The applicant asks the city council to consider rebating a portion of the TOT to their investors. See Staff Report
Unfortunately, the applicant muddies the waters on a gullible staff and council to subsidize investors by returning (dare I say 'an above the table kick') a percentage of the Transit Occupancy Tax for a period of time. This request gives new meaning to the phrase "Public Benefit." Usually it's defined as a benefit that is dedicated to the public ? not from the public to the investors. (I'll note that this lot was not vacant or economically fallow while the downtown plan was discussed and approved ? so arguments that this project removes blight won't work.)
There are several problems with this idea, traversed below.
Existing Incentives Are Valuable
There is already plenty of incentive provided by the DSP, including a density bonus, which provide additional hotels rooms for lease, and a reduction in the parking requirement.
Precedent Will Create Future Problems
Once you start rebating taxes, every (similar) project will want the same. Stanford Park Hotel didn't need it; the Rosewood didn't need it; the Marriott Residence Inn didn't need it. Another developer mentioned to me that he was planning another boutique hotel a couple of blocks from this site. If staff knows about this possibility and hasn't informed council you have a problem. Who is to tell, and by what established criteria, the 'asks' for tax rebates can be judged?
The council will be hard pressed to come up with a reason why another hotel project would not be entitled to the same passback, setting us up for future a legal challenge.
Why not rebate the Utility User's Tax (UUT) to residents at the same time?
To be fair there is a precedent: the Four Seasons Hotel in East Palo Alto asked for and received a 10 year rebate of their TOT to the developers. That was at a different time, when Whisky Gulch was rife with various issues. I suspect that in retrospect East Palo Alto regrets having made the hotel deal that way.
Legal
The TOT is statutory. There is no requirement, and none anticipated when these were enacted, to siphon off the tax. If we do, perhaps we could rebate the Utility User's Tax to residents at the same time.
Fiscal Responsibility ? We Are Not the Bank of Menlo Park
The city should not be in the business of guaranteeing invertors' return in private projects. The names of the investors should be made public for transparency of any conflicts. The contractual rate of return to the investors should be made public.
Two years ago, Menlo Park voters passed Measure K, which increased the hotel Transient Occupancy Tax from 10% to 12 %. If the city had felt that it was flush, it shouldn't have gone to the voters.
And we know from past experience, that just because the city feels flush today doesn't mean that they will be next year, or in two years, or later. The city would be obligated to pay regardless of the city's budgetary needs.
The Fiscal Impact Analysis of the DSP did not anticipate rebates of the TOT.
Finally, I don't buy the suggestion that the project won't be built without the city subsidizing private investors' return. Come on. It would never have come this far without assumptions that the project penciled out otherwise.
The staff and council should be Wise to the Ways of the World, and not go down this path at Tuesday's study session.
