55E - RESO - HOTEL INCENTIVE PROGRAM

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Resolution - Establish a Hotel Development Incentive Program June 7, 2016 Page 2 The City currently imposes an 11 percent Hotel Visitors' Tax (HVT) on hotel and motel guests. The purpose of this tax is to recover costs of governmental services associated with nonresidents of the City. Since fiscal year 2011 -12, the City has experienced a 29 percent increase in HVT revenues and are projected to exceed $9 million by year end 2015 -16. To spur the development of high quality hotels (four to five -star rated or AAA four Diamond or above), staff is recommending 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 which would be funded by the developer. The City would pay for the funding gap through the HVT incremental revenue 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 forward to City Council for consideration. Sample Calculation: A new hotel development generates $1 million in new HVT revenue to the City in its first year. Fifty percent ($500,000) will be reimbursed to the hotel after the City receives the HVT. In year two, the hotel generates $1,200,000 in HVT revenue, 50 percent ($600,000) would be reimbursed to the hotel. This agreement would continue over a 10 -15 year period or until the funding gap is reached per the negotiated agreement. On March 24th and April 26, 2016, staff met with members of the UNITE HERE Local 11 organization that represents more than 20,000 workers employed in hotels, restaurants, airports, sports arenas, and convention centers throughout Southern California. The meeting provided an opportunity to discuss and review language as it relates to labor peace agreements. A labor peace agreement is an enforceable agreement between a hotel owner /operator and a labor organization, that represents, or seeks to represent, the hotel's employees and that contains provisions under which the labor organization and its members agree to refrain from engaging in any picketing, work stoppages, or any other economic interference with hotel operations or the construction of the facility. In addition, staff met with the Los Angeles /Orange Counties Building and Construction Trade Council in which they provided feedback related to prevailing wage requirements and the hiring of local residents. As it relates to the labor peace agreement, for each hotel covered by the Hotel Development Incentive Program in which the City participates financially and has a proprietary interest, the City shall require that the hotel owner or operator execute a labor peace agreement with any labor union that represents or seeks to represent employees of the hotel, both during construction and operation of the hotel. Evidence shall be presented to the City that the owner or operator has 55E -2