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CITY OF CARMEL-BY-THE-SEA

CITY COUNCIL
Staff Report

November 6, 2018
PUBLIC HEARINGS

TO: Honorable Mayor and City Council Members

SUBMITTED BY: Marc Wiener, AICP, Community Planning and Building Director

APPROVED BY: Chip Rerig, City Administrator

Resolution No. 2018-079, Adopting an Incentive Program Modifying All Planning and
SUBJECT: Building Fees for Hotel and Commercial Improvement Projects for Calendar Year 2019-20.

RECOMMENDATION:
Adopt Resolution No. 2018-079 approving an incentive program modifying planning and building fees for hotel
and commercial business improvement projects for calendar year 2019-20.

BACKGROUND/SUMMARY:
BACKGROUND: On August 7, 2018, the City Council reviewed a Resolution to waive all planning and building
fees for hotel improvement projects. The Council continued the item and directed staff return with an analysis
on the potential financial benefits of the program, and to provide options for including other types of commercial
properties in addition to hotels.

STAFF ANALYSIS: Estimated Fiscal Year (FY) 18-19 revenue is $22,744,500. Of this revenue, $6,368,460, or
28%, will come from transient occupancy tax (TOT). The majority of hotels in the City are over 50 years old and could
benefit from upgrades and repairs. Improved accommodations will improve visitor experience and will also enable hotel
owners to increase nightly rates, which will in turn generate additional tax revenue for the City in the long term.

Staff evaluated the nightly rates of three hotels in Carmel that recently underwent significant renovations. We
compared the nightly rate after renovation to the two years prior to renovation, and found that the average rate
increase was 39 percent. For comparison, the average nightly rate increase for all hotels in the Carmel over
approximately the same three-year period was approximately 6 percent. The highest rate increase was
associated with the hotel that completed the most significant renovations, while the lowest rate increase was
associated with the hotel that invested the least in renovations. The findings appear to indicate that hotel
renovations lead to higher nightly rates, with the amount invested correlated with increase in rental rates. As an
example of the potential financial benefit, if the average rate of all hotels in the City increased by 39 percent, this
would lead to an additional $2,483,700 in TOT revenue.

In addition to TOT, sales tax from retail shops and restaurants constitute 24 percent (including 13 percent from
Measure D) of the City’s revenue. At the August 2018 meeting, the Council considered waiving fees for all
commercial property improvements. Unlike hotels, it is difficult to quantify the direct financial benefit of offering a
fee waiver program to commercial businesses. Nonetheless, physical business improvements can potentially
improve customer experience, have a positive effect on sales numbers, and enhance the aesthetics of the
downtown.

Staff recommends that the incentive program be limited to waiving application fees for physical improvements to
existing buildings containing hotel and commercial businesses. This would include interior renovations,
storefront improvements and minor expansions. The waiver would not apply to an application for an entirely new
building. Furthermore, business license, use permit, signs, historic evaluation and environmental review fees
would not be waived.

Fee Waiver or Deferral: At the August 2018 meeting, the Council considered deferring planning and building
fees for a set time rather than waiving the fees altogether. Permitting fees often range from 2-5% of the total
project valuation, which is a relatively small amount in comparison to the total project cost. In staff’s opinion,
deferring the fees is unlikely to incentivize property investment. Furthermore, deferring fees would require the
City to collect the fees once the work is complete, which creates enforcement challenges. For these reasons,
staff recommends that the Council waive rather than defer the planning and building fees. Table 1 identifies
planning and building fees associated with a project in quarter-million dollar intervals.

Table 1. Planning and Building Permitting Fees


Permit Planning Building Plan Building Total Permitting
Valuation Fees* Check Permit Fees
$250,000 $2,063 $2,321 $3,571 $7,955
$500,000 $2,063 $4,094 $6,299 $12,456
$1,000,000 $2,063 $7,640 11,754 $21,457
* Average value of the four types of Commercial Design Review applications.

ALTERNATIVES: As requested by Council, the project description and public noticing was done broadly
enough to allow for flexibility in decision making on this item. The attached Resolution limits the incentive
program to waiving application fees for physical improvements to existing buildings containing hotel and
commercial businesses only. Nonetheless, the Council has a variety of options in establishing the parameters of
this program. It may modify the Resolution so that the waiver applies to all commercial properties, regardless of
use, or alternatively, so that it applies to hotels only. The Council may also amend the Resolution so it defers
rather than waives the fees. If the Council chooses this option, then staff recommends that the fees be paid
within 12 months from the date of final inspection. In light of the recent rash of lawsuits against businesses for
perceived Americans with Disabilities Act violations, the Council could also distinguish such improvements for
the fee waiver program. As alternatives, Council has ultimate flexibility and authority.
FISCAL IMPACT:
The total value of construction completed on hotel properties in FY 17-18 was $1,254,075; with permitting fees
totaling approximately $28,000. The City does not currently have data on the value of all retail business
improvement projects in FY 17-18. However, as an example, two recent tenant improvements in the Carmel
Plaza netted approximately $27,000 in planning and building fees.

Depending on the Council’s decision as to the types of projects qualifying, and the success of the program,
staff estimates that the City could potentially waive between $50,000 to $300,000 in permitting fees during
calendar year 2019-20. In the long term the City should expect higher tax revenue, particularly from hotel
improvements, which will negate some, if not all, of the waived permitting fees.
PRIOR CITY COUNCIL ACTION:
The City Council reviewed and continued this item on August 7, 2018.
ATTACHMENTS:

Resolution No. 2018-079


Attachment 1

CITY OF CARMEL-BY-THE-SEA
CITY COUNCIL

RESOLUTION NO. 2018-079

A RESOLUTION WAIVING PLANNING AND BUILDING FEES FOR HOTEL AND COMMERCIAL
BUSINESS IMPROVEMENT PROJECTS FOR CALENDAR YEAR 2019-20

WHEREAS, Estimated Fiscal Year 18-19 revenue is $22,744,500; with 28% percent coming from
transient occupancy tax and 24% coming from retail sales tax; and
WHEREAS, physical improvements to hotels and commercial businesses within City limits will improve
visitor experience and increase tax revenue; and,
WHEREAS, the City wishes to incentivize improvements to hotels and commercial businesses by
waiving planning and building fees and,
WHEREAS, fee waivers shall apply to design review and building permit applications associated with
physical site improvements to existing buildings containing hotel and commercial businesses only; and
WHEREAS, fee waivers shall not apply to an application for an entirely new building; and
WHEREAS, fee waivers shall not apply to business license, use permit, sign, historic review and
environmental review applications; and
WHEREAS, fee modifications must be adopted by the City Council by Resolution.

NOW THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF CARMEL-BY-
THE-SEA DOES HEREBY:

Waive all planning and building design review and building permit application fees associated with hotel
and retail business physical improvement projects for Calendar Year 2019/20.

PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA this 6th
day of November 2018 by the following roll call vote:

AYES: COUNCIL MEMBERS:


NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:
ABSTAIN: COUNCIL MEMBERS:
SIGNED:

_____________________________
Steve G. Dallas, MAYOR
ATTEST:

_____________________________________
Thomas A. Graves, MMC
CITY CLERK