Statement on Hotel Development Act of 2011

Thank you for sharing your comments on the Hotel Development Act of 2011 (Substitute to Bill 29--0082). Based on your comments, the Chamber drafted and delivered the attached statement yesterday to the Committee on Rules and the Judiciary suggesting some additional provisions. The bill was passed out of the committee on a 3-2 vote and will next be considered by the full Senate. Thank you for your interest and participation.

STATEMENT  BY
ST. CROIX CHAMBER OF COMMERCE
ON
HOTEL DEVELOPMENT ACT of 2011
SUBSTITUTE TO BILL 29-0082

JUNE 9, 2011

            GOOD AFTERNOON, MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE ON RULES AND THE JUDICIARY.  

            I AM MICHAEL DEMBECK, EXECUTIVE DIRECTOR OF THE ST. CROIX CHAMBER OF COMMERCE. WE REPRESENT APPROXIMATELY 300 LOCAL BUSINESSES AND INDIVIDUAL MEMBERS COMMITTED TO THE DIVERSIFIED ECONOMIC DEVELOPMENT OF ST. CROIX. THANK YOU FOR THE OPPORTUNITY TO TESTIFY ON THIS BILL. 

            IN PREPARATION FOR THIS HEARING, WE HAVE CIRCULATED COPIES OF SUBSTITUTE TO 29-0082 TO OUR MEMBERS AND SOLICITED THEIR COMMENTS.

            AT THE OUTSET, I WOULD LIKE THANK SENATOR LOUIS PATRICK HILL, THE PRIME SPONSOR OF THIS BILL, FOR TAKING THE INITIATIVE TO DRAFT LEGISLATION DESIGNED TO ATTRACT NEW HOTELS AND RESORTS TO ST. CROIX AND THEREBY STIMULATE THE STAGNANT LOCAL ECONOMY WHILE CREATING NEW EMPLOYMENT OPPORTUNITIES FOR OUR CITIZENS AND YOUNG PEOPLE.

THE ST. CROIX CHAMBER OF COMMERCE AND ITS MEMBERS CERTAINLY SUPPORT THE INTENT OF THIS BILL. AND I WOULD LIKE TO ADD THAT THE CHAMBER HAS EXPRESSED ITS STRONG SUPPORT AT VARIOUS STAGES IN RECENT YEARS FOR ALL THREE OF THE PROPOSED RESORTS THAT PRESUMABLY WOULD BE THE PRIMARY BENEFICIAIRES OF THIS BILL.

AT THE SAME TIME, MOST OF THOSE CHAMBER MEMBERS WHO OFFERED COMMENTS ON THIS BILL AS CURRENTLY DRAFTED EXPRESSED SERIOUS RESERVATIONS ABOUT WHAT THEY CONSIDER OVERLY GENEROUS TAX INCENTIVES ITS PROVIDES FOR NEW HOTELS, RESORTS AND CASINOS AT THE EXPENSE OF EXISTING HOTELS AND RESORTS.

UNDER THIS BILL, NEW HOTELS, RESORTS AND CASINOS WOULD BE LEGALLY ENTITLED TO DIVERT MILLIONS OF DOLLARS IN ROOM OCCUPANCY AND CASINO TAXES TO PAY THEIR INDIVIDUAL DEBT OBLIGATIONS FOR AS MUCH AS 30 YEARS OR FOR WHATEVER TERM OF THEIR FIRST MORTGAGE.

 EVEN WITH THE AMENDMENT STIPULATING THAT QUALIFIED HOTELS CONTRIBUTE $200,000 A YEAR TO THE TOURISM REVOLVING FUND IN LIEU OF ROOM OCCUPANCY TAXES, THIS IS FAR SHORT OF THEIR FAIR SHARE FOR MARKETING THE VIRGIN ISLANDS AS A TOURISM DESTINATION.

FOR A 400-ROOM HOTEL, FOR EXAMPLE, THIS WOULD AMOUNT TO A MINISCULE CONTRIBUTION OF ONLY $1.36 CENTS PER ROOM PER DAY OVER A ONE-YEAR PERIOD.

MEANWHILE OUR EXISTING HOTELS WHO WILL NOT BE ELIGIBLE FOR THESE GENEROUS TAX BENEFITS EVEN FOR NEEDED RENOVATIONS WILL CONTINUE TO BE OBLIGATED TO CONTRIBUTE MILLIONS OF DOLLARS A YEAR IN ROOM OCCUPANCY TAXES TO THE HELP PROMOTE TOURISM AND IRONICALLY GENERATE GUEST TRAFFIC TO THESE COMPETING HOTELS.

            MANY OF OUR EXISTING HOTELS CURRENTLY ARE BENEFICIARIES OF THE ECONOMIC DEVELOPMENT PROGRAM AND THEREFORE ARE ELIGIBLE FOR ABATEMENT OR REDUCTIONS IN PROPERTY TAXES, GROSS RECEIPTS TAXES, INCOME TAXES AND EXCISE TAXES.

IF THE NEW HOTELS WHO TAKE ADVANTAGE OF THE GENEROUS TAX INCENTIVES IN THIS BILL ALSO EARN EDC CERTIFICATION AND THE FULL MENU OF AVAILABLE EDC TAX BENEFITS, THEY WILL BE ENTITLED TO GENERATE MILLIONS OF DOLLARS IN PROFITS IN THE TERRITORY EVERY YEAR VIRTUALLY TAX FREE.

WHILE THE CHAMBER CERTAINLY UNDERSTANDS THE VALUE OF OFFERING TAX INCENTIVES TO HELP ATTRACT NEW BUSINESSES AND HOTELS TO THE TERRITORY, THIS BILL AS DRAFTED LITERALLY GIVES AWAY THE FARM BY ALLOWING NEW HOTELS TO DIVERT 100 PERCENT OF THEIR OCCUPANCY TAXES  TO PAY OFF THEIR MORTAGES WITH NO TIME RESTRICITONS OR LIMITATIONS.

WOULDN’T IT BE NICE IF HOMEOWNERS COULD DIVERT 100 PERCENT OF THEIR PROPERTY TAXES TO PAY OFF THEIR MORTAGES?

AS AN ALTERATIVE, THE CHAMBER WOULD RECOMMEND THAT THE BILL BE AMENDED OR THE ECONOMIC DEVELOPMENT AUTHORITY BE INSTRUCTED TO INCORPORATE A GRADUATED TAX SCALE WHEREBY THE AVAILABLE TAX INCENTIVES WOULD GRADUALLY DIMINISH OVER A SPECIFIED PERIOD OF TIME.

SUCH A GRADUATED SCALE WOULD OFFER NEW HOTELS SUFFICIENT INCENTIVES TO ATTRACT INITIAL FINANCING BUT WOULD OBLIGATE THEM TO PAY AN INCREASING SHARE OF THEIR TAXES TO THE GOVERNMENT AS A LEGITMATE COST OF DOING BUSINESS IN THE TERRITORY. 

IN SUMMARY, THE MEMBERS OF THE CHAMBER WOULD RESPECTFULLY ENCOURAGE MEMBERS OF THE COMMITTEE AND THE 29^TH LEGISLATURE TO TAKE A SECOND LOOK AT THIS BILL AS DRAFTED AND TO CONSIDER ADDING ADDITIONAL RESTRICTIONS AND/OR OBLIGATIONS TO BALANCE OUT THE AVAILABLE INCENTIVES.

THANK YOU.