It is perhaps not ironic that the short discussion on Tuesday night focused on sustainability rather than revenue, but it is interesting that the Marriott Residence Inn being able to check off the LEED gold certification was the step that allowed the council to support the otherwise non-controversial hotel at the intersection of Mace and Second Street.
It was a 4-0 vote because Rochelle Swanson, erring on the side of caution, recused herself because she resides within the 500 foot radius of the other, more controversial hotel proposal. Harriet Steiner, city attorney, reasoned that, because the hotels were linked at one point and because this one is going first, a vote on this might impact a vote on the other.
The quiet passage of the Residence Inn will undoubtedly be in marked contrast to the scene on December 20 when the Davis City Council has to decide the much more controversial Hyatt House Hotel. In November, the four members of the council showed support for a project there, but decided to give talks another chance to get developers closer to the wishes of neighbors – if that is even possible.
The Residence Inn is expected to bring in $1.8 million in one-time development and construction fees. A big concern we have seen since the start of the hotel discussion has been the need for the city to capture some of the leakage of hotel stays into neighboring communities.
We have never seen a full quantification of that leakage. But there is an abiding belief that the presence of modern and new brand-named hotels will generate more stays in Davis. Matt Williams noted during public comment that the city’s TOT (Transient Occupancy Tax) grew dramatically when UC Davis opened the Hyatt Place hotel a few years ago.
Dan Carson’s analysis suggested that both these projects would provide a net fiscal benefit to the city in the hundreds of thousands, plus one-time benefits of just under $2 million per project.
Mr. Carson believes that the Hyatt House would have a net fiscal benefit to the City of Davis of $650,000 annually, while the benefit from the Marriott would be about $600,000.
Mr. Carson did caution, “As you deliberate about these projects, you will have to weigh the potential fiscal benefits to the city against other considerations, such as your land-use policies and the additional set of criteria you have adopted for such projects.”
While hotels are not going to solve the fiscal woes of the city, a $1.3 million benefit on an annual basis with a nearly $4 million one-time benefit would greatly help the city.
Uncertainty continues to rule on whether the Royal Guest, even with the settlement in their lawsuit, will ever construct a hotel conference center at the corner of Richards and Olive. Some sources have told us that the conference center portion – which would expect to be a huge demand generator for city hotels – is off the table, but Mike Webb told the Vanguard last week that he could not confirm this.
While this is all a good start, it also represents a drop in the bucket. With the city already facing hundreds of millions – perhaps as high as $655 million – in unfunded infrastructure needs over the next 20 years, and an increasing annual hit on pensions, the amount of revenue generated by hotels is just the beginning.
As Mayor Robb Davis pointed out, if salaries grow by 3 percent, which is the level that CalPERS assumes and a level that keeps up with a traditional cost-of-living increase, “the pension contributions will require an additional $5.3 million per year.” That is on a $60 million or so general fund.
Mayor Davis told the Vanguard, “If the average annual General Fund revenue growth of the past 15 years continues for the next five (the 15-year trend is 4.8% per year), fully a quarter of the increases will be consumed uniquely by pension and retiree medical cost increases.”
For Mayor Davis, “while it is true that we are ‘keeping up’ as things stand currently, the cost of ‘keeping up’ continues to grow and that crowds out funding for other projects our community needs to maintain the level of service citizens expect.”
“Something must give,” he said. “Thus, I am less sanguine than our City staff. In fact, it is not clear to me at this point how we are going to cover everything over the next five years, given that we are not even covering critical infrastructure backlogs now.”
The council put some of this on the table with the university. They laid out, in their LRDP response, the need to increase commercial and R&D space within the city. The council wants to “explore opportunities for City/UC Davis collaboration on how best to gauge and accommodate spin-off business space needs stemming from on-campus research.”
While the city will undoubtedly receive a boost, both from the expansion of Sierra Energy’s Area 52 as well as Fulcrum’s investment in the University Research Park, so far the big scale innovation centers have remained off the radar.
The Mace Ranch Innovation Center, for example, could have generated somewhere between $2 and $7 million annually, in addition to the one-time payout.
Hotels and economic development alone might not generate the kind of revenue we need by themselves.
Mayor Robb Davis said, “I believe we must discuss cost containment—broadly writ—and put a revenue measure before the population in the next two years.”
The mayor said, “It is no exaggeration to say that over the coming 5 years (and beyond) we need an additional $15-29 million each year to cover all these costs combined.”
But a robust economic development plan could cut that necessary cost in half and make the hit to taxpayers more reasonable.
—David M. Greenwald reporting
David
“Hotels and economic development alone might not generate the kind of revenue we need by themselves.”
My only objection to your article is the use of the word “might” in the above sentence. I think that both your repeated coverage of the economic state of the city, and Mayor Davis’ repeated interpretation of city finances have made it abundantly clear that hotels and economic development alone will not ( no might about it) generate the needed revenues by themselves.
I agree with the Mayor that what is needed is a three pronged approach with business as a revenue generator, cost containment and revenue generation through taxes. My only quibble here is that I think that we are several years ( or election cycles) behind on the taxation portion of the three pronged approach needed to sustain our city.
“My only quibble here is that I think that we are several years ( or election cycles) behind on the taxation portion”
That is funny. We are ‘generations’ behind on the economic development prong of the approach, as was clearly spelled out in our current General Plan based on a 1996 study commissioned by the City. We failed to implement the minimal economic development actions specified in the GP, yet have somehow managed to implement several tax increases in that same time period. If you believe that the critical fault is a lack of new tax measures over the past couple of election cycles then I question your support of a balanced three-pronged approach.
David Greenwald said . . . “A big concern we have seen since the start of the hotel discussion has been the need for the city to capture some of the leakage of hotel stays into neighboring communities.”
Although leakage of existing stays to neighboring communities is a consideration, it is a much smaller consideration than leakage of events due to the fact that scheduling events for the conference/convention space in Davis is limited by the restricted availability of rooms for the attendees of those conferences/conventions.
Lina Layiktez, UC Davis’ Director of Conference and Event Services testified in Public Comment that she regularly is approached by organizations and groups and associations that want to use UCD’s Conference and Event facilities, who decide against doing so because a substantial proportion of their members/attendees will not be able stay in Davis due to the limited availability of hotel rooms.
In 2010 the opening of the Hyatt Place added 21% to the available Davis hotel beds and the opening of the UCD Conference Center added 7% to the available Davis conference/meeting space. In FY 2009-10 the TOT collections were $912,456. In FY 2015-16 the TOT collections exceeded $1,825,000. That is a 100% increase in revenues (demand) associated with, and at the same as, a 21% increase in hotel room capacity (supply). The existing hotels in Davis were the beneficiaries of 58% of that increase and the Hyatt Place produced the remaining 42%.
If the “lost” conferences Lina Layiktez referenced were able to come to Davis, every 1,000 rooms rented would add an additional 1% to the City’s TOT revenues. To put those 1,000 rooms into perspective, the Marriott Residence Inn will have 43,800 rooms available to the public each year (120 times 365).
Mr. Williams, I respect the fact that you have taken the time and effort to take a look a the hotel market in Davis, CA. However, I cannot follow your logic.
Can you please explain this in greater detail. I am a local hotel owner in Davis, CA and really can’t grasp what you’re trying to say here.
TBH, the HVS Demand Study commissioned by the City was probably dead-on, in terms of hotel demand in our market. I don’t see why we need to have citizens or the Council question it. Not to be disrespectful, but who are you to question a HVS hotel consultant?
I’ve learned many people including our City Council read the comments on this website so I’d really appreciate if someone is going to try to put out numbers and figures concerning hotel demand in this City – it should be clear, concise and truthful.
In any case, I’d love to hear in more detail what you’re referring to when you talk about this 100% increase in TOT in 2016 was caused by a 21% increase in supply back in 2010. I hope you understand the addition of the 75 room Hyatt Place in 2010 knocked the Cities TOT back down to 2002 levels … so a 100% increase in TOT after 6 years of the Hyatt Place hotel being introduced in this market is not exactly a crazy achievement. Also coupled with the fact that probably every single city in California has seen a relatively similar increase in TOT in that same period of time (if not more).. really assures me that the Hyatt Places addition of rooms in 2010 – Is not the reason why our TOT has grown 100% in the past 6 years… probably has to do more with our overall recovery of the leisure travel and commercial travel segments.
Also, I hope you understand that TOT increases and decreases do not just correlate with demand for our hotel rooms. The fact is; our large increases in TOT the past year have come way because of our RATES are growing not necessarily demand.
There’s some type of correlation out there in this community that correlates more hotels rooms with more TOT. That just cannot be further from the truth. For example, the City of Calistoga has 490 hotel rooms and it’s TOT income was 5+M this past year… TOT is driven by demand and by rates.. not by a number of hotel rooms the City has. Hotels are not magic TOT generators.
Roshan, thank you for your considered response. I will provide responses to your key points here, but also invite you to call or e-mail me so that we can sit down in person and review the public record information that is the content of what I have shared.
First, let me address your point and question, “I don’t see why we need to have citizens or the Council question it. Not to be disrespectful, but who are you to question a HVS hotel consultant?”
I am a member of the City’s Finance and Budget Commission (FBC). The reason FBC is looking at the City’s hotel TOT revenues is that it is a significant component of the City’s fiscal picture. Item 7 of the September FBC meeting covered the two Hotel proposals.
Several challenges were identified in the discussions.
— First, there are two separate HVS reports. One can be accessed at http://documents.cityofdavis.org/Media/Default/Documents/PDF/CityCouncil/CouncilMeetings/Agendas/20160315/08-Hotel-Market-Analysis.pdf The other can be accessed at http://sustainability.ucdavis.edu/local_resources/docs/onlinedocs/hotel_expansion/Hotel_Impact_Study.pdf
— Second, neither of those reports include the TOT revenues received by the City of Davis.
— Third, the supply and demand volumes in the two reports do not correspond. The 2016 HVS report shows the following annual supply numbers
_____ Average Daily _ Available
Year _ Room Count _ Room Nights
2007 ___ 381 ________ 139,065
2008 ___ 381 ________ 139,065
2009 ___ 394 ________ 143,810
2010 ___ 457 ________ 166,760
2011 ___ 469 ________ 171,185
2012 ___ 455 ________ 166,075
2013 ___ 455 ________ 166,075
2014 ___ 499 ________ 181,987
2015 ___ 506 ________ 184,810
While the 2011 HVS report shows the following annual supply numbers
Year ___ Rooms _____ Available
2000 ___ 541 ________ 197,340
2001 ___ 564 ________ 205,860
2002 ___ 564 ________ 205,860
2003 ___ 564 ________ 205,860
2004 ___ 564 ________ 205,860
2005 ___ 564 ________ 205,860
2006 ___ 564 ________ 205,860
2007 ___ 564 ________ 205,860
2008 ___ 564 ________ 205,860
2009 ___ 577 ________ 210,605
2010 ___ 640 ________ 233,555
The overlap years of the two reports 2007, 2008, 2009 and 2010 are substantially different. As a result we sought out objective fiscal data, preferably from an audited/auditable source. We found that source in the audited financial statements of the City of Davis, specifically the annual TOT revenues receipts.
Second, let me address your point “I hope you understand the addition of the 75 room Hyatt Place in 2010 knocked the Cities TOT back down to 2002 levels”
In Fiscal Year 2007-2008 the total TOT receipts received by the City from the 604 hotel beds in Davis were $1,120,983. The Hyatt Place was not open at that time.
In Fiscal Year 2008-2009 the total TOT receipts received by the City from the 604 hotel beds in Davis were $1,031,031, a decline of 8% due to the early effects of the Recession. The Hyatt Place was not open at that time.
In Fiscal Year 2009-2010 the total TOT receipts received by the City from the 604 hotel beds in Davis were $912,456, a further decline of 11.5% due to the continuing effects of the Recession. The Hyatt Place was not open during the first nine months of that period. When it was open for the final three months of that period, the City received no TOT revenues from the Hyatt Place, because it is not within the City Limits. All the Hyatt Place TOT revenues go to Yolo County.
The first full year the Hyatt Place was open, Fiscal 2010-2011, saw the total TOT receipts received by the City from the 604 hotel beds in Davis rise 5.0% to $958,434. They were not “knocked back” at all. They increased.
The second year the Hyatt Place was open, Fiscal 2011-2012, saw the total TOT receipts received by the City from the 604 hotel beds in Davis rise another 9.6% to $1,050,157. Again, they were not “knocked back.” They increased.
The third year the Hyatt Place was open, Fiscal 2012-2013, saw the total TOT receipts received by the City from the 604 hotel beds in Davis rise another 36.7% to $1,436,067. Once again, they were not “knocked back.” They increased … this time dramatically.
The most recent year, Fiscal 2015-2016 saw the total TOT receipts received by the City from the 604 hotel beds in Davis rise another 36.7% to $1,445,819. That represents an aggregate 58% increase in TOT revenues for the City over the $912,456 of the base year Fiscal 2009-2010.
In addition, above and beyond the City’s TOT receipts, Yolo County has seen its TOT receipts from the Hyatt Place rise from $0 to over $380,000 in Fiscal 2015-16.
When you add the City TOT and the County TOT together the base year Fiscal 2009-10 TOT revenues of $912,456 have risen to over $1,825,000. That is more than double (an over 100% increase).
Third, let me address your point “if someone is going to try to put out numbers and figures concerning hotel demand in this City – it should be clear, concise and truthful.”
I completely agree, and the following statement from Table 5.1 of the 2016 HVS report “Please note that the 45-room University Park Inn is a non-reporting property and the 78-room Days Inn and the 103-room Motel 6 are excluded” illuminates the fact that their numbers are truthful … but incomplete. Further, the significant discrepancies between Table 5.1 in the 2011 HVS Report and the 2016 HVS Report creates an information disconnect that is neither clear nor concise.
That is why we went to the clear, concise, complete, truthful and audited numbers in the City of Davis financial reports.
Fourth, let me address your point “I hope you understand that TOT increases and decreases do not just correlate with demand for our hotel rooms. The fact is; our large increases in TOT the past year have come way because of our RATES are growing not necessarily demand.”
Your comment illuminates a very fundamental rule of microeconomics. Price (rates) is the result of the realities of the Supply/Demand curve. The only way that rates can go up is if Supply goes down and/or Demand goes up. In the Davis hotel market since Fiscal 2009-10 the Supply of available hotel rooms has not gone down, so the only way that RATES can be going up (growing) is if Demand has gone up.
The TOT revenues numbers show a calculated increase in Demand of 100%. Increased Demand has produced increases in both the number of occupied rooms and the rate being charged per room.
I would very much enjoy sitting down with you and digging into the numbers further. Please feel free to call me at 530-297-6237 or e-mail me at mattwill@pacbell.net
Thanks for your responses Mr. Willams. I would love to meet in person and talk! I’ll shoot you over an email and we can set something up.
As for our public discussion:
I am fully aware of the TOT taxes that have been collected in the City of Davis for the past 16 years. I am not questioning the amount of TOT that was collected in this City and by Yolo County, I am aware they have been increasing overall the past 6ish years besides FY 13-14 and I believe FY 14-15 .. which for some reason you leave out on your analysis. My original question or rather a concern was in regards to your statement:
In FY 2009-10 the TOT collections were $912,456. In FY 2015-16 the TOT collections exceeded $1,825,000. That is a 100% increase in revenues (demand) due to a 21% increase in hotel room capacity (supply). The existing hotels in Davis were the beneficiaries of 58% of that increase and the Hyatt Place produced the remaining 42%.
More specifically: That is a 100% increase in revenues (demand) due to a 21% increase in hotel room capacity (supply).
What I am trying to get at, is that word “DUE TO”. That is a big correlation you’re taking on there and it’s my opinion that it’s totally off base. The increase in TOT can be correlated partially due to the increased supply of rooms but probably mainly due to recovering economic conditions.
As you mention in your post, our City TOT revenues drop from an all-time high of $1,120,983 to $912,456 from 2007-2009. That in your post is due to the overall economic recession of our nation’s economy. However, you give no attention to the fact that there was also an economic recovery from 2010 onwards. Instead, you correlate the increase in TOT with just the opening of the Hyatt Place. IMO an off-base stance to take publicly, especially as a member of the FBC. The fact of the matter is you can count the number of Cities in California on your hand, who didn’t see a similar increase in their TOT from 2010 to 2016. Can you conclude the entire states hotel market increased because the Hyatt Place UC Davis was built? Far-fetched if you ask me.
It was my mistake to correlate the 2009-10 TOT numbers with the opening of the Hyatt Place. The Hyatt Place was opened in May 2010 and does not reflect the 09-10 numbers.
As far as the HVS studies go, both reports are very detailed and extremely concise. You state neither of the reports indicates or refer to TOT received by the City, however, the 2011 HVS Study clearly refers to the taxes in figure 4-9. Also, TOT tax is not necessarily the best source of information in regards to demand studies, as once again, they do not indicate the overall health of the market (just because TOT is growing, does not necessarily mean the hotel market is suited for more supply). TOT growth indicates a good overall picture of the hotel market, however, data from STR and analysis done by a professional hotel consultants are necessary for hotel demand studies. Also, I do not see any problem with the annual supply numbers – the 2016 HVS study clearly indicated they did not include the Days Inn and Motel 6 room counts in their analysis (the reason the numbers are different from 2011). Lastly, what is the importance of the 2011 HVS study for the Hyatt Place Expansion in our debate on whether a 51% increase in room supply is needed in our market in 2016?
Hotel rates are not very micro-economical. Hotel guests are worldwide travelers. The rate at which a traveler is willing to spend on a hotel room does not only come from demand for that room in that City – hotel rates stem from an overall national economic stand point as a base coupled with the local demand for that hotel room. The point I’m trying to get across here is, growth in TOT does not represent the demand for hotel rooms in our City.
At the end of the day here, I am not arguing the fact new hotel supply can be added to our marketplace and it could potentially benefit the entire city, community, and existing hotels. My concern is the amount of new supply the City should allow before it becomes harmful to existing hotels and the City itself. The HVS clearly indicates what the best route is for us in terms of hotel development: The Embassy Suites and possibly 1 upscale 120-unit extended-stay hotel. I have yet to see why that report is untrustworthy.
Thank you for the post… it rings true… but I have no credentials to affirm it… best to you and yours…
Glad you “weighed in”…
Thank you for your kind remarks hpierce. Best to you and yours as well!
Rashon, thank you for this response. You and I met in person for two hours discussing your concerns and sharing data 10 hours ago. I must have sounded a bit obtuse in that meeting since I didn’t mention your post, but until now, I hadn’t seen it.
What you have said above is wholly consistent with your comments in our meeting this afternoon. So let me start by saying that the way you have read the words “due to” as “only due to” in my December 9, 2016 at 11:40 comment is a meaning that I did not intend. As we discussed this afternoon, replacing the words “due to” with the words “associated with” or “at the same time as” are more satisfactory to you, and from my perspective do not change my original meaning. I have asked the Vanguard to edit my comment to replace the words “due to a 21% increase in hotel room capacity” with the words “associated with, and at the same as, a 21% increase in hotel room capacity” That way any person who is reading my December 9, 2016 at 11:40 comment from this point forward will not be able to make the same inadvertent inference that it is “only due to” the increase in hotel bed supply. Please accept my apologies for putting you in the position to make that unfortunate inference.
As we discussed this afternoon I have been very clear in my past comments on hotel demand in Davis that there are multiple factors creating that additional demand. My October 29, 2016 at 12:14 am comment illuminated five factors, one of which was the 21% increase in supply. The text of that comment was as follows:
Continuing that consistent theme my October 16, 2016 at 11:02 pm comment listed six changes in the hotel room supply demand over the period from 2009 through present. The text of that comment is as follows. (Note the percentages are different from the current percentages because the Fiscal 2015-16 TOT collections had not been reported by the City at the time the comment was published in October)
Prior to those two thorough looks at demand drivers for hotel space in Davis, I addressed two of the drivers in a August 25, 2016 at 9:33 pm comment that read as follows:
That comment was preceded by another demand comment at August 23, 2016 at 1:20 am that read as follows:
That comment was preceded by an August 22, 2016 article I wrote for the Vanguard that read as follows:
With all the above said, I once again apologize for putting you in the position to make the unfortunate “only due to” inference. That was a meaning that I did not intend.
Not a comment regarding hotels, in particular. However, prices (for essentially everything) rise over time, as a result of inflation. (Nothing to do with supply/demand.) No doubt, this impacts the cost of running a hotel over a period of time, as well.
In general, other factors can also increase costs (and prices).
You’re talking theoretically, right? In the 70’s definitely true… not so much in the last 5 years… for SS and PERS/STRS last year the inflation rate was considered to be ZERO… mortgage rates have been lower than they were since the ’50’s…
Supply and demand, interest rates, and inflation are semi-conjoined triplets. Difficult to separate.
hpierce: I should have clarified that local supply/demand may not have been the “cause” of the increase, as Matt had stated.
Mr. Patel’s response is better/more detailed, than mine.
Acknowledged… and my best to you and yours…
But, need to say, if Matt erred [which I do not assume] he did not do so as part of an “agenda”… he meant it honestly… as a very knowledgeable person
…
I think what Ron is trying to get at is the Consumer Price Index as risen over the past couple of years especially for the hotel market not necessarily the nation’s rate of inflation as a whole. The rate for which a consumer is willing to pay for the same hotel room in the past 6 years has risen greatly due to several factors (not just the demand for it in the local marketplace)
Truth is, our latest rate hikes in Davis, CA has been mostly driven by our feeder markets astronomical rise in demand/rates in their cities. A feeder market in the hospitality world is the “gateway” city in which travelers stem from. In our local market, places such as San Francisco, Napa, San Jose, Monterey even Los Angeles and Seattle are considered “feeder” markets. The rates or demand in these markets has risen considerably. The traveler has become more “accustomed” to paying a higher rate at hotels there, therefore, markets such as Davis benefit from this.
Another reason why hotel rates go up, in which has nothing to do with the local demand for a room include rising operating costs…for example, the minimum wage has risen 25% in California from 2008 to 2016 – the greatest operating cost in a hotel (labor) and what many line level employees earn in a hotel. Our expenses go up, our rates go up.
Rashon is correct, the minimum wage in California has risen in recent years. With that said, during the 2010 through 2014 period there was no change in the minimum wage. 2015 moved up from $8 to $9 and 2016 moved up from $9 to $10. So the average annual minimum wage rate during the six year period from 2010 through 2015 was $8.50, which is 6% higher than the starting point. Now compare that 6% increase to the 100% increase in TOT revenues during that same period. In fact the going forward increase of 25% (from $8 to $10) is still small when compared to the 100% revenue increase.
History of California Minimum Wage
effective date ____ new minimum wage
January 1, 2016 __ $10.00
July 1, 2014 ______ $9.00
January 1, 2008 .__ $8.00
January 1, 2007 .__ $7.50
Now let’s deal with Rashon’s comments of the feeder markets. All he is describing is the Price Elasticity of Demand. When consumers become “trained” regarding the price of a product/service in one market and then go to a different market where the price structure is lower than the price structure in their “home” market, their Price Elasticity of Demand in the different market is higher than it is in their “home” market. Higher Price Elasticity of Demand in a market means more Actual Demand in that market. More Actual Demand means more occupied rooms and the ability of the hoteliers to charge somewhat higher rates. More occupied rooms and higher rates mean more hotel revenues, and during the 2010- 2016 period 10% of those higher revenues went to TOT. The result was the aforementioned 100% rise in TOT revenues during that period.
With that said, Price Elasticity of Demand is also affected by competition in the Supply market. One individual Davis hotel can not raise its room rates to San Francisco levels and expect its occupancy to stay the same if the other hotels in town keep their rates at “Davis levels.” As I told Rashon in our meeting Tuesday afternoon, when I was making a reservation for an April hotel night in Phoenix next spring I didn’t use Las Vegas “feeder market” prices as my rate shopping comparison, nor did I use the Lone Pine California rates my overnight stop three days earlier in the trip as comparisons. Instead I used “geographic comparables” in the Phoenix market for my price comparison before settling on the Crowne Plaza as the best price/value offering.
Ron said . . . “However, prices (for essentially everything) rise over time, as a result of inflation. (Nothing to do with supply/demand.) No doubt, this impacts the cost of running a hotel over a period of time, as well.”
You make a very good point Ron, and during the period from 2010 through 2015 the Consumer Pice Index grew by the following percentages:
2010 = 1.6%
2011 = 3.2%
2012 = 2.1%
2013 = 1.5%
2014 = 1.6%
2015 = 0.1%
The sum of those six annual increases is 9.1% (10.5% with annual compounding). That is definitely a component of the 100% rise in TOT revenues, but how significant a component it is, is worth pondering.