In a case akin to “You say tomato, I say tomahto,” Councilman Karson Klauer remained unwavering in his disagreement with Mayor Ignacio Velazquez on whether it was, in fact, a hotel rather than the city that would pay transit occupancy taxes (TOT) under the city’s proposed Hotel Incentive Program (HIP). The program will pledge future (TOT) dollars as an economic incentive to attract new hotels to the area. After much back-and-forth where no one changed their mind, the resolution passed.
Under Hollister’s HIP, the city would pay a hotel operator a percentage of the annual TOT for 10 years or when the operator has received a predetermined subsidy cap. If the cap has not been received in 10 years, the incentive program can be extended an additional five years. During that time, the city would pay the operator 33 percent of the TOT until the cap is reached. There are two types of qualifying hotels under the HIP: A quality service hotel, which the city would pay 50 percent of the TOT with a $1-million cap over 10 years, and an enhanced quality service hotel that would be paid 70 percent of the TOT, with a $2 million cap over 10 years.
Before recommending that the council approve the resolution, Mary Paxton, program manager of Hollister’s Development Services Department, reminded the council it had come before them Aug. 21. She said council directed staff to make two changes to the program, the first being to increase the incentive to 70 percent with a cap of $2 million. The second change was to add American Automobile Association lodging requirements and guidelines as an exhibit to the HIP.
Klauer took the opportunity to also remind everyone that he had spoken out against the changes Aug. 21. He said he agreed that there needed to be some sort of incentive to attract new hotels, but pointed out what he saw an inconsistency in the council’s rationale.
“As a council, we decided about an hour ago we weren’t comfortable giving $2,500 to the neediest kids in Hollister, and I don’t think we necessarily need to give another $1 million to somebody who’s going to build a hotel,” he said. “I’m comfortable with $1 million over 10 years at 50 percent. I think half (payback of TOT to hotel) is enough. Once you go to 70 percent, they’re getting more than we are for something the city deserves. There is a tax that is being paid by all the existing hotels. I don’t think that somebody who is building a new hotel should get more than half of that.”
Councilman Jim Gillio agreed with Klauer that 70 percent was too generous and supported $1 million at 50 percent over 10 years. Mayor Velazquez said he wanted to remind everyone that, “…100 percent of zero is zero,” meaning the city, in his opinion, is not paying the tax, but the new hotel would pay it. He said all the city would be doing is providing incentives for those taxes to help move forward in building a new hotel.
“This is not tax dollars coming from the General Fund or from the city,” he said. “This is tax dollars coming from the hotel to incentivize to get more rooms built.”
Velazquez said the turning point for the newly opened Fairfield Inn & Suites by Marriott on Gateway Drive was the incentive. He said the program needs to be stepped up in order to attract even more hotels to support the hoped-for new businesses and increased tourism to the city. He said he has had conversations with people in the hotel industry and found that such an incentive might attract them to invest in Hollister.
“It’s very difficult to find funding from banks without a little help, so I think this gives us the opportunity to bring a few more hotels to our community,” he said.
Councilwoman Mickie Luna said with more people moving to Hollister there would be more people coming to town to visit them, so the hotels are needed. She said they need to think about investing for the future and that the resolution is a move in the right direction. Councilman Ray Friend said he understood what Klauer was saying, but contended that the money would come from the hotels, not the city. He said it was hard to believe someone would build a $20 million hotel and it would take a $2 million incentive program to move it forward, but recognized it helps.
“We need to do this because we need the income,” he said. “They will pay the tax on TOT. If they gave us 50 percent or 30 percent, that’s more than we’re getting now, which is nothing.”
Klauer said because TOT goes into the General Fund it is the same as any other sales tax or property tax dollar. He said he understood the incentive program, but rationalized there is no difference in him going to Target, so perhaps they should incentivize Target.
“It’s all taxes. It’s not a different type of tax that we use for something else,” he said, adding, “$1 million over 10 years at one hotel could fund our tourism program that we do with the Chamber (of Commerce) for the entire 10 years. It’s a lot of money to them, but it’s a lot of money to us too.”
Gillio added that it isn’t the hotels that actually pay the TOT, but those who stay at the hotels. He said while he agreed with the mayor and council members Luna and Friend, the $1 million at 50 percent was an encouragement that was successful in bringing the new hotel to Hollister, there is no need to increase the incentive to 70 percent.
“We need to use those dollars in so many other ways,” he said. “We’re still encouraging hotels. It’s just that we’re not giving away our entire city budget to do it.”
Mayor Velazquez said he wanted residents to understand that TOT are actually dollars that people spend at hotels, and the tax does not come to the city if there is no hotel. He reiterated that the dollars would not be coming out of the city’s budget, but dollars coming from money collected from a new hotel through the TOT.
Gillio asked Paxton if the Fairfield Inn had signed a deal with the city and at what rate did it come in at. She said the staff was still formalizing the HIP and the next step would be to finalize an agreement that would need to come back again before the council in a public hearing. She said the incentive was $1 million over 15 years at 50 percent.
Klauer wondered how the city was going to tell the Fairfield Inn that it would not benefit from the proposed resolution of 70 percent and that it would only apply to the next hotel to come along. The mayor said because the incentive program had yet to be finalized the Fairfield Inn might be allowed to participate in the higher percentage program because it would not be equitable to exclude it. Paxton clarified that the agreement between the city and the Fairfield Inn had not, in fact, been executed.
“I’m against this $1 million more than I was three minutes ago,” Klauer declared at hearing this.
Juli Vieira, president and CEO of the San Benito County Chamber of Commerce, spoke in favor of the resolution and reminded the council that her office had tracked over 12 months how much hotel room business she had to send out of the county to Gilroy.
“I sent $750,000 in a 12-month period to the Gilroy Hilton,” she said. “We also need to work on our TOT because it’s the lowest in the area. I just got back from the Napa area and their (TOT) is double our’s (Hollister's TOT is 8 percent).”
Avera suggested a compromise, recommending the city manage HIP in a similar way that they recruited the Fairfield Inn. He said through that effort the city now has an off-the-shelf program or template that can be offered. He said deals don’t come together or fall apart overnight.
“I can promise if we run into a situation where a developer comes to us and says they can’t make it work at $1 million and he needs $2 million, I will be at your next meeting asking for $2 million,” he said. “We’re not going to let those opportunities go by, just like we didn’t let Fairfield go by. It took a long time to get that deal done. The staff will revise or amend or do anything necessary to get somebody to come. It may not always be about reimbursement of TOT. It may be some other incentive that the city has the ability to do.”
The mayor added that in addition to putting a HIP together the city needs to aggressively advertise in hotel industry trade magazines or personally speak to corporate owners. He said they can’t wait for companies to come asking for help. Instead, he said the city needs to be proactive in bringing hotel representatives to the area to show them what it has to offer.
Without further comments, the resolution carried 4-1, with Klauer against.