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Resolution -Establish a Hotel Development Incentive Program November 3, 2015 Page 2 The City currently imposes an 11 percent Hotel Visitors Tax (HVT) on hotel and motel guests staying at facilities within the City. The purpose of this tax is to partially recover some costs of governmental services associated with visitors to the City. The anticipated revenue from the Hotel Visitors Tax for fiscal year 2015-16 is $8.8 million dollars. To spur the development of high quality hotels (four to five-star rated or AAA four Diamond or above), the City is proposing to offer an economic incentive to close the funding gap in a proposed high quality hotel development. A feasibility analysis would be completed for the project, whereby a projection of operating performance is combined with project development cost in order to determine the funding gap. A financial firm would be used for the feasibility analysis. This analysis would be funded by the developer. The City would pay for the funding gap through incentive payments over a period specified in each negotiated agreement. The City would use a percentage (50 percent) of new incremental HVT generated by the new development to fund the payments. Incremental HVT equals the amount of new HVT that the new hotel development generates from a baseline (Year 0). No upfront expenditures from the City would be required. Each hotel agreement will be brought back to City Council for approval. Sample Calculation: A new hotel development generates $1 million in new HVT taxes to the City in its first year. Fifty percent ($500,000) will be reimbursed to the hotel after the City receives HVT. In year two, the hotel generates $1,200,000 in HVT taxes, 50 percent ($600,000) would be reimbursed. This agreement would continue over a 10-15 year period or until the funding gap is reached depending on initial negotiations. STRATEGIC PLAN ALIGNMENT Approval of this item supports the City's efforts to meet Goal #3 Economic Development, Objective #3, (Promote a solutions -based customer focus in all efforts to facilitate development and investment in the community), Strategy C (Explore opportunities to encourage a business friendly environment within the City through the reduction of non-essential regulatory requirements, improved coordination between agencies for development review and addition of monetary incentives). 55B-2