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July 25, 2017 11:42 am

Tax Breaks and Up Front Cash – How the Hotel Deal Would Work

Wednesday, January 11, 2017 @ 6:00 AM

Prince George, B.C. – There has been much talk  about  proposed  tax breaks and lump sum payments in  order to  seal the deal  to build the Marriott  Courtyard Hotel in downtown Prince George.   The fact is,   it will be Northern Development Initiative Trust that has the final say.

It was in 2011 that  the City, NDIT, and Initiatives Prince George came up  with a plan to spur development  in the downtown.   Accessing dollars from  a special NDIT fund,  a developer  could apply to  have  either a ten year break in  Municipal  taxes based  on the difference  in the assessed value because of the improvements,  or get a lump sum  payment  up front of  what those estimated municipal taxes  would be  over the 10 year period.    The  lump sum payment would then be paid back to NDIT by  the  amount collected in taxes  over the  ten years.

What  is different in the  deal  for the hotel,  is that the City is looking to change the agreement with NDIT so the  property owner could get  a combination of both  the lump sum payment   and a  tax break.

Here’s how it would work:

Hypothetically,   if the completed hotel is assessed at $30 million, it’s estimated the municipal taxes over that decade  would be $5 million or about  $ 500 thousand annually.  Under the current  Revitalization Tax Incentive program, the  project would be entitled to $5 million.

Under that scenario, the project is entitled to  $5 million, but there is  only about $3.2 million left in the applicable NDIT fund,  so,a mix of  lump sum  dollars and tax breaks is being proposed.  The property owner  would  get that full amount up front  and  pay  the City $320 thousand a year in taxes  for the next ten years to repay the NDIT.  The $1.8 million dollar  balance,  would equate to  about $180 thousand  dollars a year in municipal taxes  for ten years.  Under the proposal,  the property owner would be exempt from  paying the $180 thousand a year in municipal taxes for a full decade.

Once this ten year period has lapsed, the property owner is responsible for their full annual tax payment.

The special NDIT fund that currently exists is a one-time project.  Once that fund has been depleted the program is over, there won’t be any money to offer to other developers.   The money repaid to NDIT would go into general funds.

This is not a done deal.

The proposal to change the existing agreement has been submitted to NDIT staff for review.  The Mayor and administration have indicated they will work with NDIT to change the existing contract and it is the Board of the Trust which will decide if this proposal should or shouldn’t be approved.

At this time,  there is no word on when the Board may  consider this proposal and make a decision on whether or not it can go ahead.

 

 

Comments

So how is this fair for the other hotels who’s tax dollars are paying for this? Or are they giving all the downtown hotels tax breaks?

I realize that the past couple of days have been exceptionally cold again and that we have had the holiday week between Xmas and New Year, however, I have not noticed continuing work on the second wing of the hotel construction for several weeks.

It is going to start to turn warmer, much warmer, by the weekend. It will be interesting to see whether construction will continue or not. Perhaps there are other forces at play as well that has stopped or slowed down construction.

Perhaps uncertainty about the “deal” is playing a part.

That 500 million in taxes is half the percentage increase we had last year is it not? Without their free ride property tax increases could be held back for the entire city?

sounds like a good way to keep investments happening in downtown, except for the inequities to established business’s who has made investments prior to the tax break deals.

I am so fed up of giving big business my tax dollars so they can take the money and leave town with it, as profits. I hope they at least pay the employees well and maybe some tax dollars stay here in PG.

It is similar to enticing car makers to locate in the state or province of various countries. They are offered hundreds of millions of dollars, free infrastructure (roads, rail lines, water, sewer…) and tax holidays for several years. The payback is in the form of taxes that future employees will pay plus the multiplying effect of creating about 6 new jobs for every new employee in the new assembly/manufacturing plant.

Usually it is fierce competition with offers trying to out bid each other.

the City’s revitalization, devalues old buildings in PG, which one is next, and the City said: we are short rooms, should give the same tax breaks to the Connaught Inn, using those dollars inheirited from the sale of BCRail

So, the developer is to get 5.0 million up front, but NDIT only has 3.2 million, so I assume the city is cutting a cheque for 1.8 million.

So just to be clear, there’s another approximate $350,000 subsidy.

The city either has to borrow the 1.8 million or has to use reserve funds that it is currently earning interest on to fund it. I’m let’s assume they can borrow at 3.5% and earn at 2.5% – so average rate 3%.

Under the normal scenario, the city would forgo 1.8 million cash inflow over 10 years, but it’s actually losing it today, and getting it back over 10 years. So in year one alone, the city has to pay $54,000 on the 1.8 million. I estimate about $350,000 of interest paid or forgone under this scenario.

You could paint a lot of bike lanes for that.

    The city’s portion would be a tax break totalling 1.8 million from what I read.

      Well, I’m missing something because they say the developer get’s the full amount up front – 5 million. NDIT only has 3.2 million, so city has to be cutting the cheque for 1.8 million. I think maybe the full amount is suppose to be 3.2 million, in which case it makes sense.

      The full amount referred to is the 3.2 million.

The way I read it, NDIT would loan the developer $3.2 Million . This would be paid back to the city in taxes and the city would pay the taxes back to NDIT to offset the loan. So in effect the developer gets a tax exemption up front, is then assessed full taxes and the city pays back NDIT. Because there is only $3.2 Million left in the fund, the City wants to give the developer a further $1.8 Million in the form of a tax exemption so that they get the full value of the $5 Million. The $1.8 Million is a tax exemption over 10 years,.

The problem is, is that the program does not allow a developer to get a loan, and a tax exemption, so NDIT are not in favour of the City giving the $1.8 Million. The City on the other hand wants NDIT to change the rules, so that they can allow for the loan, and the tax exemption. NDIT don’t want to change the rules.

Thats my understanding, I am sure if I am wrong someone will correct me.

Hit the nail on the head Palopu!
As for those complaining about this project getting a tax break.
This program is also available to other properties downtown, either new builds, or substantial renovations can apply for a 10 year tax abatement for either the entire tax bill in the case of a new build, or on the increase in taxes caused by the substantial renovation. The Ramada Hotel, the Goldcap, and the Coast Inn have taken advantage of the program.

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