City of
Common
Council Report
Meeting
Date: March 18, 2008
Item
No.:
Recommendation: That the Council direct the City
Administrator and Finance Manager to develop a funding mechanism for the
Economic Development fund (CDA) using room tax generated by new hotel
development in Oak Creek.
Background: The Community Development Authority (CDA) has
historically been funded through the sale of City-owned properties. For many years the fund balance in the
Economic Development Fund has remained fairly stable. In 2001, $225,000 was transferred from this
fund to the Fire Station #3 building project.
From time to time, this fund has been supplemented by other sources, most
recently through $148,000 in funds from the closure of TIF districts within the
City. Beginning in 2004, fifteen percent
of the personnel costs for the Department of Community Development ($39,300 in
2007) were deducted from the Economic Development Fund on an annual basis. This recurring operational expenditure
quickly depleted the fund balance for the CDA.
The
City has been directing significant financial resources towards the development
of the 27th Street corridor. To date the
City has invested, or committed to invest approximately $403,000 into plans and
implementation studies. A total of
$166,000 for additional streetscape design work and development of a process
for third party review of development proposals within the corridor is pending
before the Council. While the bulk of
those expended or committed funds are eligible for reimbursement under through
the tax incremental financing district(s), the initial funding was through Fund
31.
There
are still many economic development projects on the horizon such as the
citywide marketing initiative, the lakefront, and Delphi that will demand
additional resources from the economic development fund. The lack of a stable, sustainable funding
source will severely restrict the City’s ability to
fully address these identified opportunities; or perhaps more importantly to
quickly adapt to those that may unexpectedly arise.
The
City currently collects a 6% hotel room tax that goes into the general
fund. The State of Wisconsin allows
municipalities to collect room taxes provided that the revenue is directed
towards tourism promotion and development.
Prior to June 1994, state law did not limit the tax rate municipalities
could impose or how they could use collections from the tax. However, 1993 Wisconsin Act 467 established a
maximum tax rate of 8.0% and required that at least 70% of any new room taxes
be used for tourism promotion and development.
However, since Oak Creek’s room tax was in place prior to the passage of
that law, it is able to direct its room tax collections to the general fund
without restriction on its distribution.
If the City were to change the room tax rate (for instance to the
maximum allowable rate of 8%) that portion would be subject to the rules
regarding distribution of that additional revenue.
Room
tax collections have increased steadily since the early 1990’s. At the same time the ending fund balance for
the Economic Development fund has fluctuated, and is projected to be at its
lowest level in the last eighteen years.
(See Exhibit A - Hotel Room Tax and CDA Fund Balance:
1990-2008). As the City grows,
and additional hotel rooms are brought online the amount of revenue generated
by the room tax will increase. A number
of hotels have been proposed around the airport, and specifically in Oak Creek[1]. If all of the proposed hotels are constructed
the number of hotel rooms in Oak Creek would nearly double.
|
Proposed
Hotel Candlewood
Suites |
|
# of Rooms 99 |
|
Fairfield
Inn |
|
122 |
|
Microtel
Inn |
|
77 |
|
Value
Place |
|
121 |
|
Courtyard
by Marriott |
|
119 |
|
Towneplace Suites by Marriott |
|
105 |
Based
on internal calculations, and using estimates of rate comparables and expected
revenue per room night, it was estimated that room tax revenues could bring in
an additional $450,000 per year if all of the proposed hotels were
developed. Please contact the Planning
Department if you are interested in viewing the methodology behind these
calculations.
The
proposal before you this evening is to direct the City Administrator and
Finance Manager to develop a financing mechanism for the CDA using the
additional revenue generated by these new hotel developments.
Fiscal Impact: The idea behind this proposal is to provide a
stable funding source for the CDA without having a significant impact on the
general fund. The general fund revenue
could be capped at a certain level, for example the amount budgeted for this
year, or the amount received in 2007.
The amount of revenue generated over and above that amount would go
towards Fund 31 – Economic Development.
Prepared
by: Respectfully
Submitted,
Doug
Seymour, AICP Patrick
DeGrave
Director
of Community Development City
Administrator
Fiscal
Review by:
Beverly A. Buretta, CMC
City Clerk