Hotel Tax Rebate Moves Forward

Santa Barbara County will move forward with drafting an ordinance that would allow luxury hotel developers to apply for a tax rebate, potentially saving the developers millions over time and providing them an incentive to build. Rick Caruso, Los Angeles developer and Miramar Hotel owner, hopes the ordinance, if adopted, would let him recoup $18 million or so on the Montecito property over the span of a decade.

The legislation would benefit not just Caruso but also the county, he said. His project would become more attractive to financiers, and Santa Barbara would see income from other taxes — like sales tax and increased property tax — when the hotel is built. “It’s an interesting concept,” 5th District Supervisor Steve Lavagnino said.

While the ordinance would apply countywide and not just to the Miramar, it was Caruso who approached county officials with the idea. Similar concepts have worked in places like Palm Springs, downtown L.A., and Orange County, he said. As county officials looked into the proposal, CEO Chandra Wallar said, they became “more and more convinced” it could work in Santa Barbara.

One person not convinced is 2nd District Supervisor Janet Wolf. She said she was concerned the move would not be fiscally beneficial for the community, that it was bad public policy, and that it could be setting a bad precedent. “We’re throwing things on the wall to see what might stick,” she said. She also took note of Measure K, a 2010 ballot measure to keep the transient occupancy tax (TOT) — which is charged to everyone who stays at a hotel in the unincorporated parts of the county — at 10 percent, which was passed by the voters. The hotel tax would have been lowered had it not been approved. “That’s what the voters voted for,” Wolf explained. To take that money away from the taxpayer is “not fair,” she said.

Third District Supervisor Doreen Farr, however, noted that the board wasn’t voting to give any developers the rebate just yet, but only deciding whether to move forward with the concept. Once presented with the proposed ordinance, the board will have to vote to adopt it, and even then will have to decide on a case-by-case basis whether to award the rebate to developers. The board voted 4-1 (with Wolf dissenting) for county staff to draft a proposed ordinance, which staff will bring back to the supes in May or June.

The tax rebate would apply to new four- or five-star hotels that cost $50 million or more to build, as well as existing hotels that renovate at a rate of $50,000 per room, or ancillary development in excess of $1 million. If no TOT is generated, no money is paid, and each project must be approved by the Board of Supervisors. The county would return TOT for 10 years, though county staff will also be looking into other options, as well.

So, for the Miramar, a planned 259,000-square-foot resort with 186 rooms, a 500-person ballroom, a beach club, and spa, that means a savings of $18 million over 10 years. Currently, the county brings in no sales tax and no TOT on the Miramar site, which has sat vacant and dilapidated over the last decade. It generates $568,000 in property tax per year. The county auditor-controller anticipates bringing in $1.5 million sales tax and $1.7 million in property tax each year once the property is reassessed.

Caruso is also quick to point out that building the Miramar would bring 1,000 construction jobs to the area and, once the hotel is open for business, would have a $10-million annual payroll. In exchange for an approved rebate, he has promised to demolish the buildings currently sitting on the property, an eyesore to Montecito residents and everyone who drives by.

Caruso also received permit extensions for his project on Tuesday, again with Wolf dissenting. Fourth District Supervisor Joni Gray abstained. Caruso’s Coastal Development Permit for the Miramar was set to expire on March 15. If it had, Caruso would have no longer had approval for the project. Caruso has said he is not able to get financing for his $170-million project because of the unhealthy economy.