121 6-Month Projection FY ,351 $ Change ($1,000s) Annual Growth % Change % Adjusted for Tax Rate Change $ $ 4, % 25.3% $ $ 8, % 14.8% $ $ 4, % 13.2% $ $ (1,587) (4.3%) (4.3%) $ $ 3, % 8.7% $ $ 6, % 16.7% $ $ 3, % 7.3% $ $ 5, % 4.3% $ $ 7, % 8.7% $ $ 6, % 10.1% $ $ (3,688) (5.5%) (5.5%) $ $ 6, % 9.7% $ $ 2, % 3.6% $ $ 4, % 5.9% $ $ 10, % 5.5% $ $ 7, % 7.8% $ $ 8, % 9.4% $ $ 34, % 18.4% $ $ 12, % 7.9% $ $ 11, % 7.6% $ $ 20, % 12.7% $ $ 6, % 3.4% $ $ (56,152) (29.8%) (29.8%) $ $ (3,635) (2.7%) (2.7%) $ $ 19, % 15.3% $ $ (5,110) (3.4%) (3.4%) $ $ 6, % 4.1% Page 3 of 7

4 Collection Method & Issues Hotel Room Tax is collected by hotel operators from guests and remitted to the Treasurer/Tax Collector according to rules established by the Treasurer/Tax Collector. An operator who fails to collect the hotel room tax from guests will be liable to the City for all unpaid taxes. All operators must file quarterly hotel room tax returns according to the schedule below and must make prepayments each of the first two months of the quarter. Quarterly Hotel Room Tax Return Filing Schedule Quarter Due Date Delinquent On Jan-Feb-Mar April 1-30 May 1 Apr-May-Jun July 1-30 August 1 Jul-Aug-Sep October 1-30 November 1 Oct-Nov-Dec January 1-31 February 1 The hotel operator may choose to remit actual monthly taxes due or make prepayments for the first and second month of each quarter equal to 30 percent of the tax liability from the immediately preceding quarter, as calculated by the Treasurer/Tax Collector. Due dates are shown in the table below. Hotel Room Tax Payment Schedule Month Due Date Delinquent On January February 1-28 March 1 February March 1-31 April 1 March (1 st quarter clean-up) April 1-30 May 1 April May 1-31 June 1 May June 1-30 July 1 June (2 nd quarter clean-up) July 1-31 August 1 July August 1-31 September 1 August September 1-30 October 1 September (3 rd quarter clean-up) October 1-31 November 1 October November 1-30 December 1 November December 1-31 January 1 December (4 th quarter clean-up) January 1-31 February 1 Page 4 of 7

5 Tax/Rate Structure At its introduction in 1961, the Hotel Room Tax rate was 6.00 percent, and has increased incrementally to the current rate of percent, established in August Hotel Room Tax Rate History Effective Dates Rate August 1961 through June % July 1978 through June % July 1980 through December % January 1987 through August % August 1993 through July % August 1996 to date 14.00% San Francisco s Hotel Room Tax rate is on the upper end of the tax rate spectrum. The table below summarizes a survey of Hotel Room Tax rates that the conducted in October 2003 of the 10 largest cities in California as well as San Francisco s neighboring cities. Hotel Room Tax - Rate Comparisons 10 Largest California Cities Population[1] Tax Rate[3] Neighboring Cities Tax Rate[3] Anaheim 328, % San Francisco 14.00% Los Angeles 3,694, % Berkeley 12.00% San Francisco 776, % Emeryville 12.00% Long Beach 461, % Oakland 11.00% Fresno 427, % Hayward 10.50% Sacramento 407, % Concord 10.00% Oakland 399, % Palo Alto 10.00% San Diego 1,223, % San Jose 10.00% San Jose 894, % San Leandro 10.00% Santa Ana 337, % Fremont 8.00% Average (Mean) of 10 Largest Cities 11.95% Average (Mean) of Neighboring Cities 10.75% Median of Largest Cities 12.00% Median of Neighboring Cities 10.25% Source Data & Notes [1] 2000 Census Data from CA Dept. of Finance Website (10/21/2003) [3] Survey Comparison Completed 10/21/2003 using AAA TourBook Edition, City of Hayward (2 parts) Page 5 of 7

6 Exemptions Guests who occupy a hotel room for 30 consecutive days, such as many Single Room Occupancy (SRO) residents, are exempt from paying the tax, as are guests in dormitory-style arrangements who pay under $30 per day or $100 per week. Employees of nonprofit organizations and government agencies are exempt when travelling on business if charges are paid by the employer. Foreign diplomatic and consular personnel and their dependents are exempt as well. Trends & Projections Three factors directly impact Hotel Room Tax revenue: (1) the average daily room rates (ADRs), (2) occupancy rates, and (3) the overall supply of rooms. Today the total number of rooms generating hotel room tax revenue is approximately 32,000. Over time, room supply has expanded to meet increased demand. The tables on the next page summarize overall trends by fiscal year for ADR and occupancy rates for San Francisco. ADRs have increased from $73 back in 1980 to a high of $176 in FY , with a particularly steep rise from calendar year 1997 to Average annual occupancy levels have tracked economic trends, dipping in the early 1990s to 66 percent, and reaching an all-time high of 80.9 percent in FY Recent activity shows that Occupancy Rates are increasing, but continued aggressive price discounting is making total revenue (and related tax revenue) growth around 5 percent for FY as compared to FY Page 6 of 7

7 HOTEL OCCUPANCY RATES MONTH FY FY FY FY FY FY July 88.0% 87.5% 75.4% 68.7% 77.0% 80.9% August 81.3% 90.2% 80.8% 74.7% 83.5% 81.1% Some September 86.9% 88.5% 58.3% 68.1% 75.0% 81.3% Strengthening October 82.7% 87.9% 61.1% 73.7% 76.1% 83.0% November 74.1% 72.7% 53.9% 60.9% 69.8% 64.0% then Weaker December 62.1% 64.4% 50.0% 55.6% 55.9% 57.9% January 67.0% 63.5% 50.3% 51.3% 54.3% 55.9% February 79.7% 70.4% 56.9% 57.9% 63.6% 64.0% March 88.6% 72.9% 60.7% 59.4% 71.2% Significant 68.5% Estimated April 84.7% 70.7% 67.8% 62.8% 70.2% Strengthening 72.1% May 84.4% 76.9% 65.7% 68.7% 78.6% in SF Market 76.3% June 91.7% 80.0% 74.5% 72.9% 80.1% by Fiscal 81.6% Year-End AVG. OCCUPANCY RATE 80.9% 77.1% 63.0% 64.6% 71.3% 72.2% Occ. % Rate Chg from PY 1.1% -3.8% -14.2% 1.6% 6.7% 0.9% % Change from PY 1.4% -4.7% -18.4% 2.6% 10.4% 1.3% Fiscal Year Peak Recovery Taking Hold Estimated NOTE: Actuals based on a PKF industry sample representing 70-80% of all rooms and revenue. AVERAGE DAILY ROOM RATES (ADRs) MONTH FY FY FY FY FY FY July $ $ $ $ $ $ August $ $ $ $ $ $ Prices September $ $ $ $ $ Year-over-Year $ Firming October $ $ $ $ $ Pricing $ November $ $ $ $ $ Pressure $ then Weaker December $ $ $ $ $ Continued $ January $ $ $ $ $ During $ February $ $ $ $ $ Much of the $ March $ $ $ $ $ Fiscal Year $ Estimated April $ $ $ $ $ $ May $ $ $ $ $ $ June $ $ $ $ $ then, Improvement $ AVERAGE ADR $ $ $ $ $ $ ADR $ Change from PY $ $ $ (23.47) $ (11.95) $ 0.20 $ 1.94 % Change from PY 6.9% 11.7% -13.3% -7.8% 0.1% 1.4% Fiscal Year Peak Estimated NOTE: Actuals based on a PKF industry sample representing 70-80% of all rooms and revenue. Page 7 of 7

QUARTERLY REPORT AND CERTIFICATION OF THE COUNTY TREASURER For Quarter Ending June 30, 2009 COMPLIANCE CERTIFICATION

QUARTERLY REPORT AND CERTIFICATION OF THE COUNTY TREASURER For Quarter Ending June 30, 2009 The Government Code requires the County Treasurer to render a Quarterly Report to the County Administrator, the