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Resolution - Establish a Hotel Development Incentive Program <br />June 7, 2016 <br />Page 2 <br />The City currently imposes an 11 percent Hotel Visitors' Tax (HVT) on hotel and motel guests. <br />The purpose of this tax is to recover costs of governmental services associated with nonresidents <br />of the City. Since fiscal year 2011 -12, the City has experienced a 29 percent increase in HVT <br />revenues and are projected to exceed $9 million by year end 2015 -16. <br />To spur the development of high quality hotels (four to five -star rated or AAA four Diamond or <br />above), staff is recommending an economic incentive to close the funding gap in a proposed high <br />quality hotel development. A feasibility analysis would be completed for the project, whereby a <br />projection of operating performance is combined with project development cost in order to <br />determine the funding gap. A financial firm would be used for the feasibility analysis which would <br />be funded by the developer. <br />The City would pay for the funding gap through the HVT incremental revenue over a period <br />specified in each negotiated agreement. The City would use a percentage (50 percent) of new <br />incremental HVT generated by the new development to fund the payments. Incremental HVT <br />equals the amount of new HVT that the new hotel development generates from a baseline (Year <br />0). No upfront expenditures from the City would be required. Each hotel agreement will be <br />brought forward to City Council for consideration. <br />Sample Calculation: A new hotel development generates $1 million in new HVT revenue to the <br />City in its first year. Fifty percent ($500,000) will be reimbursed to the hotel after the City <br />receives the HVT. In year two, the hotel generates $1,200,000 in HVT revenue, 50 percent <br />($600,000) would be reimbursed to the hotel. This agreement would continue over a 10 -15 year <br />period or until the funding gap is reached per the negotiated agreement. <br />On March 24th and April 26, 2016, staff met with members of the UNITE HERE Local 11 <br />organization that represents more than 20,000 workers employed in hotels, restaurants, airports, <br />sports arenas, and convention centers throughout Southern California. The meeting provided an <br />opportunity to discuss and review language as it relates to labor peace agreements. A labor <br />peace agreement is an enforceable agreement between a hotel owner /operator and a labor <br />organization, that represents, or seeks to represent, the hotel's employees and that contains <br />provisions under which the labor organization and its members agree to refrain from engaging in <br />any picketing, work stoppages, or any other economic interference with hotel operations or the <br />construction of the facility. In addition, staff met with the Los Angeles /Orange Counties Building <br />and Construction Trade Council in which they provided feedback related to prevailing wage <br />requirements and the hiring of local residents. <br />As it relates to the labor peace agreement, for each hotel covered by the Hotel Development <br />Incentive Program in which the City participates financially and has a proprietary interest, the City <br />shall require that the hotel owner or operator execute a labor peace agreement with any labor <br />union that represents or seeks to represent employees of the hotel, both during construction and <br />operation of the hotel. Evidence shall be presented to the City that the owner or operator has <br />55E -2 <br />