REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Eric G. Parra, Interim City Manager
VIA: Jennifer Villasenor, Director of Community Development
PREPARED BY: Kriss Casanova, Economic Development Manager
Subject:
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Adopt Resolution No. 2024-13 declaring the City’s Intention to Modify the Management District Plan for the Huntington Beach Tourism Business Improvement District, conduct a Public Meeting on May 7, 2024, and set a Public Hearing date of June 4, 2024
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Statement of Issue:
In 2014, the Huntington Beach Tourism Business Improvement District (HBTBID) was formed pursuant to the California Property and Business Improvement District Law of 1994, which authorized special benefit assessment districts to raise funds within a specific geographic area.
The purpose of the HBTBID is to increase overnight lodging sales with targeted marketing and promotions. Funding for the marketing programs and activities of the HBTBID are derived from assessments collected from lodging businesses operating within the City of Huntington Beach (City) boundaries. The current assessment rate is four percent (4%) of gross short-term lodging revenue from room rentals under 30 days.
Visit Huntington Beach (VHB), a non-profit 501(c)6 organization, serves as the HBTBID’s Owners’ Association and is responsible for implementing the programs identified in the Management District Plan (MDP). VHB is currently seeking to modify the MDP to increase the assessment rate from four percent (4%) to six percent (6%) of gross short-term lodging revenue. VHB requests that the City Council adopt a Resolution of Intention scheduling a public meeting on May 7, 2024 to receive comments on the proposed modification and a public hearing on June 4, 2024 to consider approval of the modification.
Financial Impact:
The proposed increase in the HBTBID assessment rate from 4% to 6% is estimated to generate an additional $3 million in revenue annually recorded in account 70900709.40500 that will be passed through to Visit Huntington Beach on behalf of the HBTBID, for a total of approximately $10M in annual pass-through revenue.
Recommended Action:
recommendation
Adopt Resolution No. 2024-13, “A Resolution of the City Council of the City of Huntington Beach Declaring its Intention to Modify the Management District Plan of the Huntington Beach Tourism Business Improvement District (HBTBID)”, which sets a public meeting date for May 7, 2024, and a public hearing date for June 4, 2024.
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Alternative Action(s):
Do not approve the Resolution, and direct staff accordingly.
Analysis:
Background
Promoting Huntington Beach as a desirable tourism destination and increasing awareness of available lodging options is a component of the City’s continued economic vitality. In 2014, the original Hotel/Motel Business Improvement District was disbanded, and the HBTBID was formed pursuant to the California Property and Business Improvement District Law of 1994, which authorized special benefit assessment districts to raise funds within a specific geographic area. This approach has been used in other tourist destination communities throughout California to increase demand for room night sales at lodging businesses.
The purpose of the HBTBID is to increase overnight room night sales with funding for marketing and public relations, group sales, and visitor services enhancements. Funding is derived from assessments and revenues collected from all lodging businesses, existing and in the future, available for public occupancy located within the City boundaries, which include Sunset Beach. HBTBID is comprised of 21 hotels/motels and approximately 200 short-term rentals (STRs).
Visit Huntington Beach (VHB), a non-profit 501(c)6 organization, was formed in 1989 as the official destination marketing organization for Huntington Beach and serves as the HBTBID Owners’ Association. VHB is tasked with managing funds and implementing programs in accordance with the HBTBID Management District Plan (MDP). The City collects the assessment funds from the lodging businesses and then distributes the funds to VHB. VHB consists of approximately 17 staff members and 22 board members working to promote tourism to Huntington Beach and increase overnight stays in the City’s hotels and short-term rentals. VHB is responsible for implementing the activities and services identified in the MDP and for submitting an annual report of activities to the City Council for approval.
The current HBTBID term runs through June 30, 2028. The current assessment rate is four percent (4%) of gross room rental revenue for short-term stays. This assessment is charged to consumers separately from and in addition to the City’s ten percent (10%) Transient Occupancy Tax (TOT). In 2019, the HBTBID was renewed, and the City Council simultaneously approved an assessment rate increase from three percent (3%) to four percent (4%), making the total guest checkout rate 14%.
At the same time, the prior Memorandum of Understanding (MOU) between the City and VHB was replaced with a Management Agreement that sets forth the duties and responsibilities of the City and VHB in administering and managing the funds. This prior MOU required the City to convey one percent (1%) of the City’s TOT revenue to VHB. However, this TOT revenue sharing was eliminated in the 2019 Management Agreement, which required that 100% of TOT revenues would be retained by the City and that funding to VHB would remain unchanged with the one percent (1%) assessment rate increase.
VHB is currently seeking to modify the MDP to increase the assessment rate from four percent (4%) of gross short-term lodging revenue to six percent (6%). In June 2023, VHB’s Board of Directors approved the assessment increase to ensure that tourism promotion funding is adequate to market Surf City USA and remain competitive with other popular destinations that have dedicated more resources and are adding lodging properties/attractions annually.
MDP Modification
The California Property and Business Improvement District Law of 1994 allows the HBTBID’s Owners’ Association (VHB) to request that the City modify the MDP. To continue to ensure that tourism promotion funding is adequate to remain competitive with other popular destinations, VHB has provided a written request to the City Council to modify the assessment rate. The current HBTBID assessment rate from four percent (4%) of gross short-term lodging rental revenue to the proposed six percent (6%) would become effective July 1, 2024, or as soon as possible thereafter, and shall continue for the remaining duration of the HBTBID’s term (through June 2028). No changes to the boundaries are proposed; however, some additional minor modifications have also been incorporated. A copy of the request letter and the MDP modified with red-line changes are included as Attachment 1 and Attachment 2 respectively.
If approved, the increased assessment rate from 4% to 6% will generate an additional ~$3 million per year (for a total of ~$10 million per year) in HBTBID funding for programs and activities dedicated to increasing room rentals. The additional HBTBID funds will be used to implement new Sales & Marketing and Tourism Enhancement Programs above and beyond those that are currently provided with the existing funding level as follows:
• Increase funding for destination sales and marketing programs, which will target key visitor markets, including markets that generate substantial overnight visitation to Huntington Beach and related visitor spending throughout the year, especially during non-peak seasons; and
• Increase funding for Tourism Enhancement Programs that add new and/or repurposed projects to Huntington Beach’s current brand offerings to increase year-round overnight visitation by improving the overall brand experience, the number of reasons for visitors to stay longer, and offer more reasons for visitors to return more often to Huntington Beach.
If approved, the total guest charge will increase from 14% to 16% with 10% going to City TOT (which remains unchanged) and 6% to the HBTBID. As an indirect result of the modified HBTBID, it is anticipated that as occupancy rates and overall visitation numbers increase, so too will the City’s TOT revenue which is currently budgeted at $16,500,000 or 5.8% of the City’s total General Fund revenue for FY 2023/24. Greater occupancy rates will also generate an indirect increase in sales tax revenues from tourist spending.
VHB petitioned their members for their support of the modification and thus far, they have received support from the major lodging business that represent over 85% in favor of the increased HBTBID assessment.
HBTBID Modification Process
The City Council is asked to adopt a Resolution of Intention (Attachment 3) which states the proposed modification to the MDP and schedules a duly noticed public hearing for June 4, 2024. As required by state law, a public hearing must be held to provide the opportunity for lodging businesses to protest the proposed modification. The schedule below outlines the process to modify the HBTBID.
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April 16, 2024 |
Resolution of Intention |
Upon the written request by the HBTBID Owners’ Association (VHB), the City Council may adopt a Resolution of Intention which states the proposed modification to the HBTBID. VHB provided a written request for the proposed modification to the City dated August 29, 2023. Receipt of this written request allows the City Council to initiate proceedings for the modification of the MDP. |
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April/ May 2024 |
Notice |
The City must mail a complete copy of the Resolution of Intention to each lodging business owner affected by the proposed modification at least 45 days prior to the public hearing. Mailing the notice begins a mandatory 45-day period in which owners may protest the modification. The City must mail a complete copy of the Resolution of Intention to each lodging business owner affected by the proposed modification at least ten (10) days before the public hearing and must publish the Resolution of Intention in a newspaper of general circulation in the City at least seven (7) days before the public hearing. |
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May 7, 2024 |
Public Meeting |
Public meeting to allow public testimony on the modification of the HBTBID. No City Council action required. |
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June 4, 2024 |
Public Hearing & Resolution of Modification |
City Council shall hold a public hearing, not more than 90 days after the adoption of the Resolution of Intention, on the proposed HBTBID MDP modifications. If City Council, following the public hearing, decides to modify the HBTBID, the City Council shall adopt a Resolution of Modification. The increase in the assessment rate would become effective July 1, 2024. |
Amendment to the Management Agreement
The Management Agreement between the City and VHB describes the specific responsibilities of each party. Following the public hearing, if the City Council approves increasing the assessment rate, staff will recommend a concurrent amendment to the Management Agreement to define specific Tourism Enhancement Programs that both the City and VHB would agree to fund during the remainder of the HBTBID term. Some examples of Tourism Enhancement Programs that would help increase overnight stays include wayfinding signs, infrastructure upgrades, public restroom enhancements, walkability improvements, connectivity and accessibility improvements, and lighting.
Environmental Status:
This action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly.
Strategic Plan Goal:
Goal 1 - Economic Development, Strategy A - Develop an updated economic development strategy to ensure business retention, local investments and job growth.
For details, visit www.huntingtonbeachca.gov/strategicplan <http://www.huntingtonbeachca.gov/strategicplan>.
Attachment(s):
1. VHB Request Letter
2. Modified Management District Plan (red-lined)
3. Modified Management District Plan (clean)
4. 2024-13 Resolution of Intention
5. PowerPoint Presentation