The Long Beach City Council is considering a program to share city tax revenue with hotels as an incentive to spur new development.
In a brief presentation to the city council at its meeting on April 5, Assistant City Manager Tom Modica said the city is looking into utilizing potential transient occupancy tax (TOT) or hotel bed tax, which is charged to guests for hotel stays, to incentivize hotel projects by making them more financially feasible.
Sharing a portion of tax revenue that a hotel development generates would contribute to the project’s cash flow and would increase return on investment, he said.
The tax incentive program, which would mirror the city’s retail sales tax sharing program with auto dealerships and shopping centers that has been in place since 1992, would be offered for projects in desired locations with certain design and operational characteristics. The program entails long-term agreements with hotels, possibly up to 15 years, and would provide hotel developers with gap financing.
The tax incentive program would be offered for new hotels with at least 100 rooms that generate a minimum of $500,000 a year in TOT revenue, he said. The amount of tax revenue shared would be up to 50 percent of the net incremental growth in the hotel’s TOT revenue received by the city, according to a city staff report.
City staff also said that local cities, including Los Angeles, Anaheim and San Diego, already utilize such a program to encourage hotel development.
Long Beach’s consideration of a tax incentive program comes as the city has struggled to attract additional hotels, since return on investment hasn’t been efficient enough to compel new development, city staff stated.
Modica said city staff plans to come back to the city council in the next couple months to propose conducting a study to analyze the hotel market and identify needs and financial gaps in the industry. City staff notes that the cost of the study is expected to be less than $60,000 and will be paid with existing departmental resources.