On January 24, 2012 the City Council amended terms to the 2008 Anaheim Hotel Incentive Program for the GardenWalk Hotel Group. Following that action, many questions have been raised about the details of the program and the potential impacts to the City. In order to provide historical context and facts about the economic assistance program and particularly the GardenWalk hotel projects, city staff has developed a list of frequently asked questions to help residents better understand current city policy.
Additionally, residents can access all of the related council staff reports that pertain to Anaheim's Hotel Development Economic Assistance Program and recent amendments below. Should you require more information, please do not hesitate to contact us via Anaheim Anytime.
Overall City Budget and Services
The agreement with the GardenWalk Hotel Group does not take away funds from current or existing city services. Last June, the City Council was faced with the difficult decisions of reducing the City's overall budget by $15 million in order to adopt a balanced budget where expenses equaled revenues. If the City did not reduce its expenditures, it would continue to draw down its reserve funds, and possibly deplete its reserve funds in 2013. Subsequently, the City Council unanimously adopted a balanced budget and has not continued to draw down its reserves. To clarify, the prospective reduction of future TOT taxes that is part of the Economic Assistance Program passed on January 24, 2012 was separate and apart from the budget reductions made the prior June.
Transient Occupancy Tax (TOT)
It is important to underscore that no incentive funds will be provided until the hotel is constructed and operating. None of the City's existing tax revenues or the City's existing General Funds will be used to pay the incentive. After the hotel is completed, the hotel owner will collect a 15% TOT. For example, if a guest was charged $100 for a night's stay, that guest would pay $15 in TOT tax. At the end of the month, the Hotel will send that $15 to the City of Anaheim. According to the incentive agreement, Anaheim will take 80% of the $15 and pay it back to the hotel's developer; 80% of $15 equals $12. The City of Anaheim will continue to send 80% of the TOT taxes earned at the hotel back to the hotel developer until one of two things happen: 1) after 15 years pass from the opening of the hotel or 2) the incentive reaches the cap of $158 million (The $158 million is not a guaranteed amount that will be provided as an incentive; it is the maximum incentive that will be provided). Once this happens, the City of Anaheim will keep the 80% tax and place it in the General Fund from this point forward.
Sales & Property Taxes
The developer will pay 100 percent of all sales and property taxes derived from the property. The City will keep the entire share of the sales and property taxes paid by the hotel.
There is a separate special District named the Anaheim Tourism Improvement District (ATID) that pays for marketing of Anaheim's tourism industry. The ATID also provides financial support for mass transportation in the Anaheim Resort Area and other improvements to the Resort District. The ATID assesses 2% of every dollar of hotel room revenue and that money goes to the ATID. The new incentive agreement does not require that any portion of the ATID assessment earned at the GardenWalk property be forwarded to the developer. The ATID will keep all of its 2% assessment paid by the Hotel.
Historically, the purpose of an Economic Assistance Program is to encourage the construction of projects that are economically infeasible without some form of public assistance. In Anaheim, economic assistance programs have taken many different forms and have contributed to a number of important projects throughout the City, including the resort area, Honda Center, Angels Stadium, and Convention Center.
In April of 2008, the City of Anaheim created a Hotel Development Economic Assistance Program as a means of promoting high quality hotel development in The Anaheim Resort™ and The Platinum Triangle. At the time, the development of higher end hotels within Anaheim was shown not to be financially feasible without some financial supplement or incentive program. For this reason, the City Council determined that it was in the best interest of the City to offer an incentive program for a limited period of time that would encourage hotel developers to increase the level of quality and amenities of proposed hotels within the City. In doing so, high quality hotel construction would serve to improve the economic strength of both of the areas by enhancing the overall image of the Resort and Platinum Triangle and providing higher average daily rates than are currently being experienced. Additionally, this policy was adopted in order to ensure the competitiveness of Anaheim's Convention Center, which requires the higher end hotels that are essential to attracting the larger, professional industry conventions. Anaheim currently has only one four-star hotel.
Under the policy, the City considered providing economic incentives to hotel developments that demonstrate a need for financing assistance and which met certain quality criteria of a four star hotel or luxury hotel. Specifically, the program proposed that hotels meet minimum direct building costs and minimum revenue projections that were reflective of such quality. If a project met these requirements, the City considered funding some portion of the feasibility gap using the incremental Transient Occupancy Tax (TOT) generated by the project.
Since the adoption of this policy in 2008, two hotel developers applied for the Hotel Development Assistance Program and each entered into their own separate agreements with the City that outlined the details and criteria of the incentive program. As time has passed, each agreement has been amended by City Council to extend the timeframe for these projects and to adjust the scope of the projects. It is important to note that the initial Hotel Development Economic Assistance Program that was adopted in April 2008 has now expired (as of December 2009) and is not available to any developers that have not already entered into agreements with the City Council.
As mentioned above, prior to the policy's expiration, two hotel developers entered into agreements with the City in order to take advantage of the Hotel Development Economic Assistance Program (GardenWalk Hotel I, LLC and Lake Hotel Development). Both agreements have since been brought back to Council and amended in order to extend the timeframes for development. Additionally, the Anaheim GardenWalk Hotel development group recently sought new amendments to their agreement as a result of the stagnant economic climate and difficulty in obtaining financing.
On January 24, 2012, the agreement with the GardenWalk Hotel group was amended further in order to address the current economic climate that has made financing for this project limited. Under the new agreement as approved by the City Council, the GardenWalk Hotel group will receive 80% of the TOT generated by the hotels over 15 years. Additionally, the rebate incentive is capped at $75 million net present value (NPV) over the 15 year term. Similar to the original terms of the agreement, there are no up-front costs to the City and assistance payments are contingent upon the hotel being fully constructed and operated at the four-star quality level. Additionally, the agreement does not impact the sales tax or the property taxes that will be paid in full by the development. Most important, none of the City's existing tax revenues or the City's existing General Funds will be used to pay the incentive under the agreement.
The initial agreement between the GardenWalk Hotel development group and the City was established on May 26, 2009. At that time, the City entered into an economic assistance agreement for the construction of two four-star hotels and a total of 866 rooms built on the Anaheim Garden Walk project site. The economic assistance provided under that agreement equaled 100% of the TOT, above a threshold (equivalent to the TOT generated by three-star hotel room rate), with an annual cap and an aggregate cap of $40 million NPV or over 15 years. According to the agreement, there are no up-front costs for the City and assistance payments are contingent upon the hotel being fully constructed and operated at the four-star quality level.
The original Economic Assistance Agreement with the GardenWalk Hotel group was approved by the Anaheim City Council on May 26, 2009 and was amended on August 24, 2010 in order to extend the required timeframe for construction of the project by two years. The newest amendment to the agreement was placed on the City Council agenda for January 24, 2012 at which time the City Council discussed the changes to the agreement in an open session of the City Council and subsequently voted to amend the agreement. Shortly thereafter, City staff executed a new agreement with the developer per council direction.
Link to archive staff reports and supporting documents