Barstow City Council approved a controversial one-step subsidy agreement to a hotel developer that was taken last week and could raise $ 2.4 million in city funding for the developer.
According to the agreement, which was lit 3: 2 green on Thursday, the city will have to pay $ 40,000 per month to the Hotel Investment Group for the first 60 months after the construction of two new Marriott hotels near the Barstow outlets.
However, if the two hotels’ room tax revenues fell below $ 40,000, the city would only have to reimburse the developer for that amount. Any amount over $ 40,000 and the city would pocket the difference.
The city has to pay a cap of $ 2.4 million.
Traditionally, 100% of the income from a room tax – better known as a temporary property tax or TOT – flows into the city’s treasury.
Proponents of the deal said the hotels would bring significant economic benefits and that it was worth the incentive.
“It depends on the basic economy. We’re either working with our development community to expand our job and tax base, or we’re sending a message across the region stating that Barstow is neither for growth nor for jobs, ”Mayor Pro Tem James Noble said in a statement the vote. “I was elected to this seat to represent this community and make the tough decisions that need to be made, and I choose jobs for our residents.”
City officials released information indicating that the hotels would benefit Barstow by generating more property and sales tax revenues and creating 600 temporary construction jobs and 50 permanent jobs when completed.
However, opponents of the agreement said it was not fair to other companies and hotels that had not received subsidies from the city.
“If we give a company an incentive over its competition, they can lower their rate in order to pull the company away from the others,” said councilor Tim Silva during the meeting on Thursday.
Together with Councilor Barbara Rose, he voted against the agreement.
“It’s a gift of money from the general fund,” said Silva.
Previous proposal criticized
The decision to approve the deal came just 10 days after a similar incentive proposal was almost unanimously rejected by Barstow’s elected officials.
On May 17, the city council voted 4: 1 against a proposal that the city would have to reimburse the Hotel Investment Group for the amount of TOT received from the new hotels in the first three years, up to a limit of US $ 2.4 million. Mayor Paul Courtney was the only yes-vote to this proposal.
If the upper limit had not been reached after three years, Barstow would still have had to reimburse the developer for 85% of the TOT generated in years four and five.
This agreement has been criticized by both members of the public and council members for its lack of transparency.
The agenda item did not contain any supporting documents, such as the text of the agreement, which is available to the public online. Jim Hart, interim city manager, said the agreement would be available to people who attended the meeting in person.
The proposed agreement has also been added to the approval calendar, an area of the agenda that is routinely reserved for approved items such as minutes of previous meetings.
Regarding the tax impact of the proposal on the city treasury, it only said that the city would receive “approximately $ 500,000 a year” in TOT.
The details of the agreement were not disclosed to the public until after Silva put the item up for discussion.
The failed proposal showed a “lack of transparency and accountability,” former Barstow councilor Carmen Hernandez said at the special session 10 days later.
Developer says loan depends on Barstow’s commitment
During the special meeting on Thursday, the city’s employees gave a presentation in which both incentive proposals and their advantages and disadvantages were set out. The agreement was brought back for reconsideration by Courtney, a move that city attorney Matthew Summers said is allowed under city law.
For the $ 40,000 per month option, which the city council ultimately approved, analysis found that Barstow would generate $ 3.62 million in new revenue in the first five years of hotel operations, $ 1 million more than the rejected proposal .
According to Marc Puckett, interim finance director, the city would also be able to raise TOT through the $ 40,000 monthly payment, which comes to about $ 244,000 per year.
Overall, the two Marriott Hotels – with a total of 181 rooms – Barstow are expected to bring new revenues of around 43 million US dollars over the life of the project, said Puckett.
Hotel Investment Group CEO Darshan Patel told the city council that his organization, which received a loan to build the $ 32 million project, was built on Barstow’s commitment.
“There is a special section devoted only to the incentive the City of Barstow is going to give me. Well, I hope to get that,” he said, referring to loan documents that are reportedly already being prepared.
Patel said the “No. 1 Challenge “was to find funding for the project, adding that the incentive was needed to help pay fees and interest, especially given COVID-19 and the economic impact on the hotel industry.
City councilor Silva, however, denied Patel’s reasoning. He said the Hotel Investment Group reached out to employees in 2019 before the pandemic and asked for financial assistance.
“If it’s economic conditions that fund this for you, why was it asked before this crisis?” Silva asked the CEO.
Patel responded that before the pandemic it was difficult to find credit and that “COVID has made that need even more drastic”.
Silva didn’t seem happy as he was wondering what to say to other companies that might be looking for a similar incentive as well.
“What am I telling you?” he asked. “How can I justify receiving an unfair tax compared to your competition?”
Staff informed the city council that there had been a history of incentives for development, but did not give an example of a hotel that had received a similar agreement.
The agreement, approved by Noble, Courtney, and Councilor Marilyn Dyer-Kruse, included language capping $ 40,000 on payments to 60 months after Silva feared payments could take longer.
Dyer-Kruse also requested the expansion of a compensation clause to protect the city from litigation based on the approval of the incentive. This request was also approved.
City Attorney Summers said such a clause could be used to “shift the risk” of lawsuits from Barstow to the Hotel Investment Group.
The daily press reporter Martin Estacio can be reached at 760-955-5358 or MEstacio@VVDailyPress.com. Follow him on Twitter @DP_mestacio.
