By Emily Rasmussen
San Juan Capistrano City Council voted to direct its city staff to look further into a citywide luxury hotel Transient Occupancy Tax (TOT) revenue-sharing incentive program at a meeting on Tuesday, May 1.
The incentive program would be intended to encourage development of new hotels and/or enhancement of existing hotels in downtown, a city staff report read. San Juan Capistrano currently receives 10 percent of TOT (also known as ‘bed taxes’), which are deposited into the city’s general fund.
“Luxury hotel properties can provide far greater TOT revenue when compared to their non-luxury counterparts,” the city staff report said. “For example, the Plaza Banderas developer has stated that upgrading their project from a 3-star to a 4-star luxury hotel accommodation would result in approximately 60-65 percent greater TOT to the city.”
Within the city staff’s report of an incentive program was also the Plaza Banderas hotel project developer’s request for more than $2 million in “improvements and estimated costs,” which included $737,000 for a water line, $655,000 for utilities underground on street frontages and $298,000 for street improvements.
“We are seeking tonight a very simple request to help us cover the gap of the additional $12 million we are prepared to invest in this hotel to move it (from 3-star to 4-star) luxury status,” said Dan Fries, Plaza Banderas associate. “We would like reimbursement from the taxes generated solely and directly from our hotel guests, not a dollar from any city resident for several specific public infrastructure improvement projects.”
Mayor Sergio Farias said that he was uncomfortable with the proposal, namely because the Plaza Banderas developer request for $2 million was within the city staff report for an incentive program.
“I have a real issue here, staff, it’s essentially almost like you’re selling the Council with one of the developer’s proposals. Is that what this is?” Farias said. “Because it shouldn’t be solely on what this administrative item is, why are we including one developer as proposed? Why is this part of a staff report?”
City Manager Ben Siegel said that he, and city staff, believed that the consideration of the Plaza Banderas developer request was in alignment with a prior City Council request for city staff to present a potential program that would incentivize hotels to upgrade to a 4-star level from a current or proposed 3-star level.
“If that’s not the case then you can bifurcate this and just consider the broader conversation of a hotel incentive program, but it seems like that would ultimately lead to the same place where we’re at now, which is a developer coming forward with an actual request for a specific agreement with the city,” Siegel said.
Siegel added that by separating the incentive program from the developer’s request, it would be “adding a step.”
“If the Council wants to develop a broad incentive program that’s available not just to the current hotel projects, but to the future hotel projects, we would recommend a consultant study,” Siegel said. “I’m not sure of the value of that to be honest because a consultant study is going to cost a significant amount of money and I don’t think there’s a likelihood of other hotel projects coming to downtown in the immediate future.”
Mayor Pro Tem Brian Maryott said that he thought an incentive program, in general, would add a layer of enticement for developers to come to San Juan Capistrano. Maryott added that he thought the program shouldn’t be project specific.
“Try to come back with a broad (in regards to the incentive program), but specific (in regards to the program itself) plan that future luxury hotel developers can evaluate when they evaluate the possibility in developing a luxury hotel in San Juan Capistrano,” Maryott said to city staff.
Farias argued that City Council should not be aiding developers with tax money, notably because of increasing concerns of homelessness in the region.
“I don’t think councilmembers should have that relationship with developers, I think that we as councilmembers representing our constituents should really separate ourselves from that,” Farias said.
Councilmember Kerry Ferguson said that she believed the incentive program would help the city in the long run, because of increased tax money from TOT.
“This is an opportunity to bring in more revenue, and even though there may be some sharing, the city will probably have more revenue in the long run in account of a program like this,” Ferguson said.
The resolution to direct city staff to bring a citywide luxury hotel TOT revenue-sharing incentive program back to City Council passed 3-2, with Farias and Councilmember Derek Reeve opposed.