Council defers half a million costs for new hotel and approves budget

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Santa Cruz County Lodging Providers are predicting a banner year. Yet, as construction costs soared, in order to get some ground breaking, the owner of a previously approved Marriott project in Scotts Valley turned to the city council for a break on the fee schedule.

And at the June 15 board meeting, Residence Inn Scotts Valley CEO Bijal Patel got his wish to defer $580,827.55 in payments until July 1, 2025.

This covers development and permitting costs and is intended to give Patel the option of later refinancing the construction loan at a lower interest rate.

The debt will be secured by a promissory note and, importantly, the agreement does not include the transitional occupancy tax that the city collects on guest stays.

Council member Randy Johnson said Scotts Valley has always been friendly with hotel developers.

“The Sheraton had problems ending and so on,” he recalls. “I don’t know all the ins and outs of hotel financing, but I know it can be pretty brutal.”

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

“Whenever a hotel comes, businesses are also helped,” he said. “Hopefully everyone will see the benefits of something like this.”

Mayor Donna Lind said the hotel caters to people who are staying for a long time.

Vice Mayor Jim Reed said because other businesses like car dealerships aren’t knocking on Scotts Valley’s door, it’s important to focus on promoting the hospitality industry.

“We took a few risks here,” he said. “Hotels really are the goose that lays the golden egg for cities like ours.”

Patel explained that he was aiming for an average stay of 13 days.

“Maybe you are a visiting consultant, or you are a researcher at the university and you come to UCSC to do research,” he said, adding that the difficulties of the chain of d are real. “Imagine trying to get yourself 120 kitchenettes.”

Development is moving forward now because the project just secured funding, staff said.

Construction is expected to begin this summer, with an expected completion date of spring 2024.

Approved budget

In another action from the June 15 meeting, the board approved a “recovery budget” that anticipates better labor market news, fewer supply chain hiccups and movement on some major items that have stagnated during the pandemic.

The financial plan is based on a deficit of $100,000 in 2022-23, with a surplus of $400,000 projected for the following year.

He expects to be able to spend $19.8 million, not quite at 2019-20 levels, but still nearly double the $11.5 million used by the city in 2020-21.

The city’s revenue of $19,038,298 is split into three segments. There is a base amount of $11,678,440 to come, including $4,559,858 coming from the Measure Z tax and $2.8 million from a one-time injection from the federal government.

While the financial situation looks a little rosier at first glance for the next two years, the current model projects deficits of between $700,000 and $1.2 million for the following six years.

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

However, planners have yet to fully consider the full impact of opening a Target location or increasing hotel traffic that could help right the ship.

The budget includes $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 payment for an upgrade day of the general plan, and 3.5 million dollars for clean-up operations.

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