At a time when San Diego is actively seeking new sources of tax revenue, Transient Occupancy Taxes (TOT)—the taxes paid by hotel guests—are providing a significant boost. In the past year, the city collected approximately $319 million in TOT, a notable increase from the $250 million collected in 2019. In fact, over the last three years, annual hotel tax revenues have consistently outpaced pre-pandemic levels.
At first glance, this surge in tax revenue might suggest a full recovery for the local hospitality industry. However, a closer look by NBC 7 Investigates reveals that the numbers may be masking deeper challenges facing San Diego’s hotels.
According to the San Diego County Lodging Association, the local hotel industry is on what it describes as a “slippery slope.” Data from the San Diego Tourism Authority shows that hotel occupancy rates have not returned to pre-pandemic levels. In 2018, around 80% of hotel rooms were filled. While occupancy plummeted during the pandemic, it has since stabilized at about 75%—still below the previous norm.
This raises a puzzling question: if fewer rooms are being filled, how is the city collecting more in hotel taxes? The answer lies in rising room rates.
Hotel prices in San Diego have climbed significantly. In 2019, the average nightly rate was about $175. Today, that figure has jumped to roughly $220—a 26% increase. While hotel rates have risen nationwide, the average increase across the U.S. is closer to 21%, making San Diego’s price hike notably steeper.
Peter Hillan, a spokesperson for the San Diego County Lodging Association, cautions that higher prices don’t necessarily signal a healthy industry.
“Yes, the TOT looks good right now, but it’s because of these increased rates,” Hillan said. “You can only go so far. There’s a ceiling to what guests are willing to pay, and beyond that, hotels may have to make cuts.”
Hillan also warned of a looming financial challenge. The San Diego City Council is set to vote next month on a proposed minimum wage increase for hotel workers, which would raise hourly pay from $17.25 to $25. If passed, Hillan says it would result in a 45% spike in labor costs—an increase he calls “unsustainable.”
Such a change could have ripple effects not only for hotel guests but also for the tens of thousands of San Diegans employed in the hospitality sector, as well as the many businesses that rely on tourism dollars.
Tourism remains a cornerstone of San Diego’s economy. Last fiscal year, the San Diego Tourism Authority estimated the industry’s total economic impact at $22 billion. That included more than 32 million visitors who spent over $14 billion on local goods and services.
“We’re at a tipping point,” Hillan said. “If we add more financial burdens or fail to attract enough visitors, it could significantly impact not just hotels, but the entire tourism economy in San Diego.”
The Tourism Authority echoed these concerns in a statement to NBC 7 Investigates, citing “economic headwinds, a slowdown in international travel, and cuts to NIH funding affecting biotech conferences” as factors contributing to a flat or slightly declining performance. While group business travel has remained steady, leisure travel has softened due to broader economic uncertainty and reduced discretionary spending.
Another element influencing TOT revenue is a recent increase in the hotel tax rate itself. A voter-approved measure raised the tax from 10.5% to a range between 11.75% and 13.75%, depending on the hotel’s location. The new rates took effect on May 1.
So far, the results are mixed. Hotel tax revenue for May was actually lower than the same month the previous year. However, July 2025 brought in $38 million in TOT—about $7 million more than July 2024.
As San Diego continues to navigate the post-pandemic recovery, the city’s reliance on tourism and hotel taxes remains strong. But with rising costs, uncertain travel trends, and potential policy changes on the horizon, the future of the local hospitality industry is anything but certain.
Source: nbcsandiego.com