The City of Long Beach will be commissioning a study on a proposal to offer a tax-sharing program for the Transient Occupancy Tax (also known as the TOT or bed tax) as an incentive to attract new, large hotels to the city.
The incentive program will target hotels with 100 rooms or more, and it could mean that new hotels could keep up to 50 percent of the tax revenue they collect from customers, if the plan follows similar agreements that the City has made with other businesses.
Tax-sharing programs with Long Beach are nothing new. There are similar programs that city officials have negotiated with other businesses in the past. According to a report from Director of Economic and Property Development Michael Conway, there are currently five active tax-sharing agreements pursuant to the Retail Sales Tax Incentive Program. Conway’s report did not name which businesses are participating in the tax-incentive program.
These agreements did allow a rebate to businesses of up to 50 percent of the sales-tax revenue, “in excess of the first $50,000 or its existing sales tax base, whichever is higher,” according to Conway’s report. He added that these agreements continued for 15 years, “or until the need is met, whichever first occurs.”
The director discussed the need to develop a similar program for new hotels.
“For the past few years, the City has been focused on bringing additional hotels to Long Beach,” Conway said in his staff report. “This has been challenging because, even with significant private capital available to be invested in the high-risk hotel and tourism industry, the return on investment is often insufficient to compel development. As a result, an economic gap exists that is often impossible to bridge without public participation.”
In his report, Conway asked that a hotel TOT-incentive program look at hotels with a “projected minimum TOT generation of $500,000.”
It’s good news for those who feared that the bed tax would also increase if voters passed the June ballot initiative to increase the sales tax in Long Beach. Assistant City Manager Tom Modica confirmed to the Signal Tribune that the bed tax is a separate tax from the sales tax.
It also means that the City would be missing out on additional money, something that Mayor Robert Garcia said Long Beach needed when he advocated for the ballot initiative to effectively increase the sales tax by one percent in order to make a dent in the $2.8-billion cost of the city’s infrastructure over the next 10 years. As the Signal Tribune reported earlier this year, the City’s finance department noted that if the ballot measure is approved, that new sales tax would bring in $48 million a year.
While the bed tax is unaffected by the ballot initiative to increase the sales tax in Long Beach, the same size hotels will already be subject to Measure N, the voter-approved ballot initiative to raise the minimum wage for hotel workers. The measure now allows workers to be paid $14.07, effective July 1, 2016, up from $13.80 this year, according to the City of Long Beach website.
It is not known whether this move by the City is in direct response to businesses who have shied away from opening up a new hotel in Long Beach because of Measure N.
Derek Smith, the political director for Unite Here Local 11, a union organization that advocated four years ago for the increase in minimum wage for hotel workers, didn’t think that hotels will be ultimately at a competitive disadvantage as the years go by. He noted that this year, the State passed a new minimum-wage law for all workers, not just the ones who work at the hotels.
As far as the possibility of a TOT tax-sharing program, Smith said he hopes that a business taking advantage of any subsidy will offer to the community better job standards and wages.
“We will always advocate that any new hotel that gets taxpayer subsidy!can provide these community benefits,” Smith concluded.
At the April 5 meeting, Councilmember Daryl Supernaw, who represents Long Beach’s 4th District, voiced concern over what effect a tax-sharing agreement for new businesses could have on the existing hotel businesses. Modica acknowledged that the study will be looking at that issue.
A spokesman for the Long Beach Area Chamber of Commerce echoed Supernaw’s concern and was relieved that the city staff will address the issue in the study.
“We were concerned because it!looked like it was being targeted at new hotels coming into the market,” Chamber Senior Vice President Jeremy Harris said in a phone interview Wednesday. “And there wasn’t any language in there about our current hotels.”
He noted that the existing hotels already employ many people and have been in Long Beach for years, giving their fair share of the TOT revenue to the city.
“The Chamber always believes [that] competition is the best thing for!the community and [gets] everybody to rise up and perform their best,” Harris continued, “but we want to make sure that competition is fair.”
The Long Beach City Council only voted on April 5 to receive and file a report from the director of Economic and Property Development. Staff estimated that it may take a couple of months for the study to be completed and for staff to return a report to the council.
According to the staff report, the study will cost less than $60,000.
