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New Hotel Rooms Won’t Reduce Taxpayer Subsidies; Only Measure M Reduces Losses

Original post made by Chuck Bernstein, Menlo Park: The Willows, on Nov 2, 2014

Two major questions have been raised regarding the taxpayer subsidies required to support the Downtown Specific Plan (“DSP”) as a result of the loss of hotel taxes that were assumed in the DSP’s fiscal analysis.

The first concerns the statement in my earlier post that “Stanford misled city officials into thinking the university was open to developing a large hotel on its property.” Several commentators stated that Stanford never promised to build a large hotel. That may be true, but what are we to believe if Stanford made it clear that no hotel would be built on its property? That no one of the Planning Department staff, the Planning Commission, or the City Council sought to question the one assumption that was responsible for almost all of the net income that presumably would accrue to the city? That during the lengthy and fully vetted process touted by advocates of the DSP, not one person would have asked Stanford about its intentions? That everyone involved was either incompetent in not verifying the assumption or dishonest in not revealing Stanford’s clarification of its intentions?

In the end, it does not matter how it happened that the assumption was made, what is relevant is that the Downtown Specific Plan was doomed once Stanford’s true intentions became known. No one denies the fact that taxpayers will have to subsidize the DSP with higher taxes, higher user fees, lower levels of city services, or some combination of the three.

The second statement suggests that the city has already obtained 146 of the hotel rooms that were needed to avoid taxpayer subsidies. Those derive from two sources: eight additional rooms at the Mermaid Inn and 138 rooms and the Marriott Residence Inn (“MRI”). I am unfamiliar with the first project, but I know a little about the second: I am aware that the General Fund will receive NO REVENUE from the 138 rooms.

The 138 rooms from the MRI are essentially remodels of the 138 rooms from the former Glenwood Inn/Casa on the Peninsula, a senior residential facility. Some residents have decried the loss of an important and difficult-to-replace facility, but I am focusing only on the economics of the matter. There are three reasons that the General Fund will not be the recipient of hotel taxes for this project:

1. The MRI provides extended stays; there is no hotel tax for stays of more than 30 days

The approved plan assumes that 23% of the revenue will NOT generate hotel tax [from the city's analysis: Web Link">Web Link">Web Link">Web Link pp. 698, 708]. If the assumption is accurate, it means that, from an economic standpoint, 32 rooms (23% of the total) should be subtracted from the 138, for a remaining total of 106 rooms.

The assumption of 23% long-term stays may be conservative. It is derived from a similar Marriott in Los Altos. However, there is another MRI located in Mountain View, for which the percentage of long-term stays is not provided. It might be expected that the figure would have been disclosed by Marriott had it been lower than 23%.

It is conceivable that 100% of the stays at the hotel could be long term, meaning that the city could receive NO HOTEL TAX. At the average daily rate assumed in the city’s peer review analysis of $171.31 [Web Link">Web Link">Web Link">Web Link p. 707], a month’s stay would cost no more than $5,300, though longer stays cost less than the average. Compare that to lease prices for Menlo Park homes of $5,000 to $10,000 per month, and it is not unreasonable to assume that local corporations might reserve banks of rooms for visiting or relocating executives.

2. Hotel Tax Revenue has been dedicated to capital improvements needed in the plan area

The revenue originally planned for the General Fund has been dedicated to the Capital Improvement Program “to fund infrastructure projects, in particular circulation improvements, within the El Camino Real/Downtown Specific Plan area” [Web Link">Web Link">Web Link">Web Link p. 579]. Even if there were some surplus revenue deriving from the DSP, none of it will reach the General Fund

Meanwhile, the General Fund will incur additional costs, as disclosed in the original Fiscal Impact Analysis. However, the circulation improvements required by the Downtown Specific Plan, and the total extent of them, has never been discussed in any of the analyses. In the end, the taxpayers will have to contribute even more than expected to make up for the General Fund shortfall created by the Downtown Specific Plan.

3. Marriott gets free parking from the city

Marriott argued that because of the benefits accruing to the city, it should not have to pay to lease needed parking spaces on city property. The council agreed and gave Marriott free parking spaces for at least five years [Web Link">Web Link">Web Link">Web Link pp. 579-580]. The result is that revenue that should have gone to the General Fund is lost, so the General Fund is even worse off: it receives none of the hotel tax and it loses parking revenue for five years.

* * * * *

In sum, there might be an economic-equivalent total of only 114 new hotel rooms (8 + 106), less than half the rooms needed to make the DSP break even financially. Even then, none of it will reach the General Fund because it is now targeted for capital improvements necessitated by the DSP. Though nothing new goes to the General Fund, there will be an additional need for city services as a result of the DSP. Taxpayers will have to pay to make up for the shortfall in the General Fund as well as the Capital Fund shortfall created by the need for “circulation improvements” necessitated by the DSP.

I would love to be wrong about part or even all of the facts I have laid out above. However, I do not think that I am. The result of all this is that we have to pay higher taxes to give developers the right to bring more traffic and more pollution to the city.

Measure M will not fix all these problems, and it certainly won’t give us representatives who will stand up for taxpayers, but it will limit the losses to taxpayers.

--Chuck Bernstein
444 Oak Court, Menlo Park
[email protected]

Comments (15)

Posted by old timer
a resident of Menlo Park: Central Menlo Park
on Nov 2, 2014 at 2:56 pm

Thank you Mr. Bernstein for this analysis.

Another fantastic deal for the developer --- another lousy deal for Menlo Park and its voters.

We need a new council
We need a new City Manager and Senior staff.

Do not vote for the Incumbents

Do indeed vote:

Yes on Measure M


Posted by Unfair characterization
a resident of Menlo Park: Downtown
on Nov 2, 2014 at 3:10 pm

Chuck: Your posts seem aimed solely at getting headlines in the Almanac, yet have no basis. It is pure speculation on the final outcome of the project and there is a long way to go before we are final. The real issue on election day is just based on the limitations imposed by M. Wherever the vote goes -- there will be much work to do so please don't suggest a done deal for the sake of a headline. Voters -- stick to the know facts please.

Thanks


Posted by Roy Thiele-Sardiña
a resident of Menlo Park: Central Menlo Park
on Nov 2, 2014 at 3:12 pm

Roy Thiele-Sardiña is a registered user.

Sorry Chuck....you are wrong

The average stay at a Marriott Residence Inn is 8 days, while you CAN stay there longer, most don't. I called a friend at Marriott and asked (you know like calling the source instead of making stuff up)

So those rooms WILL be paying the occupancy tax!

Chuck, you have an MBA, even you must admit that it would be suicide for Stanford to put a hotel next to the one they already own. Besides there are Three hotels/motels in that area already.

So while all this posturing may make you feel good it's complete hogwash to blame Stanford. If Heyward, Kelly, Patti, Mike, Perla and you want another hotel, buy some land downtown and build one. But you better make sure there are customers for it first....you know Offices with people visiting!

Measure M is a Mistake
Vote NO on M

Roy Thiele-Sardina


Posted by Observer
a resident of Portola Valley: other
on Nov 2, 2014 at 4:58 pm

Respectfully, Mr. Bernstein, this analysis might be on point for a Menlo Park voter initiative "to compel Stanford to build a profitable hotel in MP."

But that is not Measure M.

And there is some irony in now having M pitched as something which would "limit the losses to taxpayers," rather than the shut down all growth/keep the vacant lots measure that it really is.


Posted by Observer
a resident of Portola Valley: other
on Nov 2, 2014 at 5:22 pm

The provocative headline reads: "Only Measure M Reduces Losses."

Really? Now M is about reducing losses?

So by trying to stop projects which would fill vacant lots with revenue producing buildings/tenants, M is somehow suddenly about reducing monetary losses?

Would M's duly authorized spokesperson please weigh in? And take a position supported by facts?


Posted by Observer is right
a resident of Menlo Park: Allied Arts/Stanford Park
on Nov 2, 2014 at 6:15 pm

Observer is right. This is his second time posting a headline intended to get attention in almanac, without any apparent substance related to M itself. I think voters are aware of the tactic.


Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Nov 2, 2014 at 6:40 pm

Peter Carpenter is a registered user.

"Would M's duly authorized spokesperson please weigh in?"

There is no such individual.

Measure M and Save Menlo operate behind a screen of obscurity so that nobody is responsible.

Accountability is not their thing.


Posted by Chuck Bernstein
a resident of Menlo Park: The Willows
on Nov 2, 2014 at 6:44 pm

Observer:

I'm not a "duly authorized spokesperson" for Measure M, but I wrote the headline.

If you would be willing to disclose your e-mail address, Observer, I would be happy to send you the detailed analysis I did using the city's Fiscal Impact Analysis as a foundation. It was presented to the City Council in the fall of 2011.

Here are the facts that support my position:

1. The city's analysis showed that the large hotel in the Downtown Specific Plan ("DSP") generated $13.44 per square foot for the general fund. Retail uses contributed a net of $3.63 per square foot to the city’s general fund, while office space contributed less than a third of that ($1.12). The gap between the retail and office was even larger when the cost of the parking garage was factored in ($3.02 vs. $0.42). Per square foot, hotel and retail generate substantially more net revenue than office space. By replacing the originally planned hotel and retail space with more office space, the losses attributed to the DSP are increased.

2. Measure M reduces the amount of office space downtown, which increases net revenue to the city. The city's own fiscal analysis said the DSP would result in a loss to the general fund of $250,000 per year without the hotel and with a specified amount of retail. Increasing the amount of office space over the amount shown in the plan will increase the amount of the losses to the city. (All calculations and data are available from [email protected])

Roy Thiele-Sardina's comment about the the large hotel is right on point: it probably would not have made sense for Stanford to build a hotel next door to an existing hotel. I'm not blaming Stanford here; I'm blaming the city officials, planners and council members, who were willing to financially justify the entire project based on the assumption that Stanford would build a large hotel. Could council members have voted to approve a project that required a taxpayer subsidy for developers year in and year out?

Roy (thank you for using your real name) may again be right about the average stay at the Marriott Residence Inn. Marriott itself said that 23% of its revenue would not produce hotel tax. Your comments do not alter that. I am suggesting that Marriott's estimate may be conservative. In any case, the 138 rooms of an extended stay are not equivalent to 138 rooms in the type of hotel that the fiscal analysis assumed.

Development should make us better off financially. When we are worse off, it just doesn't make sense.

Measure M will not cure the defects in the DSP. However, it will reduce the financial impacts of them.

Observer, my preference would have been a referendum to eliminate the DSP because its flaws cannot be remedied. However, I was not a decision maker in the creation of Measure M. I am hoping that the passage of Measure M will force everyone back to the table to craft a plan that would make sense financially. That new measure could then be submitted to the voters and, hopefully, obtain a large plurality of support. Despite opinions to the contrary, that was not done in the original planning process. Residents did participate originally and planners listened to their opinions. However, when the plans were drawn up, the opinions were ignored. I know because I participated. I pushed, for example, to have El Camino (and the train) undergrounded to siphon off the commute traffic to and from Stanford without clogging Menlo Park. However, planners rejected the idea for cost reasons even though they never obtained any estimate for the actual cost. It is interesting to see that Palo Alto is now considering undergrounding the train through a major portion of the city.

In short, I do not consider Measure M the end of all this. I consider it a new start for a plan that makes sense.

--Chuck Bernstein


Posted by Observer
a resident of Portola Valley: other
on Nov 2, 2014 at 7:03 pm

Mr. Bernstein - I appreciate your thoughtful reply. If M was framed as "we have a some good ideas, please listen to us," or even "let's force everyone back to the table." I could live with that, despite the inherent delay.

But as currently framed in language which cannot now be changed, M goes, way, way beyond that and is attempt to obstruct growth of any kind.

We lived in MP when some of the main supporters of M ruled. They are absolute zealots of no growth, but feign the appearance of measured due diligence and study, while delay is their main goal.

I appreciate your acknowledgement that you are not an official spokesperson for M.

But again, the absence of any duly authorized spokesperson or real accountability is one M's key problems.


Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Nov 2, 2014 at 7:10 pm

Peter Carpenter is a registered user.

" I do not consider Measure M the end of all this."

This is exactly the problem.

Save Menlo petitioned the Council and Stanford and they got everything they asked for.

Their response was not a polite Thank You bit to remove their petition from their web sir and to move on to Measure M.

Measure M supporters have said that they will start a new initiative if Stanford submits a Measure M compliant proposal.

Save Meno is really Stop Menlo.


Posted by M prohibits new dialogue without vote
a resident of Menlo Park: Central Menlo Park
on Nov 2, 2014 at 7:25 pm

Chuck. You seem to miss the main point, despite your detailed analysis of other matters. If dialogue and compromise ultimately drive the result, which I think we both believe is likely, then M's restrictions and vote requirements stall or kill progress. Imagine a compromise that meets a range of goals yet office space exceeds the M standard by 1000 sf. Then what? Our town has to vote yet again. Civic systems are imperfect but over time they do function and restrictive initiatives seem on,y designed to inhibit progress. I vote for the right process fir the best result over time.
Thanks


Posted by Chuck Bernstein
a resident of Menlo Park: The Willows
on Nov 2, 2014 at 10:41 pm

I appreciate the tone and thoughtfulness of the above replies.

I will vote YES on Measure M because it may limit what is built before reason can prevail. In that sense, "M prohibits..." is correct that I want to stall "progress" (which I view as synonymous with "financial disaster," in this case). However, if Measure M is defeated, the Stanford and Greenheart projects will be built as proposed and it will be game over. There will be nothing left to discuss.

--Chuck Bernstein


Posted by George C. Fisher
a resident of Menlo Park: Central Menlo Park
on Nov 3, 2014 at 6:21 am

The city attributes only 87 hotel rooms from the Marriott project to the Specific Plan new development, This is part of its phony accounting that net new is not actually net new. in the marmot case it only counted as new the equivalency of purported new car trips. In the Greenheart case it deducts 110,000 sf because that amount of impacts were considered in an earlier proposal. However those impacts, which never occurred and the project never built could not be considered for the current Environmental Impact Report and Planner Rogers admitted in the greenheart infill EIR statement (p.2-12). If non built substantially different projects can't be considered for the EIR, they must be considered new development purposes meaning with Stanford and Greenheart projects, plus the earlier 74,000 sq face attributed to hotels (only87 for marriott and 14 for mermaid, or 101 rooms) the Specific Plan maximum would be exceeded. Measure M is needed to limit office space and prevent staff from phony accountings.

Let's see is it really fair to say marriott project is only 87 rooms for specific plan new space, but 138 rooms for attributing revenues to specific plan. Is it really fair to admit the prior greenheart project of 110,000 was never built and substantially different (no office space) that it can't be considered as an impact for EIR purposes, but can be considered an impact to deduct for maximum net new development calculations under the Specific Plan. Even Lisa Wise pointed out the phony accounting difficulties impairing possible new development. The city is so smitten with its specific Plan it is misleading voters on its web site and desperately trying to sneak Stanford and Greenhearts new 400,000 sf of office in by phony accounting. Vote yes on m and don't vote for incumbents, who can't or won't control staff.


Posted by formerly undecided on M
a resident of Menlo Park: The Willows
on Nov 3, 2014 at 6:48 am

My experience with Marriottt Residences is perhaps relevant. I've hosted foreign business visitors who would typically stay for a week of planning and review meetings. They loved having space to work amongst themselves at night to prepare for the next day - sit have a beer and not be out in the US public 100% of he time. Long term team visits (6-12 months) would be set up in furnished apartments. I never worked with some one that stayed a month at at an MRI

VRBO/airbnb are actually more the competitor for MRI. In Europe I have rented apartments and seen others do this while working trade shows etc.

Menlo Park MRI has has a nice advantage due to Caltrain access to SF as well.

How do VRBOs get taxed for occupancy? That seems like a potential revenue source.


Posted by Menlo Voter
a resident of Menlo Park: other
on Nov 3, 2014 at 7:12 am

Menlo Voter is a registered user.

"However, if Measure M is defeated, the Stanford and Greenheart projects will be built as proposed and it will be game over. There will be nothing left to discuss."

Chuck:

that is patently false and you know it. The Stanford project has already been in negotiation and has now been sent back to "the drawing board" due to the latest traffic study. That work can and will continue if Measure M fails. The only thing that will cause "game over" is if Measure M passes. It will stop virtually all development, especially with it's "frustrate" language. It will also prevent further negotiation. Measure is nothing but an antidevelopment tool to stop development.

It's really sad Chuck that you come on here and present falsehoods.

Measure M is a MISTAKE

Vote NO on M


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