Eureka weighs hotel tax increase as budget deficit widens

The Eureka City Council approved a $110,133,542 budget for fiscal 2026-27, but city leaders said the plan opens with a $3.7 million General Fund deficit and only about $8.7 million in reserves. That reserve level is roughly two months of operating capital and sits about one month below the city’s policy target, leaving less room for another surprise as the new fiscal year begins. The adopted budget is 8.5% lower than the prior year’s spending level.

Finance Director Lane Millar told the council the shortfall was driven largely by one-time expenses, especially work tied to the Marine Fueling Facility on Commercial Street. A March 2026 budget update had already warned that the projected deficit had grown from about $800,000 to roughly $3.7 million, citing personnel and capital overruns, a delayed county CARE contract that required a local subsidy, and an emergency marine-fueling replacement. Millar said the city’s Finance Advisory Committee will work with staff on a reserve-rebuild plan.

That tighter position is why city leaders are now looking at revenue options, including whether to raise Eureka’s transient occupancy tax. The city’s current lodging tax is 10% for stays of 30 consecutive days or less, and the City of Eureka Finance Department handles transient occupancy tax collections along with other revenue billing. Humboldt County’s Treasurer-Tax Collector identifies transient occupancy tax as the bed tax and outlines filing periods, due dates and penalties for delinquencies.

Any increase would shift more of the burden to visitors and overnight guests, but it would also land on local hotels and vacation rentals already trying to compete on room rates in a tourist market. The broader question in Eureka is whether the city can close a nearly $4 million gap with new revenue tools, or whether the pressure eventually shows up as slower spending and tighter services elsewhere in city operations.

The council’s June 16 action set the next budget year in motion, but the debate over how to keep Eureka balanced is not settled. With reserves already below target and one-time costs still rippling through the books, the hotel tax proposal is now part of a larger test of who pays when the city’s finances tighten.