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August 12, 2022

Council Defers Half a Million in Fees for New Hotel, Approves Budget

Santa Cruz County accommodation providers are anticipating a banner year. Yet with building costs soaring, in order to get shovels in the ground, the owner of a previously-approved Marriott project in Scotts Valley looked to the city council for a break on the fee timeline.

And during the June 15 council meeting, Bijal Patel, CEO of “Residence Inn Scotts Valley,” was granted his wish—to defer $580,827.55 in payments until as late as July 1, 2025.

That covers development and permit fees and is meant to give Patel the chance to refinance the construction loan at a lower interest rate, later on.

The debt will be secured by a promissory note, and—crucially—the deal doesn’t include the Transient Occupancy Tax the City makes off guest stays.

Councilmember Randy Johnson said Scotts Valley has a history of being friendly to hotel developers.

“The Sheraton had issues getting finished and so forth,” he recalled. “I don’t know all the ins and outs of hotel financing, but I know it can be pretty brutal.”

Johnson says Scotts Valley is dependent on the Marriott location succeeding, noting it’s estimated to add three-quarters of a million dollars to the city’s bottom line.

“Every time a hotel comes, the businesses are helped as well,” he said. “I’m hopeful that everyone sees the benefit of something like this.”

Mayor Donna Lind said the hotel caters to people who are staying for an extended period of time.

Vice Mayor Jim Reed said because other businesses like car dealerships aren’t banging on Scotts Valley’s door, it’s important to focus on fostering the hotel sector.

“We’ve taken a couple risks here,” he said. “Hotels are really the geese that lay the golden egg for cities like ours.”

Patel explained he’s going after a target of a 13-day stay on average.

“Maybe you’re a visiting consultant, or you’re a researcher at the university and you’re coming to UCSC to do some research,” he said, adding supply chain pains are real. “Imagine trying to source 120 kitchenettes.”

The development is moving forward now because the project just scored financing, staff said.

Construction is anticipated to begin this summer, with a completion date expected sometime in Spring 2024.

Budget Approved

In other action from the June 15 meeting, the council approved a “recovering budget” that anticipates better labor market news, fewer supply chain hiccups and movement on some big-picture items that stalled out during the pandemic.

The fiscal plan is based on running a $100,000 deficit in 2022-23, with a $400,000 surplus predicted for the following year.

It anticipates being able to spend $19.8 million—not quite back to 2019-20 levels, but still, almost double the $11.5 million the city used in 2020-21.

The city’s $19,038,298 in revenues are broken out into three segments. There’s a base amount of $11,678,440 coming in, with $4,559,858 to come from the Measure Z tax and $2.8 million courtesy of a one-time infusion from the federal government.

While the financial picture looks a bit rosier on the face of it for the next couple years, the current model predicts deficits of between $700,000-1.2 million for the following six years.

Then it drops off a cliff for 2031-32, to a $6.8 million deficit, unless Scotts Valley approves another tax or takes other action.

However, planners have not yet fully accounted for the full impact of the opening of a Target location or increased hotel traffic that could help right the ship.

Included in the budget is $6.2 million for the Scotts Valley Police Department, up from $5.4 million in 2021-22, $1.6 million for Community Development, which includes paying for an update to the General Plan, and $3.5 million for Wastewater Operations.

Drew Penner
Drew Penner is an award-winning Canadian journalist whose reporting has appeared in the Globe and Mail, Good Times Santa Cruz, Los Angeles Times, Scotts Valley Press Banner, San Diego Union-Tribune, KCRW and the Vancouver Sun. Please send your Los Gatos and Santa Cruz County news tips to [email protected]

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