The group should meet at least quarterly and have wide representation from the various business interests, the town council suggested last week. Other cities in the area that have already established such an advisory group include Palo Alto, Santa Cruz, Mountain View, Santa Clara and Cupertino.

Details of the economic vitality program, which the town adopted in July 2002, were elaborated upon at the town council retreat earlier this month, along with an economic status report.

The town will reach $7 million in sales tax by the end of the 2002­03 fiscal year, but whether it will achieve the previously projected $7.2 million is up in the air, finance director Steve Conway reported. Additionally, because the town offers a low interest rate to developing businesses downtown—which is good for the business community—it means Los Gatos is taking in less money than what it could be making. The amount earned from such interest goes toward the town's general fund.

As the town staff looked at ways to increase revenue, they hit upon one potential source. At the moment, commercial property owners in the town don't own business licenses. However, under the business tax ordinance, the town could charge commercial landlords for such licenses, Conway said, and it is something the council should consider.

As discussion proceeded to the topic of economic vitality, redevelopment manager Marty Woodworth noted that business retention and outreach efforts would be key focuses for 2003. He has contacted existing businesses to see what the town can do to help with marketing.

In his report, Woodworth noted that downtown businesses in Los Gatos are doing relatively well, given the economic situation. While sales are down in Los Gatos, the town is still faring better than other cities. Furthermore, Los Gatos continues to appeal to major stores, as evidenced by bids from Trader Joe's and Walgreens to move into town, Woodworth said. He also reported that the business vacancy rate in Los Gatos falls between 15 and 20 percent, compared to the 20 percent vacancy rate in Silicon Valley overall.

"People see Los Gatos as a good, long-term investment," he said.

In terms of outreach, the council suggested that the town consider bringing in convention groups and trade shows to help identify Los Gatos as a destination point for visitors. Council members also recommended that the town should attract medical technology firms to complement its existing hospitals and medical centers.

A bright spot in the economy was the selling of Hummers at the Los Gatos Auto Mall this past year, Woodworth said. Auto sales in general make up one-third of the town's sales tax revenue, he added. Other key successes for the town include the Sobrato development and the opening of Hotel Los Gatos.

While Hotel Los Gatos is considered a welcome addition, the hotel industry is not expected to improve this next year because people are travelling less frequently with the economy down, Woodworth said.

In 2001 Los Gatos hotels experienced an occupancy rate of 80 to 90 percent, but that fell to somewhere between 50 and 60 percent for this fiscal year, Conway said. While the town received $1.3 million in tax revenue from the hotel industry in 2001, only about $900,000 has come back this fiscal year, even with the addition of Hotel Los Gatos in November.

Phil Farrar, manager of Hotel Los Gatos, is satisfied with how things went in the month of December, which was the first complete month the hotel was in operation. Hotel Los Gatos was "aiming for a 32 percent occupancy rate and finished just under 30 percent," he said. "The signs are very encouraging."

La Hacienda Inn-Hotel owner Michael Morosin was not as enthusiastic. He saw less business in December 2002 than in December 2001, which was already a "bad year" because of Sept. 11. To sustain business, Morosin said, hotels must downsize and reduce the number of rooms they're offering.

"There are too many hotel rooms chasing too few customers," he said.

At least one hotel came out even. Marie Tallman, general manager of the Toll House Hotel, reported that while the occupancy rate for this past December was down 10 percent from what it was in 2001, business for the banquet halls and restaurant went up 10 percent.

It may not come as quickly as one would hope, but business owners should accept that the economic recovery will be a gradual process, Tallman said.

"We just need to be optimistic and know that it's going to be better," she said.