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
Public Hearing to consider adoption of Resolution No. 2024-30 Modifying the Management District Plan for the Huntington Beach Tourism Business Improvement District
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Statement of Issue:
On April 16, 2024, the City Council adopted Resolution No. 2024-13 declaring its intention to amend the Management District Plan (MDP) for the Huntington Beach Tourism Business Improvement District (HBTBID). The proposed amendment seeks to raise the HBTBID assessment rate from four percent to six percent of gross short-term lodging revenue. In line with this, Resolution No. 2024-13 set forth a public meeting and this subsequent public hearing for gathering feedback from the City’s lodging businesses and the community. The public meeting was held on May 7, 2024, to receive input on the proposed amendment. Now, the City Council is requested to conduct the public hearing and consider adopting Resolution No. 2024-30 to approve the modification.
Financial Impact:
The proposed adjustment of the HBTBID assessment rate from four percent to six percent is projected to yield an additional $3 million in revenue, which will be recorded in Account No. 70900709.40500. These funds will be directed to Visit Huntington Beach on behalf of the HBTBID, for a total estimated annual pass-through revenue of approximately $10 million. Additionally, the City will receive a one percent fee of the amount collected to offset administrative expenses.
Recommended Action:
recommendation
A) Conduct the Public Hearing; and,
B) If written protests of at least 50 percent or more of the total assessments are not received, adopt Resolution No. 2024-30, "A Resolution of the City Council of the City of Huntington Beach Declaring Results of Majority Protest Proceedings and Modifying the Huntington Beach Tourism Business Improvement District (HBTBID);" and,
C) Approve and Authorize the City Manager to execute the Second Amendment to the Tourism Business Improvement District Management Agreement between the City of Huntington Beach and Visit Huntington Beach.
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Alternative Action(s):
1) Modify elements of the Management District Plan or Second Amendment; or
2) Do not approve the resolution if written protests of at least 50 percent or more of the total assessment are received.
Analysis:
Background
The City of Huntington Beach, recognizing the significance of tourism to its economic vitality, established the Huntington Beach Tourism Business Improvement District (HBTBID) in 2014, replacing the previous Hotel/Motel Business Improvement District. This transition was facilitated under the California Property and Business Improvement District Law of 1994, allowing for the formation of special benefit assessment districts. The HBTBID aims to bolster tourism related activities and services through assessments collected from lodging businesses within the district.
Acting as the HBTBID Owner’s Association, Visit Huntington Beach (VHB) oversees the district’s operations in alignment with the Management District Plan (MDP). The MDP delineates the district’s boundaries, service plan, budget, and governance structure. Funds collected by the City from lodging businesses, monthly for hotels/motels and quarterly for Short-Term Rentals, are transferred to VHB for the implementation of the MDP initiatives and are subject to annual reporting to the City Council.
The HBTBID, approved through June 30, 2028, currently imposes a four percent assessment on gross room rental revenue for short-term stays, separate from the City’s ten percent Transient Occupancy Tax (TOT). This arrangement was revisited in 2019, wherein the assessment rate was increased from three percent to mitigate the loss of TOT funding previously allocated to the HBTBID.
In response to evolving tourism trends and competitive pressure, VHB seeks to enhance its promotional efforts by increasing the assessment rate to six percent. This adjustment is estimated to yield an additional $3 million annually, which will help maintain Huntington Beach’s market visibility and competitiveness. The proposed modification, subject to a public hearing and City Council approval, aligns with VHB’s strategic goals and the long-term interests of lodging businesses in Huntington Beach.
MDP Modification
The proposed increase in the assessment rate from four percent to six percent aims to bolster VHB’s budget, thereby enabling enhanced marketing and tourism promotion activities. This augmentation would commence on July 1, 2024, and continue until the conclusion of the HBTBID term in June 2028. The adjusted budget allocations prioritize Sales & Marketing (65%) and Tourism Enhancement Programs (10%), consistent with the district’s strategic objectives.
|
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 is entrusted with promoting the iconic Surf City USA® brand and fostering year-round visitation. The attached VHB FAQ & Visitor Industry Introduction (Attachment 1) provides an overview of VHB and their strategies. It outlines their intentions to broaden destination sales and marketing programs and spearhead new tourism enhancement initiatives, all of which are underscored by key performance indicators. Their commitment extends to ensuring sustainable funding for these endeavors while upholding the City’s economic interests.
The proposed additional funding would be used for activities above and beyond those that are currently provided with the existing funding level as follows:
• Sales & Marketing - this encompasses destination sales and marketing programs strategically tailored to key visitor markets, with a particular focus on those generating significant overnight visitation and related spending in Huntington Beach. Efforts extend to non-peak seasons and mid-week periods, aiming to maximize year-round tourism impact.
• Tourism Enhancement Programs - these initiatives aim to enrich Huntington Beach’s brand offerings, fostering year-round overnight visitation. By enhancing the overall brand experience, these programs aim to prolong visitor stays and cultivate repeat visits. The focus is on improving attractions and amenities to provide compelling reasons for visitors to choose and revisit Huntington Beach.
If approved, the total guest charge will increase from 14 percent to 16 percent with 10 percent allocated to City TOT (current rate), and 6 percent directed towards the HBTBID. With VHB’s anticipated expanded marketing efforts, a correlated increase in occupancy rates and overall visitation numbers is expected. Consequently, this is projected to positively impact the City’s TOT revenue, currently budgeted at $16,580,000 or 5.8 percent of the City’s total General Fund revenue for FY 2023-24. Additionally, greater occupancy rates are anticipated to generate an indirect boost in sales tax revenues derived from tourist spending.
As the tourism landscape evolves, continued collaboration between the City and VHB is imperative for sustaining Huntington Beach’s status as a premier tourist destination. VHB has garnered significant support from lodging businesses, representing approximately 85 percent in favor of the proposed assessment increase. VHB is now requesting the City’s support for the assessment increase.
HBTBID Modification Process
The City Council adopted Resolution of Intention No. 2024-13 (Attachment 2) on April 16, 2024, outlining the proposed modification to the MDP and scheduling a duly noticed public hearing for June 4, 2024. In compliance with state law, a public meeting took place on May 7, 2024, preceding the public hearing, providing an opportunity for lodging businesses and the public to express their views on the proposed modification.
During the public meeting, one STR owner submitted written protest (Attachment 3) while several hotel owners and community members provided their support both verbally and through written submissions.
Any owner of a lodging business subject to the assessment may protest the HBTBID modification. Such protests must be filed with the City Clerk before or during the public hearing. If protests are received from lodging business owners representing 50 percent or more of the estimated annual assessments levied, the HBTBID will not be modified, and no further steps to increase the assessment shall be taken for a period of one year.
If public comments prompt adjustments, the City Council retains the authority to make changes to the MDP but cannot increase the assessment rate any further. If protests totaling 50 percent or more are not received, then the City Council, following the public hearing, may proceed with modifying the HBTBID by adopting Resolution No. 2024-30 (Attachment 4). The schedule below provides a framework for the modification process.
|
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 (COMPLETED) |
The City Clerk’s office mailed the written notice to each affected lodging business owner, including permitted STR operators, on April 19, 2024. Notice in the Huntington Beach Wave was published on May 23, 2024. |
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May 7, 2024 |
Public Meeting (COMPLETED) |
Public meeting was held on May 7, 2024, 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 the City Council, following the public hearing, decides to modify the HBTBID, the City Council shall adopt the attached Resolution of Modification (No. 2024-30). The increase in the assessment rate would become effective July 1, 2024, or as soon thereafter as feasible. |
Amendment to the Management Agreement
Concurrently with the MDP modification, staff recommends an amendment to the Management Agreement (Attachment 5) between the City and VHB, which outlines the responsibilities of both parties related to funding and programs. This amendment specifies Tourism Enhancement Programs agreed upon by both parties and the process for determining additional projects for the remainder of the HBTBID term. VHB’s funding commitment would equate to 10 percent of the assessment budget, with the City reciprocating this commitment to enhance the visitor and resident experience.
Proposed initiatives encompass a spectrum of enhancements including wayfinding signage, infrastructure upgrades, public restroom enhancements, walkability improvements, connectivity and accessibility improvements, and lighting. Detailed project descriptions and budget allocations for these Tourism Enhancement Programs are outlined in Exhibit C of the amendment, earmarked for implementation from FY 2024-26 to help increase overnight stays.
Environmental Status:
The action to modify the MDP and amend the Management Agreement 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. Tourism Enhancement Projects with the potential to result in physical changes to the environment would be evaluated in accordance with CEQA at the time a project is proposed for permits or discretionary approval.
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 FAQ & Visitor Industry Introduction
2. Resolution of Intention (No. 2024-13) & Redline MDP
3. Protests Received as of May 30, 2024
4. Resolution of Modification (No. 2024-30) & Clean MDP
5. Second Amendment to the TBID Management Agreement (First Amendment, Original Agreement)
6. PowerPoint Presentation