By Chris Cassidy
SALEM — A deadlocked City Council couldn't resolve a debate last night over proposed increases to a meals and hotel/motel tax.
After a more-than-three-hour discussion, which included testimony from restaurant and hotel owners, councilors failed to reach a consensus on a proposed 0.75 percent meals tax increase and a 2 percent hotel tax hike.
A vote to favorably recommend the two proposals failed, 5-5. Ward 3 Councilor Jean Pelletier, who would have been the tiebreaker, was absent.
Councilors Tom Furey, Joseph O'Keefe, Jerry Ryan, Arthur Sargent and Robert McCarthy voted for the tax increases. Councilors Joan Lovely, Steve Pinto, Paul Prevey, John Ronan and Michael Sosnowski voted against.
The council could take another, formal vote at a regular meeting tonight.
Mayor Kim Driscoll asked councilors to approve the taxes, estimating it would inject a combined $900,000 in new revenue into the city budget. Driscoll painted a dire picture of city finances amid a suffocating recession. Health insurance costs are expected to climb $1.3 million next year, pension liabilities will rise $450,000, and revenues from sources like motor vehicle excise taxes and building permits are dropping significantly, the mayor said.
Overall, Driscoll expects a shortfall of between $1.5 million and $2 million in fiscal 2011.
While recognizing it was "not an easy decision," Driscoll said it would potentially ease property tax increases for residents.
The money would help stabilize the budget, paying for road and sidewalk repair and school building maintenance and boosting cash reserves, she said. About 25 percent would be reinvested into marketing Salem as a tourism destination. Some of the money would be used to offset liquor license fees for restaurants by 25 percent, she said.
"I know this is hard," Driscoll said. "I don't want people to think this was the first thing we did. We have to cut and cut and cut. I've laid off individuals. At some point, we still have to get services delivered. ... We're trying to balance ways to do that."
Financial pain, however, was a universal theme.
"Frankly, for the hotels in this town, this tax is a killer in this climate," said David Stern, a spokesman for the Salem Waterfront Hotel.
Hotel occupancy is down nearly 3 percent, room rates are down an average of $6.42 and revenues are down by "six figures," Stern said.
Because of the fierce competition, hotels would be forced to absorb the tax increase themselves, rather than pass it on to guests, he said. Salem hotels compete against those in New Hampshire and Maine, particularly for business guests.
"They're fighting for competition over pennies and nickels," Stern said.
He also noted that the 10 percent discounts claimed by members of AAA or AARP still wouldn't be enough to cover the room tax if it increased from 9.7 percent to 11.7 percent.
But not all hotels saw it that way. Salem Inn owner Richard Pabich said the hotel — which is much smaller than the Salem Waterfront or Hawthorne Hotel — caters mainly to tourists.
"It's not a local tax," Pabich said. "It's paid by people who come to Salem who are always going to come to Salem. ... They're going to pay that increase no matter what."
While supporters have long promoted the meals tax as a mere 75 cents on a $100 tab, Finz owner George Carey said that was only partially true. The sales tax recently climbed from 5 percent to 6.25 percent, he said.
"Now you'd be paying $2 more than you were a year ago," Carey said.
Restaurants are already suffering financially in a tough economy, owners said.
At Rockafellas, a typical bill that might have hovered around $45 two years ago has dwindled to around $30 and even less on quieter nights, owner Dave McKillop said.
"Spending habits have changed," he said.
While the city struggles with higher health insurance costs, so, too, do businesses, McKillop said. Even hidden costs — like more customers paying with credit cards — are cutting into the bottom line, he said.
Meanwhile, Lovely said it wouldn't just be tourists shelling out more money.
"I'm concerned it's the residents that will be paying that tax," she said.
Salem Chamber of Commerce Executive Director Rinus Oosthoek said 80 percent of downtown business actually comes from customers living in Salem and surrounding towns.
Oosthoek said that tax revenue related to tourism contributes $250 million in revenue to the state. Yet, the funding of marketing Massachusetts as a tourism destination has dropped from $9 million to $2.2 million.
"One to two years from now, you're going to see a spiraling of people not coming here because we haven't told them to come here," Oosthoek said.
Residents have a stake in this, as well, Pat Liberti said. She said she'd rather see tax increases on meals and hotels — expenses she has a choice over — rather than more property tax hikes.
"It's really time to think of the citizens of Salem," Liberti said. "That's what we have to look at, and our voices have to be heard."
Staff writer Chris Cassidy can be reached at ccassidy@salem news.com.
