Feb. 11--Virginia Beach is poised tonight to support a plan to use $6 million in local taxes from the Cavalier hotels to help finance their renovation and construction.
It's not a new request. Developer Bruce Thompson had said all along that he'd need to use the "gap financing" tool approved by the General Assembly in 2011 to help pay for renovating the historic hotel on the hill, the beach club and building a new oceanfront hotel.
He estimated he'd spend $259 million over 10 years to restore the crumbling 1927 building to its splendor and put a first-class development beside it and across the street, but he couldn't do it without the city's financial support.
But whether the plan to use gap financing -- 1 percent of state sales taxes generated by the projects, 1 percent of local property tax revenue and a matching amount from the developer -- is fair when Thompson's oceanfront hotel will compete with existing hotels is worthy of discussion.
In the City Council's hurry to approve the plan in June, allowing Thompson to meet a July closing date on the Cavalier property, it did not spend adequate time analyzing and explaining the deal's financial components.
Virginia Beach has agreed to provide $8.2 million, the largest economic development grant in Beach history. It also would take $2.37 million from the account for open space, $2.5 million in road money and no more than $5 million in incentive payments from the additional real estate tax created by the developer's investment. According to the city's website, "$18 million altogether."
But with $18 million now requested in gap financing -- one-third each from the state, city and developer, representing 12.4 percent of the project's cost -- that's $6 million in city real estate taxes and $6 million in state sales taxes that would otherwise go into city coffers.
Gap financing, a law Thompson pushed for in 2010 when he was chairman of the tourism subcommittee of Gov. Bob McDonnell'sCommission on Economic Development and Job Creation, is supposed to fill a void in the city's tourism development plan.
There's no question that restoration of the once-grand hotel would offer something no existing hotel has. There's no question Thompson is a visionary with first-class ideas, and he's sinking a chunk of money into the city. But using grants and tax money to help pay for another hotel across the street puts it in competition with those that receive no help from taxpayers. How is that filling a void?
The project would be only the second use of such financing in Virginia.
Gap financing projects must be at least $30 million, make at least $1 million in annual taxable sales and increase year-round employment. Financing can't exceed 20 percent of projected costs, and the plan must be approved by the Virginia Tourism Corporation and certified by the state Comptroller.
The details of the financing, the question of fairness and competition for other hoteliers, the size of the economic development grant all demanded discussion. In the rush to meet the developer's deadline, the city failed to have that conversation. It should have it now.
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