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Tonight’s Hotel Revitalization Tax Exemption Bylaw – Why You should Pay Attention
Ron Bolin: Jan.23, 2012
At its meeting this evening (Jan. 23,2012, 7pm in the Auditorium of the Conference Centre) Council will, among other matters:
“consider amending “REVITALIZATION TAX EXEMPTION BYLAW NO. 7143” to include renovations to existing hotels and motels that achieves any one or more of the following:
- adds services
- adds rooms
- improves the quality of the stay for the visiting public;”
A great number of questions arise from this this amendment and indeed from the original bylaw (which has not yet been passed). Many of them revolve around section 7(1) in the bylaw which states that:
“Council may provide a Tax Exemption under this Bylaw to an owner of eligible lands where:
(1) the new construction value, or the demolition and reconstruction value of the Project, as determined based on the building permit(s) issued, must be two million dollars ($2,000,000.00) or greater;”
Questions like these need clarification:
- How are the demolition and reconstruction values as determined by building permit(s) issued calculated? And how do these relate to assessed value?
- Where does renovation fit in? Extensive renovations/upgrades can be made which do not add to assessment now or later: i.e. Furniture, bedding, fixtures, etc., which are not part of the structure. It is not clear whether such items can be counted toward the $2,000,000.. Items which are not permitted in calculating the exemption should be clearly identified.
- What is the anticipated exemption (i.e. the amount by which other property tax payers rates will be raised) based on each $2,000,000 of exemption and remembering that the original hotel was supposed to cost $52,000,000 (the same estimate that was presented as the cost of the VICC)?
- How will the exemption be changed by the annual changes in assessment? And how do they impact over the 10 year time frame, i.e. are they compounding?
- Why is the $2,000,000 lower limit figure given in the bylaw not shown in the Revitalization Tax Exemption Agreement which will be signed by those requesting the exemption?
- Why is the exemption based on land and improvements rather than improvements alone?
- Why are strata units considered for exemption?
The last scheme in aid of business which Council passed, the VICC, left us with over $3 million in overpayments on our contract with Millennium/Suro/Triarc, and, all-in, several millions per year in operating grants and loan payments. Can we afford another such decision to provide aid to business, particularly in light of the letter to the City from the President of Nanaimo’s Hospitality Association that clearly states:
“The revenue deterioration that will be experienced by the entire hospitality sector with the addition of a taxpayer-subsidised hotel will be severe.”
I think we all know who will be expected to make up the difference. This is another scheme with good intentions but without a well-defined business plan and no projections or risk assessment. Council would be well advised to stop this train wreck before it goes any further and do some proper business planning and risk analysis. If this were a great idea, we could sell shares in it to our local businesses and investors as was done not so long ago for the Malaspina Hotel and the Arena when capitalism was still in vogue.
I am sure that if you read the bylaw and accompanying documents you will find many other questions which need to be examined before we move ahead with such a bylaw –or not.
The documents can be found in the agenda for tonight’s (Jan 23) meeting on the City’s web site at:
pp: 28-48 and 113-126 (As far as I can determine, the docs on 113-126 are the relevant ones for tonights meeting, but this was not clear to me.
Read it and weep. And then contact your Councillors.
Posts and Comments on Nanaimo Governance 
Oh my gosh! What can one say? The property tax exemption proposal started out as another desperate effort to rescue a very poor decision (the Conference Centre). It is legally difficult to favour a single property owner with a tax exemption so the proposed by-law had to have a broader application. Thusly a promise of an exemption for new hotels and two million plus renovations. That did not please other competing hotel owners so the proposed property tax exemption is made even broader. So what do you get now – an exemption wide enough to extend to routine facility renewal.
For the NDP members on Council this proposal is bad socialism. David Lewis would have described it as corporate welfare and the recipients as corporate welfare bums. For the Liberals and Conservatives on Council a special tax exemption for one industry is bad capitalism. It is something conservative economists decry as Picking Winners and Losers.
Overall it is truly rotten policy. It makes no more sense to give tax exemptions to the hotel industry than to the grocery industry. Contrary to our less than brilliant mayor new hotel facilities WILL NOT attract new visitors to Nanaimo. If there was a market for a Four Seasons it would have been built long ago. The existing better quality hotels in Nanaimo can not fill their rooms in the summer let alone the winter. If economic incentives result in more hotel rooms, it will simply lower the Revpar (Revenue Per Available Room) for all the rest. Ironically this proposal MIGHT make it less likely that someone will build a Conference Centre Hotel.
Special tax deals for a particular industry are rarely a good idea but if a town is trying to attract new employment it offers incentives to industries that produce a product not to service industries. Alternatively, if Council wanted to help business generally, it would lower the commercial tax rate across the board; i.e. keep the playing field level. Almost all commercial leases pass on the payment of property taxes to tenants and in some cases in downtown Nanaimo the property tax portion makes up more than a third of the total rent. It might stimulate some business (and employment) by reducing rental costs. But to give a property tax exemption to what is essentially a fixed market industry – that is just plain stupid.
This is why city hall employees have NO business dabbling in the business world. The ‘majority’ of council are no more qualified to make sound business decisions than the bunch at city hall.
But hey…. 75% of Nanaimo voters gave the whole process a one finger salute last election, so who really cares how badly we are managed.
Personally, selling in the next few years, looks like the best overall strategy as this bunch is simply headed for the wall.
Jim,
I have always said that no elected official has any business (pun intended) running a city owned business. 95% of the time they are too worried about what others will say instead of doing what is right for the business. In this day and age of business hard decisions are made and the people that expect hand-outs from all levels of government certainly don’t like that when those things are the first to go.