Two bills broadening the ways tax revenues can be used to finance hotel construction and renovation moved closer to becoming law when the Rules and Judiciary Committee sent them to the Senate floor for final votes.
One [Bill 32-0137] expands Tax Increment Finance benefits to use future tax revenues to pay for purely private projects.
TIF financing pledges the future increase in tax revenues, the incremental difference between what sort of taxes, especially property taxes, that are paid on a property and the expected increase in tax revenue that results from developing the property, as security for loans to pay for that development.
Enacted during Gov. John deJongh Jr.’s administration, this sort of TIF financing was 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 V.I. law only allows the financing for government-owned infrastructure.
The proposed legislation, sponsored by Sens. Kurt Vialet (D-STT) Marvin Blyden (D-STT), Neville James (D-STX) and Novelle Francis (D-STX) would expand this financing to private buildings, and from only new construction to include “repair or remodeling.”
It expands the sources that can be used to secure the financing to include casino receipts and hotel occupancy tax revenues, in addition to the property taxes and gross receipts taxes already allowed.
Gov. Kenneth Mapp vetoed similar similar legislation in 2016, saying it would give “the owners of the hotel and casino at Caravelle Hotel access to pledge government revenues to fund its capital investment requirement.”
At the time, slot machine operator VIGL had announced plans to build new hotel rooms to meet its casino license requirement at the Caravelle Hotel. The U.S. Virgin Islands legalized casino gambling as a way to incentivize hotel development on underdeveloped St. Croix. Developers must build or renovate 75 rooms for the license type the Caravelle holds.
Recently, VIGL announced it will not be building any hotel rooms after all but has instead bought the King Christian Hotel and Company Street Hotel in Christiansted and plans to remodel enough rooms to meet the license requirement. (See Related Links: Instead of Building Rooms, VIGL Buys Two Hotels.)
This new version of the legislation would also change V.I. law to allow TIF financing for remodeling hotel rooms.
VIGL has not announced plans to use this tax-financing program and did not testify at the August committee hearing on the legislation.
The bill approved Thursday also places a statutory lien on the tax revenues, so that the hotel’s lenders would have an enforceable lien on the tax revenues.
Separately from its hotel operations, VIGL is planning to make major renovations to the territory’s two horse racing tracks in exchange for the franchise on running the horse races and the right to place slot machine parlors at the tracks. The territory changed its casino laws to accommodate that plan in December 2016.
The other bill, [Bill 32-0136], makes changes to the territory’s Hotel Development tax benefit program largely pointed at enhancing the security for a potential lender. Under existing law, enacted in 2011, a hotel developer can have the Public Finance Authority set up a trust fund into which its casino and hotel occupancy taxes will go. Those funds can be used to pay off loans incurred to build the hotel.
The proposed changes would allow the tax money to be paid to a trustee or a trustee’s agent, bypassing the PFA. It would also create a statutory lien on the funds, preventing the V.I. government from doing anything else with the funds. And it allows the “note issuer” to “(p)ledge, mortgage or assign monies, agreements, property or other assets of the PFA or the Government, either presently in hand or to be received in the future or both.”
But the measure says “notwithstanding any other provision” the loans “are not in any way a debt or liability of the Government” and the debt is not secured by the full faith and credit or the taxing power of the government “other than the revenues authorized under this chapter.”
Senators were not overly enthusiastic about expanding tax financing of private projects but supported the changes, expressing hopes of spurring development.
Sen. Positive Nelson (ICM-STX) said he was not originally a supporter of TIF “and I’m still not sold on it.”
But he said he would vote for it.
“The bottom line is we are trying to encourage jobs. … And we need to provide incentives for the certain types of investment we seek,” Nelson said.
“The idea that we are tying up future revenues is always scary,” he added said. But if it is tied to development and it is new revenues that are going to the debt payments, he may be able to support it, he said.
Sen. Jean Forde (D-STT) said “we must recognize the government has a responsibility for stimulating the economy” and the quality of life of residents.
“We have a lot of challenges. We have a lot of competition if you will. … It is incumbent on us to be most creative” because “financing for hotel development has become very scarce,” Forde said.
Sen. Janelle Sarauw (I-STT) said she would support the measure in hopes of encouraging economic development but hopes that at some point the revenues will not all go to debt payment and some will eventually be available for needs like teacher salaries.
“I’m just saying that is our future goal,” she said.
Voting to send both measures on for a final vote on the Senate floor were: Forde, Francis, Nelson, Sarauw and Sen. Myron Jackson (D-STT). Sens. Janette Millin Young (D-STT) and Sammuel Sanes (D-STX) were absent.
