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With Another Lean Year Ahead, Council Passes Balanced Budget, Considers Hotel Tax

Voters will decide on transient occupancy tax rate increase on Nov. 8.

Expecting a continued slow economic recovery and bracing for the loss of $1 million in sales tax revenue from Hewlett Packard’s move out of Cupertino next year, Tuesday the City Council passed the 2011-12 operating budget and voted to put a hotel tax increase on the November ballot.

New Budget

The Council passed a $66 million balanced budget for the upcoming year. To counter balance an expected four percent dip in revenues, nine city staff positions will be left unfilled, and maintenance will be deferred, among other measures, according to a staff report.

Council members spent four hours listening to testimony from the public and going back and forth on whether to include or postpone specific projects in the budget. Some of the projects include:

  • $15,000 for the emergency preparedness group Alert SCC to promote sign-ups for the emergency contact system to parents of children in Cupertino schools.
  • $125,000 to fund six more library hours, bringing the total hours to 66 each week.
  • $30,000 for two new school crossing guards; locations to be determined.
  • $20,000 for a Permanente Creek water quality study, to determine possible effects of runoff from the Lehigh Southwest Cement Plant and Quarry.
  • $75,000 for plans to revamp a broken pond feature at Linda Vista Park.
  • $200, 000 for additional pavement projects for roads.
  • $50,000 for plans to revamp McClellan Ranch Park and the neighboring Simms property on McClellan Road.
  • $250,000 as a placeholder for a potential dog park. The council passed plans last year for a dog park on Mary Avenue by Highway 85, but it was later found that the site is contaminated by lead. Either another location will have to be found, or the approved site will have to be decontaminated, a costly process.

Transient Occupancy Tax

The Council voted 4-1 to put a plan to increase the transient occupancy tax from 10 to 12 percent on the November general election ballot.

If passed, Cupertino’s tax would be equal to Campbell and Palo Alto, but below San Jose, which imposes a 14 percent tax.

The tax on hotel rooms paid by guests is expected to generate $450,000 a year, according to city staff. That money will go into the general fund and be used for city services and improvements.

According to a survey of likely voters commissioned by the city, more than 60 percent said they would support the tax increase.

Weighing heavily on the council was the loss of about $1 million in annual sales tax revenues from the move of HP headquarters to Palo Alto. The city’s Fiscal Strategic Planning Committee recommended placing the tax on the ballot, as a way to make up for the loss.

Should the tax pass on Nov. 8, it would go into effect on Jan. 1, 2012.

Mayor Gilbert Wong wanted a unanimous vote, but member Kris Wang said she could not support the proposed tax this year out of concern for the effect of an increase on hotels and restaurants. She wanted to wait at least two years before revisiting the issue.

“If we don’t do this, next year is going to be really painful,” Councilmember Orrin Mahoney said. Mahoney and the rest of the council majority said they did not believe occupancy rates would be hurt by a two percent increase.

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