UC Berkeley’s planned downtown hotel and convention center is part of a growing trend for UC campuses that lure cities with the promise of big tax revenues. But in at least one case, university ownership delivered exactly the opposite.
The trend itself is clear. In Davis, a similar development is in the planning stages, while in San Diego a new hotel and convention center will open next year and in Santa Cruz the university assumed control of a Holiday Inn two years ago.
The projects arise from the desire of the universities to profit from their steady streams of visitors and the demand for conference space and the hunger for cities to snare room tax money from university land usually exempt from local tax rolls.
A downtown Berkeley hotel offers the city’s cash-starved government the chance for lucrative 12 percent transient occupancy tax revenues, which Mayor Tom Bates estimates could run as high as $1 million annually. The city also stands to collect possessory interest taxes—a poorer sister to the property taxes that the university, as a state entity, doesn’t have to pay.
According to the university’s own projections of an average room price of $130 and a 65 percent occupancy rate in 2006, the hotel would generate roughly $730,080 in hotel taxes its first year of operation.
Other UC developments offer cities the same revenue streams, but the money doesn’t necessarily materialize.
Santa Cruz offers the worst case scenario, where UCSC signed a long-term lease on a Holiday Inn Hotel. But instead of renting rooms to visiting parents or alums, the university turned most of it into student housing. Since the students live there for more than 30 consecutive days, they aren’t considered transients and the city doesn’t collect the taxes they received from guests during the building’s Holiday Inn-carnation.
“We’ve certainly lost about $200,000 in revenue,” said Santa Cruz Finance Director David Culver, adding that the hotel brought in as much as $500,000 in taxes for the city in 2000 at the tail end of the economic boom.
After prolonged negotiations, UCSC eventually paid the city $75,000 to mitigate the lost revenues, he added.
But Davis City Manager Jim Antonen complimented UC for addressing his city’s concerns. Since the planned hotel will be just outside city limits on county land, the university agreed to downsize the project to lessen the potential loss to Davis’ hotel tax revenues. Davis and Yolo County officials are currently negotiating a split of hotel tax revenue from the project.
UC Berkeley Senior Planner and Project Manager Kevin Hufferd said the Santa Cruz scenario wouldn’t happen in Berkeley. “We want this to serve the short-term visiting needs of scholars and family members,” he said.
The Berkeley development would replace the Bank of America branch at the corner of Shattuck Avenue and Center Street with a 200-room hotel/convention center, including 15,000 square feet of conference space, a 5,000-square-foot bank and underground parking. The estimated $200 million project would be financed in conjunction with a private developer and could be completed as soon as 2007.
Additionally, in the second phase of the project, UC would pay to move the Pacific Film Archive, Berkeley Art Museum and Phoebe Hearst Anthropology Museum to UC-owned buildings just east of the hotel development.
While a precedent has been set for cities to collect occupancy tax revenue from university-owned hotels, property taxes usually remain out of reach.
Weldon Smith, a supervisor in the Alameda County Assessors Office, said the downtown hotel would be exempt from property taxes, but as a moneymaking venture, the complex would have to pay a less cumbersome possesory interest tax that taxes the owner on investment income, and not a fixed rate based on the value of the property.
The longer the lease and the more valuable the property improvements, the closer the possesory tax would approach the standard property tax, Smith said.
Some state universities have opted to voluntarily place their hotels on the tax rolls. Jim Purdum, general manager of Pennsylvania State University-owned Penn Stater, a hotel and conference center in State College, Penn., said the university had agreed to pay full taxes to “mitigate the burden for the city.”
Culver said Santa Cruz won a ruling from the Santa Cruz County Assessor to keep the former Holiday Inn hotel on the tax rolls despite the UCSC takeover.
Berkeley City Attorney Manuela Albuquerque said through a spokesperson that her office was reviewing both hotel tax and property tax law to determine the city’s legal rights.
Meanwhile Hufferd insisted that the hotel would not offer special deals to university groups that could diminish the city’s hotel tax revenue. “This will be a hopefully affordable market rate hotel,” he said.