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Though COVID-19 has left Crescent City in a precarious financial situation, innkeepers will have extra time to remit their transient occupancy taxes for the quarter ending in March.

Councilors unanimously approved an urgency ordinance Tuesday granting owners of hotels, motels, Airbnbs, vacation rentals and RV parks until Aug. 31 to remit the 10 percent TOT.

Though staff presented the Council with a second option to defer TOT payments to Oct. 31, setting the Aug. 31 deadline would allow the city to count that revenue for fiscal year 2019-2020, Finance Director Linda Leaver said. There aren’t many cities deferring TOT remittance, but those that are have set the end of August or sooner as a deadline, she said.

“Deferring payment of this TOT might provide some short-term cash flow relief to these businesses to allow them to get some other plans in order or obtain other financing to help them through this,” Leaver said, adding that 21 lodging facilities have already remitted their TOT for January through March. “If the hotel uses that TOT money to basically pay its own expenses during this time, then of course they’re going to be faced with having to recover that money in order top ay the city back at a future time on top of whatever TOT they will owe in that future quarter.”

Extending the TOT deadline to Aug. 31 is a measured approach staff recommended, though the Council could revisit the issue. However the pandemic is projected to cost the city several hundred thousand dollars in revenue, City Manager Eric Wier said.

“Cash flows will be starting to be depleted so we do have to be very mindful from a fiscal standpoint when it comes to all decisions from this point out,” Wier said.

A special City Council meeting is scheduled for May 7 to discuss the city’s financial situation, Wier said.

Transient occupancy tax is a 10 percent tax the city imposes on guests who stay at lodging facilities within its boundaries. Making up 25 percent of Crescent City’s general fund, those dollars pay for public safety, recreation and other city services.

The Crescent City Council began debating whether it should defer, or even waive, transient occupancy tax remittances for innkeepers after receiving a request from Bhanu Patel, owner of Best Western Plus Northwoods Inn.

Since that discussion on April 20, another local innkeeper has made a similar request, Leaver said.

TOT for January through March would normally be due on April 30, Leaver said. Though the hotelier collects those dollars, that money belongs to the city. Waiving those dollars would constitute a gift of public funds, she said.

If the city is going to give public dollars to private individuals, including a business, nonprofit organization or a sole proprietor, there has to be a public benefit, City Attorney Martha Rice told the City Council.

“The public benefit needs to be direct and substantial and any benefit to the business needs to be only incidental,” Rice said. “That’s what we’re looking at when we analyze each one of these allocations of public money.”

Local lodging facilities have been largely empty due to a March 29 order from Del Norte County Public Health Officer Dr. Warren Rehwaldt prohibiting short-term stays due to the COVID-19 emergency.

One avenue for assistance Councilors discussed was creating a 12-month payment plan with payments beginning in October. Leaver said none of that revenue would be counted in the 2019-2020 fiscal year. Some of that money would be counted for fiscal year 2020-21 and some wouldn’t be counted until 2021-22, she said.

There is also the question of whether those businesses would have been charged interest if they signed up for the payment plan, Rice said. Losing interest is different than losing the entire TOT remittance, she said, though further analysis is needed.

“There’s also rules and regulations on where the city can put its money, so I’m seeing if ny of that comes into play as well as the responsibility that the City Council has when investing or making loans,” she said. “What’s the risk? If it’s too risky, it may not be a tolerable use of public funds.”

Another concern Patel brought to the Council’s attention on April 20 had to do with the processing fees he pays to accept credit cards from his customers. He argued that Brookings allows the deduction of credit card fees when he remits TOT taxes there, however that’s not the case in Crescent City.

On Tuesday, Leaver said she and her staff were still looking into that issue. Though she acknowledged that Patel’s concern regarding credit card fees was legitimate, she said the city isn’t mandating hoteliers accept payment only through credit cards.

“Most hotel owners do only accept credit card payments,” she said. “The benefit to businesses (who) do that, it reduces the risk of theft, provides protection if a guest causes damage and it’s the only way to make online reservations. It’s a benefit to the hotel to accept those credit card payments.”

Sales tax makes up another 25 percent of the city’s general fund revenue. Due to an executive order from California Gov. Gavin Newsom, small businesses can defer their first quarter sales tax remittances for 90 days, Leaver said. They can also set up a payment plan, paying up to $50,000 over a 12-month period, she said.

“We are going to be heavily impacted by this emergency,” Leaver said, adding that she’ll go into specifics at the Council’s May 7 meeting. “We don’t know how long this will last, but we’re looking at anywhere in the range of several hundred thousand dollars to a million dollars or more… we have to start thinking about the city’s ability to provide essential services without interruption.”

Though he noted that uncertainty is going to characterize the entire year, Councilor Jason Greenough pointed out that if the city’s hotels go under, it will create more havoc. He disagreed with the premise that the taxes hoteliers collect belong to the city even before they are remitted to the city, and said since a government order prevented them from doing business, the government should help them out.

“We, as the government, we supported this shut down of our hotels through the county’s health officer’s order,” he said. “So, in essence, we’ve taken a semi truck and we’ve driven it into our hotels and they are unable to do business. I think we need to do something to help them out.”

Mayor Pro Tem Heidi Kime agreed with Greenough.

“I don’t think people are going to cry unfair if we’re making sure that we’re going to keep that hotel owner in business,” she said. “If that hotel owner goes out of business, then your TOT just took a dive, and then everyone is affected by that.”

Crescent City Mayor Blake Inscore brought up an earlier point Leaver had made about equity. He noted that if the city gives lodging facilities a break on their TOT, it needs to give something comparable to other businesses, including service-related businesses that don’t take sales taxes.

Inscore said he had an initial idea of giving hoteliers 12 months to remit their TOT, getting them through the next tourist season. But with the city standing to lose several hundred thousand dollars or more from the pandemic, Inscore said his initial plan would be fiscally unsound.

“The idea of giving them some time and keeping it within the 2019-20 fiscal year seems to make more sense with all the information that I’ve gotten now,” he said. “As much as I would like to help more, we cannot do what we cannot afford to do.”

Inscore also brought up the business consultants Crescent City hired a few weeks ago to help small businesses navigate federal programs set up during the emergency. He said though half of the city’s lodging facilities have already remitted their TOT, those resources may provide them with further assistance.

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