Corporate Welfare? While Mayor/Council Seek Regressive Sales Tax Hike, City Staff Plans To Study Kick-Back Of Portion Of Hotel Room Tax As "Incentive" For New Hotels
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(April 5, 2016, 7:10 p.m.) UPDATE: City Council votes 7-0 (Lowenthal and Austin absent) to receive and file without objections report by city staff indicating that staff plans to study (with hired consultant) potential development of a "Transient Occupancy Tax Incentive Program" that would kick-back ("share") a portion of LB's hotel room tax as an "incentive" to attract new hotels. Staff says it plans to return to the Council to present results of the study within about sixty days. Creating such a program would require Council voted approval. Councilmembers Mungo and Supernaw both (rough paraphrase) voice mild concern, awaiting data, ensuring that any such program not put existing hotels at a disadvantage. No Councilmembers raise issue of City taxpayers receiving less than full amount of Transient Occupancy Tax otherwise due. City staff says program is intended to have positive result.
(April 4, 2016) -- Corporate welfare for big outfits while lowly taxpayer serfs pay?
Just weeks after city staff and City Councilmembers said the City needs more revenue as justification for a ballot measure seeking to raise LB's sales tax to 10% (while it's 9% in Signal Hill/Lakewood and 8% in most OC cities), city staff will tell the Council on April 5 that it plans to study what amounts to a kick-back of part of LB's hotel room tax -- revenue that would otherwise be paid to the City -- as an "incentive" for new hotels.
In an agendizing memo, Director of Economic and Property Development Mike Conway advocates applying the principles of City Hall's "Retail Sales Tax Incentive Program" (begun in 1992) under which the City kicks back (City Hall says it "shares") part of LB's sales tax as a [memo text] "business retention or attraction tool." LB has five such sales tax kick-back agreements currently in effect (at least three of which are with automobile dealerships.)
In his agendizing memo, Mr. Conway writes in pertinent part:
[Scroll down for further below.]
...Another area of the City's economy that would likely benefit by a similar incentive is hospitality, specifically hotel development. The tourism industry is one of the most highly taxed and labor intensive sectors of the economy. For the past few years, the City has been focused on bringing additional hotels to Long Beach. This has been challenging because even with significant private capital available to be invested in the high-risk hotel and tourism industry, the return on investment is often insufficient to compel development. As a result, an economic gap exists that is often impossible to bridge without public participation. Public participation may be accomplished through a public/private partnership, public financing or public incentives in order for the developer to achieve a reasonable return on their hiqh-risk investment.
Among the City revenues that can be expected to increase with the development of a hotel project is the Transient Occupancy Tax (TOT). Many cities in the local area, including Los Angeles, Anaheim and San Diego, utilize future TOT revenue from a hotel project to contribute
to the project cash flows, increase the project's return on investment, and make the project financially feasible. This incentive traditionally takes the form of a TOT Sharing Agreement. City Council may consider a TOT Incentive Program that would generally mirror the Retail Sales Tax Incentive Program in cost cap and length of term, though details can be unique to each project.
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City staff believes that a TOT Incentive Program would be appropriate to consider based on the general characteristics identified below:
Available to new hotels, with desired location, design, and operational characteristics, a minimum of 100 rooms, a projected minimum TOT generation of $500,000, and an identified financial gap;
The amount of TOT to be shared will not exceed 50 percent of the net incremental growth in the hotel's TOT received by the City; and
The TOT Sharing Agreement shall expire upon reaching the agreed upon limit of City participation or a period of time to be identified in a study, whichever first occurs.
To develop a specific TOT Incentive Program for Long Beach, a study should be conducted that provides the following information:
An analysis of the specific Long Beach hotel market identifying the need and the general type and characteristics of any financial gaps that need to be addressed for that need;
An analysis that identifies the location, design, and operational characteristics for hotels more likely to meet City goals, and encourages economic development; and
Approaches used by other cities to address those needs through an incentive program, and specific recommendations for the City based on analysis results.
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Staff intends to engage an expert consultant to perform this analysis, primarily for hotels in the Downtown Long Beach area. Staff will return to the City Council with the results of the study and specific recommendations for a TOT Incentive Program, and/or other recommended actions to best encourage needed hotel development...
FISCAL IMPACT
The cost of the marketing and needs study to be conducted is expected to be less than $60,000, and will be paid for from within existing departmental resources. The fiscal impact of a TOT Incentive Program will be analyzed as part of the anticipated study, but the overall intent is for the fiscal impact to be positive.
