Lancaster Municipal Code Ch. 3.37 Hotel Stimulus Program

This chapter shall be known as the hotel stimulus program.

(Ord. No. 1042, § 1, 5-8-2018)

The purpose of this chapter is to provide an incentive program for the operation of hotels which meet criteria set forth in this chapter and which, as and when opened for business, will be qualifying hotels and thereafter continuously operate as AAA Three Diamond Hotels. In the implementation of this hotel stimulus program, the city council finds:

The general welfare and material well-being of the residents of the city depend, in part, upon serving the existing needs of businesses and visitors and families within the city as well as promoting tourism in the city.

The establishment of qualifying hotels and the operation, maintenance, and expansion of the inventory of AAA Three Diamond Hotels in the city will serve the existing needs of businesses and visitors and families within the city as well as promote and enhance the economy of the city and assist the city in serving growing needs of commercial and industrial businesses and promoting tourism by providing attractive and desirable visitor serving facilities and experiences that will serve the needs of visitors to the city, provide employment opportunities for the residents of the city, and provide additional benefits to the city by virtue of the city benefit package, as defined below.

It is in the best interest of the city to induce and encourage the establishment of qualifying hotels and the operation of AAA Three Diamond Hotels that, but for the hotel stimulus program, would not operate within the city.

The authority granted and the purposes to be accomplished by this chapter is a municipal affair for which public funds can be expended and that the establishment of qualifying hotels and the operation, maintenance, and expansion of the inventory of AAA Three Diamond Hotels is of paramount importance to the city, its residents, and businesses.

(Ord. No. 1042, § 1, 5-8-2018)

For the provisions of this chapter, the following definitions shall apply:

"AAA Three Diamond Hotel(s)" means a hotel(s) which provides physical features and operational services which meet or exceed the rating criteria established for AAA Three Diamond Hotels by the American Automobile Association, as such compliance is determined by the American Automobile Association, and the Minimum Development Standards. AAA Three Diamond Hotel(s) does not include hotels operating on or before January 1, 2018, other than renovated qualifying hotel(s), nor does it include property, including both existing hotels and/or undeveloped land, that is/are currently the subject of an agreement with the city which agreement provides a subsidy or financing mechanism for the construction and/or operation of a hotel or which involved an agreement of the former Lancaster Redevelopment Agency.

"Administrative fee" means such fee, if any, as the city may establish from time to time; any amounts received by the city as an application fee will be retained by the city, whether the application is approved or disapproved, to defer the administrative costs of reviewing each application and otherwise administering the hotel stimulus program.

"Applicable transient occupancy tax rate" means the lesser of the rate of transient occupancy tax as applicable from time to time or eleven (11) percent. The applicable transient occupancy tax rate shall apply for the calculation of any and all incentive payments pursuant to Section 3.37.050 without regard to any increases, at any time, in the rate of the transient occupancy tax.

"Applicant" means a person or entity submitting an application pursuant to Section 3.37.040 hereof.

"Application" means the application submitted to the city manager by an applicant pursuant to Section 3.37.040 hereof, in the form prescribed from time to time by the city manager.

"Base transient occupancy tax" means the average annualized transient occupancy tax paid to the city with respect to an existing hotel for the last thirty-six (36) months prior to the date on which an existing hotel becomes pre-approved under the qualified renovation program. Base transient occupancy tax shall be adjusted annually on January 1 of each year based on increases in the CPI.

"Brand" means the distinctive name of a hotel that, by virtue of its distinctive name, is identified by specific physical and operational features so that guests are assured that they will receive a specified level of service and amenities wherever the property is located.

"City benefit package" means a compendium of goods or services made available to city having substantial value; the city benefit package shall be determined as to each hotel in connection with the negotiation and preparation of the applicable operating covenant agreement. An illustrative example of what the city manager may approve as a city benefit package is as follows:

Owner shall make available to city without charge throughout that period required under the operating covenant agreement for the ongoing operation of the hotel as a qualifying hotel as follows; city shall be entitled to reserve and utilize rooms for official city business, including without limitation use by visiting consultants, artists/crews for the Lancaster Performing Arts Center, attorneys, consultants, as well as business prospects which city staff is seeking to attract to locate within the city limits for up to fifteen (15) nights per month. The following parameters shall apply to the reservation and use of rooms under this Section 501.1: (i) up to five room nights, valid Friday through Sunday nights only, are to be booked up to thirty (30) days in advance; (ii) an additional five room nights, valid any night of the week, are to be booked up to twenty four (24) hours in advance; and (iii) an additional five room nights, valid any night of the week, are to be booked the same day as use. Reservations shall be made by the city manager. In the event the allotted number of rooms is not utilized during a particular month, the unused nights shall not carry forward. No room rent or charges (including parking) shall apply with respect to the rooms reserved under this provision ("city rooms") and no transient occupancy tax will be payable with respect to the city rooms as utilized under this provision. Hotel guests using city rooms shall be subject to payment of meals and incidentals, as applicable.

"City Code" means the Municipal Code of the City of Lancaster as may be amended from time to time, and includes, without limitation, the Uniform Codes.

"City manager" means the city manager of the City of Lancaster or his/her designee.

"CPI" means the Consumer Price Index-Urban for the Los Angeles-Orange-Riverside County Average, Subgroup "All Items," (1982-1984 = 100) as established by the Bureau of Labor Statistics of the U.S. Department of Labor.

"Deferred developer impact fees" means those developer impact fees as to which an owner, as a participant under this hotel stimulus program, elects to have payment deferred until the earlier to occur of (i) issuance by city of a certificate of occupancy as to a hotel or other improvements as to the site or (ii) the second anniversary of the issuance of building permits as to the hotel or other improvements as to the site; provided that any development impact fees so deferred shall bear interest at the designated interest rate. The payment of deferred developer impact fees shall also be subject to Section 3.37.050(D).

"Deferred permit, plan check, and inspection fees" means those permit, plan check and inspection fees as to which an owner, as a participant under this hotel stimulus program, elects to have payment deferred until the earlier to occur of (i) issuance by city of a certificate of occupancy as to a hotel or other improvements as to the site or (ii) the second anniversary of the issuance of building permits as to the hotel or other improvements as to the site; provided that any development impact fees so deferred shall bear interest at the designated interest rate.

"Deposit" means such amount, if any, as may be required by resolution of the city as adopted from time to time. Should a deposit be made, such deposit shall be (i) returned to the applicant, if the application is rejected, (ii) retained by the city in the event that the application is terminated pursuant to Section 3.37.040(B), or (iii) refunded within thirty (30) days after a pre-approved qualifying hotel opens for business. The city shall have no obligation to earn interest or apply interest or earnings with respect to the deposit.

"Designated interest rate" means a rate equal to the rate of interest applicable to the construction loan for the hotel and, if there is no construction loan, then a rate of interest designated by the city manager as representing a market rate of interest for such deferral.

"Development impact fees" means such developer impact fees as are imposed by city from time to time under this Code and any implementing resolutions or entitlements.

"Eligibility phase" means the period commencing on the effective date of this chapter and terminating on the earlier to occur of:

A. December 31, 2022, subject to Section 3.37.100, or

B. The date on which there are a total of five thousand (5,000) guestrooms comprised of guestrooms of new qualifying hotels which have been pre-approved and have opened for business.

"Entitlements" means the city approvals for the development or renovation of a hotel, including without limitation all conditions of land use, building, and environmental approvals.

"Existing hotel" means a building that was constructed, occupied, and used as a facility referenced in Section 5.20.010 on or before January 1, 2018.

"Financing" refers to the combination of debt and equity sufficient to construct and operate the qualifying hotel for which an application has been filed with the city manager.

"Flag" means the entity whose brand is used to identify the hotel.

"Governmental requirements" means all laws, ordinances, statutes, codes, rules, regulations, orders and decrees of the United States, the state, the county, the city, or any other political subdivision in which the hotel is located, and of any other political subdivision, agency or instrumentality exercising jurisdiction over the city, the owner or the site, including, without limitation, all applicable state labor standards, the Code, the entitlements, all applicable disabled and handicapped access requirements, including, without limitation all applicable federal, state, and local public works requirements, including if and to the extent required as a matter of law the payment of prevailing wages and hiring of apprentices pursuant to Labor Code Section 1720 et seq., the Americans With Disabilities Act, 42 U.S.C. Section 12101, et seq., Government Code Section 4450, et seq., Government Code Section 11135, et seq., the Unruh Civil Rights Act, Civil Code Section 51, et seq., and all other applicable federal, state, and local laws.

"Guestroom(s)" means a room or suite within a hotel intended for transient occupancy by guests for compensation.

"Hotel" means a building which:

A. Operates as a facility referenced in Section 5.20.010,

B. Directly generates transit occupancy tax to the city, and

C. Meets the minimum required density.

"Hotel operator" means franchisee, manager, lessee, or licensee with whom an owner has a contract to open as a qualifying hotel and thereafter to operate the qualifying hotel as a AAA Three Diamond Hotel pursuant to a franchise, management, lease, or license arrangement.

"Hotel stimulus program" means the program set forth in this ordinance to encourage the granting and operation of qualifying hotels and their ongoing operation as AAA Three Diamond Hotels.

"Incentive payments" are the payments made by the city to the owner pursuant to Section 3.37.050.

"Initial milestone" means the date which is the earlier to occur of:

A. Twelve (12) months following the date of approval of the application, or

B. December 31, 2023 subject to Section 3.37.100.

"Minimum development standards" means development which complies with all of the following:

A. All fees shall have been paid by owner or, in the case of a deferral of deferred development impact fees pursuant to Section 3.37.050(D), so deferred,

B. All development shall conform to this Code, all applicable governmental requirements, and the entitlements, and

C. All development shall satisfy the requirements for a qualifying hotel.

"Minimum required density" means a minimum density measured by hotel rooms for occupancy of:

A. One hundred ten (110) rooms per acre, or

B. Ninety (90) rooms per acre as part of a Hotel that includes improved meeting space of not less than three thousand (3,000) square feet and a restaurant of not less than one thousand (1,000) square feet.

"New qualifying hotel(s)" means a qualifying hotel(s) that was not operating in the city (as a qualifying hotel) as of January 1, 2018.

"Open(s)(ing)(ed) for business" or "opening" means the day on which a hotel opens or re-opens for business to the general public as a qualifying hotel or a date mutually agreed upon by city and owner which date occurs within the hotel's first year of operation. In the case of a qualifying renovated hotel, the reopening of such hotel as a qualifying hotel shall be treated as the opening.

"Operating covenant agreement" means an agreement containing covenants as referenced in Section 3.37.060.

"Owner" means the person or entity who is the owner of a hotel or a site, whether in the capacity of fee simple owner, lessee, sub-lessee, mortgagee in possession, licensee, franchisee, or any other capacity, or the assignee or designee of such owner.

"Ownership" means fee simple, lease, license, franchise or other interest in property or a contract to purchase any such interest, which would entitle the owner to construct a qualifying hotel or to substantially rehabilitate an existing hotel to satisfy all criteria as a qualifying hotel.

"Permit, plan check, and inspection fees" means permit, plan check, and inspection fees as imposed by city from time to time under this Code and any implementing regulations or entitlements.

"Pre-approved" or "pre-approved qualifying hotel" means a qualifying hotel whose application has been approved by the city manager pursuant to Section 3.37.040.

"Qualifying hotels" means a hotel which satisfies all of the following:

A. It opens as an upscale, upper upscale or luxury hotel as designated under the applicable STR chain scale;

B. It is approved during the eligibility phase;

C. It opens and operates with a Three Diamond Hotel designation by the American Automobile Association during the eligibility phase; and

D. It meets the minimum required density.

"Qualified renovation program" means a property improvement program undertaken by the owner of an existing hotel which proposes to convert from a hotel which is not a qualifying hotel to a qualifying hotel.

"Renovated qualifying hotel" means a hotel which qualifies as a qualifying hotel under the qualified renovation program.

"Second milestone" means, in each case, the first anniversary of the first milestone, subject to Section 3.37.100.

"Site" means a parcel or parcels of land upon which a qualifying hotel will open.

"Site control" means fee ownership of an existing hotel or a site on which a qualifying hotel is proposed.

"Transient occupancy" means an uninterrupted stay of no more than twenty-eight (28) consecutive calendar days.

"Transient occupancy tax" means the transient occupancy tax levied and collected pursuant to Chapter 3.16, as it may be amended from time to time and held in the city's general fund for unrestricted use. Chapter 3.16, as it may be amended from time to time, is referred to therein as the "Transient Occupancy Tax Code."

"Transient occupancy tax increment" means the annual difference between the transient occupancy tax base and the amount of transient occupancy tax paid to the city based on the applicable transient occupancy tax rate with respect to a renovated qualifying hotel after its opening (as a qualifying hotel).

"Under construction" means that all necessary discretionary entitlements have been approved by the city, grading and building permits have been issued, and that inspection approvals by the city of grading and foundations to grade level have been obtained, vertical construction of guestrooms has begun, and the operating covenant agreement has been recorded.

"Uniform Codes" means each of the following as in effect from time to time as approved by city:

The Uniform Building Code,

The Uniform Housing Code,

The National Electrical Code,

The Uniform Plumbing Code,

The Uniform Mechanical Code, and

The Uniform Code for the Abatement of Dangerous Buildings.

"Year" means a calendar year or such fiscal year as may be designated under the applicable operating covenant agreement.

(Ord. No. 1042, § 1, 5-8-2018)

A. Application Process. To become eligible for the hotel stimulus program as a qualifying hotel, the Owner shall:

1. Complete and submit to the city manager, the application for the hotel stimulus program, which shall contain, at a minimum:

a. Evidence of site control.

b. Description of development team, including, the development entity, the architect(s), interior designer, landscape architect, and other professional disciplines related to the construction and operation of a qualifying hotel for the purposes of confirming that the hotel will be an a qualifying hotel when opened for business.

c. The operating plan for a qualifying hotel which sets forth with reasonable particularity the operational characteristics of the hotel focusing on those matters which are intended to result in the hotel being rated as a qualifying hotel and thereafter operated as a AAA Three Diamond Hotel.

d. Conceptual design of a qualifying hotel for the purpose of confirming that the hotel will be a qualifying hotel when opened for business.

e. Timeline for the commencement of operation.

f. Evidence of three million five hundred thousand dollars ($3,500,000.00) cash or its equivalent or more equity capital in the developer entity.

g. References from financial institutions.

h. Description of the city benefit package as proposed.

i. Independent, third-party certification, acceptable to the city, that the proposed hotel will open as a qualifying hotel;

2. Execute or agree to execute an operating covenant agreement which shall include provisions regarding continuing use, maintenance, indemnification regarding prevailing wage, a city benefit package approved by the city manager in his/her discretion, and such other provisions as the city manager, in his/her sole discretion, may reasonably determine are necessary or appropriate to preserve the goals and intent of this chapter.

3. Pay the administrative fee, if any, and the deposit, if any.

B. Consideration of the Application by the City Manager. The city manager shall approve or disapprove Applications based on the above within sixty (60) days after a complete submittal.

C. Treatment of the Administrative Fee and the Deposit. If the application is rejected, the city shall retain the administrative fee, if any, and return the deposit, if any, to the applicant. If the application is approved, the city shall retain the administrative fee and deposit. The deposit shall be refunded within thirty (30) days after a qualifying hotel opens (or re-opens) for business or retained by the city if the application is terminated pursuant to subsection (D).

D. Termination of Approved Application. An approved application shall be automatically terminated without further notice and the deposit, if any, shall be retained by the city unless (i) on or before the initial milestone, owner provides the city with written evidence, acceptable to the city manager acting in his/her sole and absolute discretion, that a brand and/or flag, hotel operator, and commitment to provide financing for a qualifying hotel is likely, and (ii) on or before the second milestone, owner shall have entered into written agreements with respect to the brand and/or flag, and hotel operator and financing shall have closed and the qualifying hotel shall be under construction. The application shall also terminate and the deposit retained by the city if, at any time prior to opening for business, any material factual representation(s) made in the application by the owner was not true when made or has become not true, as determined by the city manager acting in his/her reasonable discretion.

E. Effect of Termination of Pre-Approved Qualifying Hotel. If and to the extent an application for a hotel that was pre-approved as a qualifying hotel(s) is terminated pursuant to subsection (D) prior to opening, the next application in order of submittal shall be considered by the city manager for pre-approval as a qualifying hotel.

F. Vesting of Pre-Approved Qualifying Hotel. The right of an owner to receive incentive payments shall vest upon pre-approval subject only to voluntary withdrawal of an application by the owner or termination pursuant to subsection (D).

(Ord. No. 1042, § 1, 5-8-2018)

A. Confirmation of the fulfillment of the requirements of Section 3.37.040(A). Upon completion of a hotel for which an application has been approved pursuant to Section 3.37.040, the applicant shall provide the city with an independent third party audit confirming that the requirements in Section 3.37.040(A) have been met. The city manager shall approve or reject the results of such audit acting in his/her reasonable discretion.

B. Mechanics Regarding Incentive Payments. Subject to subsection (E), the city shall pay incentive payments to an owner of a hotel which opens as a qualifying hotel and is thereafter continuously operated as a AAA Three Diamond Hotel in compliance with the operating covenant agreement (including without limitation the continuous implementation of the city benefit package) as follows: (i) as to a new qualifying hotel, an amount equal to fifty (50) percent of the transient occupancy tax collected and remitted to the city for the preceding year based on the applicable transient occupancy tax rate with respect to such qualifying hotel pursuant to Chapter 3.16; such incentive payments shall be calculated and made for the ten (10) year annual period commencing on the opening and terminating on the tenth (10 th ) anniversary date of the opening; and (ii) as to a renovated qualifying hotel, an amount equal to fifty (50) percent of the transient occupancy tax increment collected and remitted to the city for the preceding year based on the applicable transient occupancy tax rate with respect to such qualifying hotel pursuant to Chapter 3.16; such incentive payments shall be calculated and made for the ten (10) year annual period commencing on the opening and terminating on the tenth (10 th ) anniversary date of the opening. The city shall endeavor to make payments which become applicable hereunder within a reasonable time following receipt of information and verification, to be more specifically set forth under the applicable operating covenant agreement.

C. Termination of Incentive Payments. Incentive payments under this Section 3.37.030 shall terminate upon the expiration of the terms described above or at such time as the hotel ceases to operate as a qualifying hotel for reasons other than temporary closure due to repair, casualty loss, or maintenance issues.

D. Deferred Developer Impact Fees. In the event an owner causes a hotel to open as a qualifying hotel and operate as a AAA Three Diamond Hotel as described in Section 3.37.020, the city shall waive collection of the deferred developer impact fees, including any interest applicable with respect thereto. This subsection (D) shall not apply to permit, plan check and inspection fees or any other fees.

E. Setoff as to Unpaid Fees. As to any permit, plan check and inspection fees, developer impact fees (excepting to the extent a waiver of developer impact fees has been made by city pursuant to subsection (D)), and any other fees collected by city in connection with the development undertaken by an applicant or owner, city shall setoff against any payments otherwise provided under subsection (B) any amounts which have not been paid to city together with interest determined using the designated interest rate.

(Ord. No. 1042, § 1, 5-8-2018)

Each owner eligible to participate in the hotel stimulus program shall execute an operating covenant agreement. An illustrative form of the operating covenant agreement will be maintained on file with the city clerk. Each operating covenant agreement or a memorandum thereof approved by the city manager, may be recorded by the corresponding owner or the city among the official land records of the county recorder; provided that the failure to record such operating covenant agreement or memorandum thereof shall not affect the validity of any such operating covenant agreement. Any fees associated with the recording of such an operating covenant agreement or memorandum shall be borne by the owner. Each operating covenant agreement shall include a city benefit package approved by the city manager.

(Ord. No. 1042, § 1, 5-8-2018)

All transient occupancy tax revenues or transit occupancy tax increment remitted to the city with respect to a qualifying hotel shall be deemed general fund revenues of the city and shall be deposited in the city's general fund.

(Ord. No. 1042, § 1, 5-8-2018)

Consistent with the intent and goals of this chapter, the city manager may interpret the provisions of this chapter and may adopt administrative rules and regulations for implementation and furtherance of the requirements of this chapter including, without limitation, the form of the application, the form of the operating covenant agreement and the manner of compliance with Government Code Section 53083.

(Ord. No. 1042, § 1, 5-8-2018)

The city manager shall cause a review of the hotel stimulus program each year and if amendment or termination is warranted present a proposed amendment to this chapter to the city council for its consideration.

(Ord. No. 1042, § 1, 5-8-2018)

The provisions of this chapter shall be suspended as of the last day of the eligibility phase; provided that notwithstanding anything otherwise set forth in this chapter, the city may modify or terminate the hotel stimulus program at any time.

(Ord. No. 1042, § 1, 5-8-2018)