CITY COUNCIL: Ordinance Amending Chapter 3.32 of the Carmel Municipal Code (Transient Occupancy Tax) to Establish a Transient Occupancy Tax Incentive Program

Meeting Date: November 1, 2011
Prepared by: Jason Stilwell, City Administrator

City Council
Agenda Item Summary

Name: Consideration of an Ordinance amending Chapter 3.32 of the Carmel Municipal Code (Transient Occupancy Tax) to establish a Transient Occupancy Tax Incentive Program. (First reading)

Description: This Ordinance would amend Chapter 3.32 of the Carmel Municipal Code (Transient occupancy Tax) to establish a Transient Occupancy Tax Incentive Program. The purpose of the program is to provide an economic redevelopment incentive for the City’s hostelries to make certain capital improvements to their properties. This, in turn, will make City inns and hotels more competitive and will yield a higher TOT, which will benefit the City.

Fiscal Impact: There is no fiscal impact with the recommended action. If the Council adopts the Ordinance establishing a TOT incentive program, inn operators may apply to the program. Each application will be considered individually and will have identified fiscal impact estimates. The program is designed to share TOT growth with an innkeeper that completes capital investment. The program anticipated increased occupancy rates as a result of the capital improvements. The City’s adopted budget anticipates $4.21 million in Transient Occupancy tax revenue for FY 2011-12.

Staff Recommendation: Adopt the attached Ordinance amending Chapter 3.32 of the Carmel Municipal Code to establish a Transient Occupancy Tax incentive program to further partner with innkeepers and provide a funding source for capital improvements of the City’s inns.

Decision Record: None

Reviewed by:

__________________________ _________________
Jason Stilwell, City Administrator Dat


CITY OF CARMEL-BY-THE-SEA
CITY COUNCIL
ORDINANCE 2011-
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA AMENDING CHAPTER 3.32 OF THE CARMEL MUNICIPAL CODE (TRANSIENT OCCUPANCY TAX)
TO ESTABLISH A TRANSIENT OCCUPANCY TAX INCENTIVE PROGRAM (FIRST READING

WHEREAS, the City of Carmel-by-the-Sea desires to maintain its partnership with the hostelry industry of the City; and

WHEREAS, the City of Carmel-by-the-Sea recognizes the need of the City’s hostelry industry to remain competitive; and

WHEREAS, the City of Carmel-by-the-Sea desires to provide an economic
redevelopment incentive for the City’s inns and hostelries; and

WHEREAS, the City of Carmel-by-the-Sea desires to provide incentives to hostelries for certain capital improvements; and

WHEREAS, the City of Carmel-by-the-Sea levies a transient occupancy tax for the privilege of occupancy in any hostelry.

NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA does hereby resolve to:

Amend Municipal Code Chapter 3.32 to include Section 3.32.160 (Exhibit “A”)
providing for a hostelry capital improvement incentive program.
Severability. If any part of this ordinance, even as small as a word or phrase, is found to be
unenforceable such finding shall not affect the enforceability of any other part.
Effective Date. This ordinance shall become effective 30 days after final adoption by the City
Council.
33
PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF CARMELBY-
THE-SEA this first day of November 2011 by the following roll call vote:
AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:

SIGNED,

________________________
SUE McCLOUD, MAYOR

ATTEST:

_________________________________
Heidi Burch, City Clerk

Exhibit “A”
Section 3.32.160
HOSTELRY CAPITAL IMPROVEMENT INCENTIVE PROGRAM
A. Purpose and Findings
The purpose of this Section is to provide an incentive program for capital improvement of
hostelry facilities in the City of Carmel-by-the-Sea (“City”), to enhance the tourist and travel
experience for visitors to the City, provide attractive and desirable visitor serving facilities and
experiences and assist the City in achieving its tourism goals. In the implementation of this
program, the City Council finds:
1. The general welfare and material well being of the residents of the City depend in large
measure upon the success of the tourism and travel industries in the City.
2. The capital improvement of the inventory of quality hostelries in the City will create
desirable visitor serving facilities that will contribute to tourism and travel opportunities
in the City, provide employment opportunities for the residents of the City and promote
and enhance the economy of the City.
3. It is in the best interest of the City to promote the capital improvement of hostelries in the
City, thereby creating new sources of tax revenues for the City’s general fund which in
turn supports the public services that the City provides its residents.
B. Hostelry Capital Improvement Incentive Program (Program)
1. The Program is funded from an increment of Transient Occupancy Tax (TOT) generated
from the qualified hostelry. The “Base Transient Occupancy Tax” (“BTOT”) means the
average monthly TOT paid by a hostelry for the most recent 36 months that the hostelry
generated TOT prior to the submittal of a Hostelry Capital Improvement Incentive
program application. The “Adjusted Transient Occupancy Tax” (“ATOT”) means the
annual TOT paid by a hostelry after completion of qualified renovation program. The
“Transient Occupancy Tax Increment” (“TOTI”) means the difference between the
BTOT and the ATOT calculated annually.
2. The City, subject to the terms and conditions of a Hostelry Capital Improvement
Incentive Program Agreement, shall rebate to that person proposing a renovation program
pursuant to the provisions of this Section, 50% of the annual TOTI for certain capital
asset improvements as described in the Agreement. Such rebates shall be made for 10
years.
3. The Program is available to an annual maximum of 20% of the City inventory of lodging
units. This annual limit can be temporarily amended by Resolution.
35
4. Capital improvements must be substantially under way within six months of execution of
a Program Agreement with completion within 24 months of the execution of a Program
Agreement.
5. The Hostelry Capital Incentive Program Agreement terminates automatically should the
qualified participant cease operation as a hostelry for a period of 12 consecutive months,
after completion of qualified renovation program.
C. Hostelry Capital Incentive Program Application
1. The Hostelry Capital Incentive Program Application shall include:
(a) An application form and supporting documentation as required by the City
Administrator.
(b) A description of the capital improvements to be undertaken, including room,
facility and property improvements where an existing hostelry invests an average
of no less than $12,500.00 per lodging unit of capital improvements (in
accordance with generally accepted accounting principles).
(c) A synopsis of the proposed renovation program including:
(i) A written description and schematic plans for the proposed
renovations;
(ii) A renovation schedule;
(iii) A budget estimate for the proposed renovation prepared by a
licensed general contractor or similarly qualified person;
(iv) A financial projection including estimates and supporting
documentation for the BTOT, ATOT and TOTI (Exhibit “1” attached).
(3) A proposed Hostelry Capital Incentive Agreement.
D. Hostelry Capital Incentive Program Agreement
A. The Hostelry Capital Incentive Program Agreement shall set forth the full terms,
conditions and scope of the agreement between the qualified participant and the City.
B. The Hostelry Capital Incentive program shall become effective at such time as the
qualified participant and the City Council authorize execution of the Agreement.
C. The Agreement shall be recorded.
D. The Agreement may be amended by the mutual consent of the parties.
36
E. General Fund Revenues
Notwithstanding other provisions of this code, all transient occupancy tax revenues or
transient occupancy tax increment remitted to the City by a qualified participant shall be
deemed general fund revenues of the City and shall be deposited in the City’s general
fund.
3.34.070 Administrative Rules and Regulations
Consistent with the intent and goals of this Chapter, the City Administrator may adopt
administrative rules and regulations for implementation and furtherance of the
requirements of this chapter.

Exhibit "1"
TOT Incentive Matrix Sharing 50% of TOT Revenue Increases
Year Occupancy Average Revenue TOT Gross Increase 50% of TOT Net
Rate Over Base Increase to City
Base/2012 60% $170 $744,600 $74,460 Base Yr $74,460
2013 63% 190 873,810 87,381 12,921 6,461 80,921
2014 66% 200 963,600 96,360 21,900 10,950 85,410
2015 plus 4% 100,214 25,754 12,877 87,337
2016 Plus 4% 104,223 29,763 14,881 89,341
2017 plus 4% 108,392 33,932 16,966 91,426
2018 plus 4% 112,728 38,268 19,134 93,594
2019 plus 4% 117,237 42,777 21,388 95,848
2020 plus 4% 121,926 47,466 23,733 98,193
2021 plus 4% 126,803 52,343 26,172 100,632
2022 plus 4% 131,875 57,415 28,708 103,168
Totals after 10 years: $1,107,139 $362,539 $181,270 $925,870
10 years without renovations @ 2% annual growth = $759,492
Difference between renovations being done & without renovations = $179,125 23.6% Increase of TOT
Assumptions:
Renovation of 20 Rooms and Public Areas = $250,000 (minimum spend per room needs to be $12,500)
Base year established by average of previous 3 years of TOT.
Renovation improvements must be expeditures that can be capitalized under GAAP.
Program available annually to a maximum of 20% of City inventory of hotel rooms.