Regular Meeting
09/18/23 06:00 PM
City Manager Department
Willie A Hopkins
Public Hearing
Doc ID: 5470
COUNCIL AGENDA ITEM
AGENDA MATTER:
PUBLIC INFORMATION REGARDING MARRIOTT HOTEL SUBSIDY AGREEMENT EXECUTIVE SUMMARY:
In May 2021, the City of Barstow entered into an agreement with Hotel Investment Group (“HIG”) to provide a limited transient occupancy tax reimbursement subsidy, out of the tax revenues that HIG’s new dual-branded Marriott hotel will generate once opened. State law requires a public economic development subsidy report and City Council hearing, providing for a public discussion of the terms of the agreement and its expected economic benefits for the City. The Reimbursement Agreement allows a maximum, not guaranteed subsidy of $2,400,000 over a period of five years beginning from when the hotel opens for business, with the actual subsidy amount depending on transient occupancy tax revenues collected from the hotel. The subsidy amount will equal the amount of transient occupancy taxes collected from the hotel, capped at a maximum of $480,000 per year, payable monthly and trued-up annually, for a five-year total maximum subsidy amount of $2.4 million. In return, the City expects the hotel will generate an estimated $724,000 per year in new transient occupancy tax revenues. Over the five-year life of the subsidy agreement, the City estimates a net of $1,220,000 in new transient occupancy tax revenues, net of the subsidy payments. In addition, the City would benefit from additional sales and property taxes during the hotel’s construction and its operating life. The hotel project is estimated to create approximately 600 construction jobs and 50 permanent jobs.
DISCUSSION:
Starting in 2019, and concluding in 2021, the City engaged in negotiations with HIG to bring a cobranded, dual Marriot hotel to the City. This project includes a hotel with 181 rooms, on a 3.28-acre property located at 2551 Mercantile Way. Before an economic development subsidy agreement can be granted, California Government Code Section 53083 requires that the City provide public notice and a hearing regarding the subsidy. This City Council report and public hearing provide this information to the public, in addition to the information provided at the two prior City Council meetings considering this agreement, on May 17 and May 27, 2021.
Transient Occupancy Taxes and the Marriott Economic Development Subsidy Agreement Part of the revenue that funnels into the City’s General Fund comes from Transient Occupancy Taxes (“TOT”). This group of taxes is levied on hotel guests and collected by hotel operators, providing significant revenue to the City’s general fund.
Under the Transient Occupancy Tax Reimbursement Agreement, the City will provide HIG with an economic development subsidy in the maximum amount of up to $2.4 million via monthly installments of up to $40,000 of TOT per month, subject to annual true-up. (Agreement, Section 1(A).) If more than $40,000 in TOT is generated in a month, subject to annual true-up, the City would keep the excess after the $40,000 is returned to HIG. (Agreement, Section 1(B).) The expectation is that each year, the Actual Reimbursement Amount will total $480,000,00, and that TOT receipts will exceed that number. (Agreement, Section 1(B).) At the end of each year on the Agreement Anniversary Date, there will be a “True Up”. If less than $480,000.00 has been reimbursed to HIG but the annual TOT receipts exceed $480,000.00, the True Up requires an additional reimbursement payment be made to ensure HIG is reimbursed the full $480,000.00. (Agreement, Section 1(B).) This could occur if there is one month with under $40,000 in TOT receipts, and another month with more than $40,000 in TOT. Conversely, if less Regular Meeting
09/18/23 06:00 PM
City Manager Department
Willie A Hopkins
Public Hearing
Doc ID: 5470
COUNCIL AGENDA ITEM
than $480,000.00 has been reimbursed to HIG and the annual TOT receipts are also less than $480,000.00, then no true-up payment is required. The Agreement is clear that, if TOT receipts are not equal to or greater than the expected $480,000 per year, then the total amount reimbursed to HIG may be less than $2,400,000.00. (Agreement, Section 1(B).) Instead, through the new hotel, a new source of money is coming to the City in varying amounts for the next five years, and unimpeded after that.
Predicted benefits of this Agreement include job creation, tax revenue increases, and an expansion of the City’s tax base. As it stands, the payment of the subsidy is predicated on certain conditions. These Reimbursement Obligation Conditions must be met before the subsidy can be paid. (Agreement, Section
2.) The City must prepare a report and hold a public hearing before providing the subsidy, the hotel must be operated in accordance with this and all other Agreements and required Permits, the hotel must continuously operate as a Nationally Recognized Franchise during the five-year period, the hotel operator must not violate any laws or this Agreement, and the hotel operator must not enter bankruptcy or receivership. If any of the last three conditions are not met, the City may withhold the subsidy for that month.
Statutory Information Requirements, per Government Code section 53083:
• Beneficiary Information. The economic development subsidy agreement benefits Barstow Hospitality LLC, a California limited liability company. 2551 Mercantile Way, Barstow CA 92311. • Term and Schedule. The economic development subsidy agreement, approved May 27, 2023, has a five year term, beginning the first month the hotel opens and the City begins to receive TOT payments from it, provided all conditions precedent have been met, and lasting for sixty months, or five years, thereafter. The City estimates the hotel will open in October 2023. • Description of Subsidy: The economic development subsidy agreement provides for up to $2.4 million in transient occupancy tax revenue reimbursement over its five years, to be paid as reimbursement out of the transient occupancy tax revenues collected by the City from the hotel. • Public Purposes: The City entered into the economic development subsidy agreement for the public purpose of encouraging private investment that creates new jobs, income sources, and tax revenues for the City.
• Projected Tax Revenues: The City estimates that the hotel project will generate approximately $724,000 per year in transient occupancy taxes, calculated as an estimated $4000 per year per room tax revenue multiplied by the hotel’s combined 181 room count. Staff further estimates that the hotel project will also generate an additional approximately $8,000-$16,000 in annual sales tax revenues during operations. Last, staff estimates that the hotel project will generate $320,000 in total general property tax levy revenue for all property tax agencies with about $29,000 in General Fund revenue and about $18,000 in revenue to the City of Barstow Park fund via annual property taxes each year, rising if property value continues to rise as allowed under Proposition 13. • Project Job Creation Figures: The City estimates that the hotel project will generate approximately 600 temporary construction jobs and 50 permanent hotel jobs, of which approximately half would be part-time.
As additional information, the signed Agreement and the May 27, 2021, Council agenda packet materials regarding its approval are attached.
FISCAL IMPACT:
Regular Meeting
09/18/23 06:00 PM
City Manager Department
Willie A Hopkins
Public Hearing
Doc ID: 5470
COUNCIL AGENDA ITEM
The fiscal impact of the Agreement stems from the hotel’s expansion of the City’s tax and employment base. As explained above, the new hotel will provide a new source of tax revenue for the City. The amount of new tax revenue will vary in the first five years due to the Agreement. The amount of TOT collected from the new hotel up to $40,000 per month, subject to annual true up and a maximum reimbursement of $480,000 per year and $2.4 million total, will be returned to HIG, but anything above that amount will be retained by the City as additional tax revenue. The City is not required to pay out more than it collects in TOT revenues from the hotel, and is also not required to pay more than $480,000 per year, nor more than $2.4 million total over the five year life of the agreement.
The City estimated that under the Agreement, tax revenue would amount to approximately $3,620,000 in the first five years, of which the City would keep at least an estimated $1,220,000 in net new revenues after payment of the up to $2.4 million subsidy. For the years after the agreement expires, the City estimates TOT revenue from the hotel would start at approximately $1,100,000 per year and increase annually. The Agreement has not yet been triggered as the hotel has not yet opened. The City will be closely tracking revenues, including via transient occupancy, property, and sales taxes, as the project’s construction continues and it opens.
Tax revenue was also expected to come from the contractors during the hotel construction phase, as well as sales tax revenue for materials during construction. The hotel project is estimated to create approximately 600 construction jobs and 50 permanent jobs.
RECOMMENDED ACTION:
Staff recommends that the Council receive public comment and receive and file this economic development subsidy report.