A bill to amend the USVI’s Hotel Development Act, allowing hotels that suffered storm damage to use the financial tools to help finance their recovery, was unanimously approved by the Senate Finance Committee last week and moves on to the Rules and Judiciary Committee.
The original law allowed tax increment financing (TIF) to be used to pay for government infrastructure for the shopping center that houses St. Croix’s Home Depot. The idea is to bootstrap development without directly paying out of government coffers by pledging only tax revenues that would not exist without the development. The original law only allowed the financing for government-owned infrastructure. The 2018 amendment expanded the financing to private buildings and only new construction to include “repair or remodeling,” allowing support from TIF for remodeling hotel rooms.
Sen. Kurt Vialet, who proposed this year’s Bill 33-0104, said that after the two 2017 hurricanes, he found himself in a discussion with the owner of a St. Thomas marquee hotel about how the V.I. government could help spark the redevelopment of that particular property. He and the owner discussed whether it was feasible to increase the hotel occupancy tax with the owner using the difference to finance the improvement.
The most notable of the proposed amendments, but certainly not the only one, is the Economic Recovery Fee.
The fee would allow hotels in the Virgin Islands to add 7.5 percent to their hotel occupancy tax, Vialet said, and to utilize three different tiers according to the developmental phase of the project. Developers would be able to use the money as leverage in order to receive financing or as leverage to recoup some of their original investment.
The bill also seeks to aid existing hotels in the territory.
“For those hotel projects where less than 70 percent of the units have not been able to be occupied due to natural events related to the hurricanes … 50 percent of the revenues generated from the designated hotel room occupancy tax and the designated casino tax on gross revenue and 100 percent of the gross revenue generated from the Economic Recovery Fee, if applicable, shall be allocated to and deposited into the project fund,” Vialet said.
He said developers would be able to utilize 50 percent of the hotel occupancy tax and 100 percent of the amount over 12.5 percent.
The last tier, Vialet said, would provide aid for hotel projects that require reconstruction and the renovation of existing hotel sites where 100 percent of the revenue generated from the Economic Recovery Fee and no revenues generated from the designated hotel occupancy tax and casino tax on gross revenues would be allocated to and deposited into the projects fund.
“For those, they will be able to retain at least 7.5 percent, but the 12.5 percent will remain with the government,” Vialet said.
Attorney George Dudley, representing the St. Thomas – St. John Chamber of Commerce, testified in favor of the measure and said tourism, particularly hotel tourism, has driven economic growth throughout the Caribbean. Yet, he also pointed out how but the U.S. Virgin Islands’ economy has become stagnant, and the territory is significantly behind the rest of the Caribbean in its tourism development.
“There are economic development opportunities occurring all around the Caribbean. Time and again, one hotel development after another has been proposed (in the USVI) and has either been actively opposed or delayed until the intended developer finally gave up and left the territory,” Dudley said.
Dudley cited many Caribbean islands, such as Saint Kitts and Nevis, that have added more hotel rooms in the last five years than the Virgin Islands has added in the last 25 years, noting that 188 new hotels were under construction in the Caribbean Basin.
“I mention all these statistics to emphasize the importance of Bill 33-0104,” Dudley said. “With this legislation, we finally make a meaningful commitment to add to hotel development and to attract hotel developers.”
While Vialet’s original idea was to give the projects 100 percent of everything, the senator said the government needed to retain a certain level of the hotel occupancy tax for advertising and the tourism budget.
“So we wanted to make sure that you would be able to retain that but come up with a formula for moving forward that would spark hotel development,” he said.
Vialet stressed that the bill would not increase the hotel occupancy tax across the board, but it would provide the option for hotels to increase their own hotel tax. The money would be deposited into a fund that would allow for the direct payment of projects or for developers to secure loans to pay for renovations and improvements.
Also attending the hearing and supporting the bill were testifiers Tourism Commissioner Joseph Boschulte, Public Finance Authority Executive Director Kirk Callwood, Economic Development Authority Assistant Chief Executive Officer Wayne Biggs, Economic Development Authority Chief Executive Officer Kamal Latham, and attorney Marjorie Roberts.
Sens. Vialet, Allison DeGazon, Donna Frett-Gregory, and Dwayne DeGraff all voted in favor to pass the bill to the Rules and Judiciary Committee. Absent from the vote were Sens. Oakland Benta, Marvin Blyden, and Janelle Sarauw.