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:
title
Receive Public Comment Pursuant to CA Government Code - GOV § 54954.6 Regarding the Modification of the Management District Plan for the Huntington Beach Tourism Business Improvement District
body
Statement of Issue:
On April 16, 2024, the City Council adopted Resolution No. 2024-13 declaring its intention to modify the Huntington Beach Tourism Business Improvement District (HBTBID) Management District Plan (MDP) to increase the HBTBID assessment rate from four percent (4%) to six percent (6%) of gross short-term lodging revenue. Additionally, Resolution No. 2024-13 scheduled 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
Receive and file public comment related to the proposed modification of the Management District Plan for the Huntington Beach Tourism Business Improvement District per adopted Resolution No. 2024-13.
end
Alternative Action(s):
Do not continue proceedings to modify the HBTBID.
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 assessed lodging businesses.
The HBTBID is a benefit assessment district to help fund sales, marketing, public relations, group sales, and tourism enhancement programs for Huntington Beach lodging businesses paying the assessment. Funding is derived from assessments (paid by guests at checkout) from all lodging businesses, existing and in the future, available for public occupancy located within the City boundaries, which include Sunset Beach. Those funds are used to provide services that are desired by and benefit the lodging businesses within the HBTBID. The district 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 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/motels and short-term rentals. Refer to Attachment 1 for more information on VHB and Frequently Asked Questions (FAQs).
VHB is tasked with managing funds and implementing programs in accordance with the district’s Management District Plan (MDP). The MDP includes the district’s boundaries, a service plan and budget, and a proposed means of governance. The City collects the assessment funds from the lodging businesses, monthly for hotels/motels and quarterly for Short-Term Rentals, and then distributes the funds to VHB. 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 HBTBID term runs through June 30, 2028, and 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), making the total guest checkout rate 14% of the daily overnight fee. In 2019, the HBTBID was renewed, and the City Council simultaneously approved an assessment rate increase from three percent (3%) to four percent (4%) to mitigate the loss of TOT funding that the City had previously been providing to the HBTBID.
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 ten percent (10%) 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.
The California Property and Business Improvement District Law of 1994 requires the HBTBID’s Owners’ Association (VHB) to provide written request to the City to initiate modification of the MDP. In response to written request by VHB dated August 29, 2023, the City Council adopted Resolution No. 2024-13 (Attachment No. 2) declaring the City’s intention to modify the MDP of the HBTBID.
MDP Modification
VHB is seeking to increase its budget to ensure that Huntington Beach’s visible presence remains competitive with other tourism destinations, leading tourists to choose Huntington Beach. If approved, the increase is anticipated to generate an additional ~$3 million per year (for a total of ~$10 million per year) and would become effective July 1, 2024, or as soon as possible thereafter, and 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 into the modified MDP (Attachment 3).
The existing and proposed budget are shown below. The modified budget includes 65% of funds allocated towards Sales & Marketing and 10% dedicated for Tourism Enhancement Programs. Proportional budget allocations are to remain the same for the remainder of the HBTBID term. At the end of the term, the HBTBID may be renewed by the City Council for up to ten (10) additional years if lodging business owners support continuing the programs. An updated MDP would be drafted and VHB would make a similar written request to the City to initiate proceedings, including a public hearing.
|
Budget Category |
Existing |
Proposed |
|
Sales & Marketing |
72% |
65% |
|
Tourism Enhancement Programs |
|
10% |
|
Administration |
19% |
19% |
|
Contingency/Reserve |
8% |
5% |
|
City Admin Fee |
1% |
1% |
|
Total Budget (Approximately) |
$7M |
$10M |
VHB has submitted a VHB & Visitor Industry Introduction (Attachment 4) describing its programs, services, and key performance indicators related to its ability to market and sell the Surf City USA® brand experience leading to increased room rentals. To maintain Huntington Beach’s competitive position, additional funding would be used for activities above and beyond those that are currently provided with the existing funding level as follows:
• Sales & Marketing - 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 mid-week.
• Tourism Enhancement Programs - 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 VHB’s expanded marketing efforts, 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 $16,580,000 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 its members for their support of the modification and thus far has received support from the major lodging business that represent over 85% in favor of the increased HBTBID assessment.
HBTBID Modification Process
The City Council adopted Resolution of Intention No. 2024-13 on April 16, 2024, 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 meeting must also be held prior to the public hearing to allow lodging businesses the opportunity to provide public comment on the proposed modification.
Any owner of a lodging business that is subject to the assessment may protest the HBTBID modification. Every written protest shall be filed with the City Clerk at or before the public hearing. If written protests are received from lodging business owners representing fifty percent (50%) or more of the estimated annual assessments levied, the HBTBID shall not be modified and no further proceedings to increase the assessment shall be taken for a period of one year. If public comments prompt adjustments, the City Council may elect to make changes to the MDP but cannot increase the assessment rate any further. If protests totaling 50% or more are not received, then City Council, following the public hearing, may decide to modify the HBTBID by adopting a Resolution of Modification. The schedule below outlines the process to modify the HBTBID.
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April 16, 2024 |
Resolution of Intention (ADOPTED) |
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, and the City Council adopted the Resolution of Intention on April 16, 2024. |
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April/ May 2024 |
Notice (MAILING NOTICE COMPLETED) |
The City must mail written notice 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 also mail a complete copy of the Resolution of Intention at least ten (10) days before the public hearing and must publish the Resolution of Intention in a newspaper of general circulation at least seven (7) days before the public hearing. The City Clerk’s office mailed the written notice to each affected lodging business owner, including permitted STR operators, on April 19, 2024. |
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May 7, 2024 |
Public Meeting |
Public meeting to allow public comment 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, or as soon thereafter as feasible. |
Amendment to the Management Agreement
The Management Agreement between the City and VHB describes the specific responsibilities of each party. If the City Council adopts the Resolution of Modification, staff will also recommend an 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. Funding by VHB would equal ten percent (10%) of the assessment budget. The City would agree to match VHB’s commitment and provide similar improvements to improve the visitor and resident experience. 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 FAQs
2. Resolution No. 2024-13
3. Modified Management District Plan (clean)
4. VHB & Visitor Industry Introduction
5. PowerPoint Presentation