Opinion: Laguna subsidizes day trippers more than $34 million yearly

By Jim Danzinger

This column is part 1 of a two-part series. The second installment will be printed in next week’s edition of the Independent. – Ed

Many thoughtful people in Laguna now accept the analysis (from 2017) that Laguna’s government and residents subsidize visitors by more than $20 million annually. Part I (of two) explains why the situation is actually much worse: if we focus only on day trippers, the subsidy was actually $34 million seven years ago, and now is probably much higher. This is more than $34 million every year, which is not spent on services for Laguna’s citizens and not on the many costly projects in Laguna that various groups dream about. It is about one-fifth of the annual budget. Part II (next week) will describe how two councilmembers recently prevented Laguna’s voters from deciding whether our residents would support a substantial measure that could bring in at least $10 million per year from those day trippers. If you are troubled by these claims or don’t believe them, read on.

Where did the $20 million plus number come from? Seven years ago, four of us (a UCI economist, a senior Irvine Company exec, John Thomas, and I) did a detailed quantitative analysis of all the revenue that visitors generated for the city government (such as sales tax, parking, fines, indirect payments and the TOT – the Temporary Occupancy Tax, also called the hotel tax). We computed the costs that the city bore to deal with all the visitors (the visitors’ share of costs such as marine safety, traffic control, policing, paramedics, waste disposal, parking management, and so on). We concluded that the revenue minus the costs equaled an annual net loss to our city government and residents of more than $23 million. A subcommittee of City Council members and City staff met with us numerous times and agreed that our analysis was generally correct. They also agreed with us that the city should look for ways to capture more revenue from visitors.

How did the subsidy get to $34 million plus per year? In our analysis, we framed the question in terms of “visitors” to Laguna. This seemed reasonable and easy to understand. However, it has become clear to us that it is important to distinguish between two groups of visitors. One group, comprising less than 5% of visitors, stays in our hotels. They pay a high TOT premium as part of their hotel bill. This hotel tax generated about $11 million at the time of our analysis. What this group pays to the city is considerably more than the cost of caring for them. However, there is a second group that visits Laguna. Most of them are in town for the day. We generally refer to them as “day-trippers.” They generate most of the visitor costs for Laguna, both financial and physical. They might pay for public parking or just park in our neighborhoods or ride the free trolleys into Laguna. They might buy something, and many buy food or drink (more on this in Part II).

In our analysis of the visitor subsidy, if we only focus on the roughly 95% of visitors who are day trippers, we need to subtract the millions in revenue from TOT. Therefore, excluding the hotel tax paid by those staying in hotels, the city-and-resident subsidy to the day trippers was already about $34 million per year at the time of our analysis in 2017. In fact, the day-tripper subsidy is probably much higher today since we are dealing with more day-trippers than we did seven years ago, requiring more city costs and more city employee time. Since our study, the city has done nothing to capture substantial revenue from day trippers. And Part II (next week) will explain how two councilmembers blocked our idea for generating such revenue.

Danziger is a professor emeritus of political science and former dean at the University of California, Irvine. His extensive and award-winning research has primarily focused on local government. He currently serves on Laguna’s Parking, Traffic and Circulation Committee.