The Board of Supervisors approved a “Hotel Incentive Program” ordinance Tuesday afternoon that county staff said would provide a much-needed revenue boost for Santa Barbara County.
The program applies to new hotels and owners who make extensive renovations to their hotels in the unincorporated areas of the county.
The board took the staff’s recommendation that for new projects, 70 percent of the county’s TOT revenues will be used for an incentive program, 20 percent for general county programs and 10 percent for tourism promotion.
To qualify, a new hotel must have a value of at least $50 million and started construction after January 2012. First District Supervisor Salud Carbajal, Fourth District Supervisor Joni Gray and Fifth District Supervisor Steve Lavagninovoted for the HIP ordinance, while Third District Supervisor Doreen Farr and Second District Supervisor Janet Wolf were opposed.
Existing hotels doing renovations would receive a portion of bed tax from incremental increases in revenues, based on a three-year average.
The program stemmed from a Caruso Affiliated LLC request for reduced taxes to expedite the construction of the long-delayed Miramar Hotel project in Montecito.
Rick Caruso’s firm asked the county for a 15-year bed tax rebate for its $170 million project, and received permit extensions in March.
Carbajal said that if nothing was built, the county would collect the evaluation of the hotel’s current state in property taxes, which amounts to $568,000 a year. The county would collect about $10 million after 20 years if the Miramar stays as is. If Caruso builds the project, the county would collect the increased property tax, the sales tax and 70 percent of the transient occupancy tax, or $130 million after 20 years.
If it is not built, no incentive is paid; the decision was a no-brainer, Carbajal said.
“The worst that could happen is that nothing happens, there’s no exchange of resources, the status quo remains, we don’t make one additional dollar or give one additional dollar,” he said. “The most that could happen is that we could go from making $10 million in 20 years to conservatively $130 million in 20 years.”
County staff estimated that the Miramar would bring in $1.7 million in property tax, $1.5 million in sales tax and $450,000 in bed taxes when the new 186-room hotel is completed. The 70-20-10 split would provide a $21 million incentive to the developers, staff estimated.
But more importantly, it’s not new taxes; it’s an economic vitality development that could generate revenue, Gray said.
Lavagnino said it could provide some 1,000 jobs and new revenue that could fund schools, public safety and county projects. He said one of the worries is that Caruso would build without the incentive program.
“So do I roll the dice and not do the (program) and construction workers in my district who have been out of a job for years still don’t have a job, or people who would have a job as a hotel clerk don’t have that opportunity?,” Lavagnino asked. “I can’t take that risk. Whether it’s 1,000, 800, 700 jobs, I don’t see anyone else coming forward offering hundreds of jobs.”
But it’s important that the workers are paid prevailing wages and that there’s a local hiring preference clause in the implementation agreement, he added. Carbajal also pushed for an independent third-party business evaluation in the agreement.
Each developer will fill out a separate application for each new project that will have additional review, Lavagnino added.
Some of the areas of concern for Wolf and Farr related to hiring local workers, paying them prevailing wages, the six-year window developers have to build new hotels, and that the 10 percent that would fund tourism promotion could change yearly based on the board’s discretion. Wolf preferred to tighten the ordinance’s wording to clear those “holes” rather than wait to confront those concerns in the implementation agreement.
“To move forward with this type of ordinance is a little bit embarrassing that this county would do something that we know could change any year,” Wolf said.
Farr said she supports most of the ordinance.
“But I feel so strongly about prevailing wage and local hiring that I hoped we could revise the language in the ordinance to strengthen that,” she said.
As the ordinance is worded now, it’s the developer’s responsibility to comply with the wage and local-hiring clauses, according to the county’s attorneys. But they didn’t recommend specifying the wording because it didn’t want to preempt state and federal law.
Caruso said his firm completely “accepted the notion that there will be a prevailing wage.”
“So that’s really not an issue for us, and we agree with local hiring also,” Caruso told Noozhawk. “They will get picked up in the agreement.”
There were 21 public comments regarding the incentive program. Supporters said it would symbolize a mutually beneficial partnership between government and businesses, would remove an eyesore, and that Caruso has a good track record.
Detractors said the ordinance wasn’t specific about hiring clauses, it would provide a bailout for a millionaire developer, and it doesn’t have an independent business evaluation.
Carbajal described it as a “leap of faith,” but one with minimal risk.
“I’m inclined to take this leap of faith but I’m also looking forward to a tight agreement that incorporates these issues,” he said.
The next step is to draft an implementation agreement.
In terms of the proposed TOT increase, the board voted unanimously to have two more discussions regarding putting a proposed 2-percent TOT increase on the November ballot. The board will decide on July 10 whether it wants to follow other cities within the county and propose a change in TOT to 12 percent from the current 10 percent.