Room tax plan pitched to help Iowa City hotel project

IOWA CITY - Officials will consider recycling a portion of the proposed Hilton Garden Inn's hotel/motel tax back into the development in an effort to shorten its tax increment financing period.

On Monday, the Iowa City Council will vote on multiple resolutions to pave the way for the future Kinseth Hospitality Company hotel at 328 S. Clinton St. in the Riverfront Crossings District.

One of those votes will be to divert 50 percent of the room taxes generated at the hotel and send that revenue to the developer until the financing is paid off.

The TIF and room tax diversion will ultimately close an $8.8 million financial gap in the roughly $33 million project.

By doing so, city staff hopes to reduce the TIF rebate period from 23 years to 12 or 15 years.

One of the entities to be affected, the Iowa City/Coralville Area Convention and Visitors Bureau, would see only 50 percent of the hotel/motel tax revenue generated at the Hilton Garden for the duration of the repayment period.

'It's not common and certainly not something that I think many would be excited about in our industry, but that said, this is a property and a project that is very important to Iowa City,” CVB President Josh Schamberger said. 'I think it will actually be minimal to our organization and the other two entities who receive hotel/motel taxes in Iowa City.”

The Local Transient Guest Tax, commonly known as the hotel/motel tax, is a 7 percent tax levied on a hotel, motel or other sleeping rooms for rent to guests.

Locally, the tax revenue is split among several local agencies, with 47.5 percent going to police protection, 27.5 percent to parks and recreation operations and 25 percent to the Iowa City/Coralville Area Convention and Visitors Bureau.

The resolution would not change the division of taxes, but devote only half of the new room taxes generated at Hilton Garden. All other entities subject to the tax would see no change.

The developer has estimated Hilton Garden to generate about $287,000 in the first year of operations, meaning about $143,500 will go to the developer, with the remaining half going to the other entities.

This isn't the first time a development has diverted room tax revenue back into a project.

Coralville's Marriott Hotel and Conference Center also diverts tax revenue back into the original bond to pay off the facility and parking, said Coralville Administrator Kelly Hayworth.

Hayworth said the tax diversion, which has been present since the hotel opened in 2006, is capped at $500,000, with all remaining revenue distributed appropriately. This coming year the hotel is expected to generate $580,000, he said.

'At the time it was really one of the only ways to help fund the overall project,” Hayworth said.

Other Monday votes on Hilton Garden Inn:

' The council also will vote whether to amend the Urban Renewal Plan to allow financial assistance to the hotel project.

' Another vote would approve the $8.8 million in financial assistance to the hotel project, which includes the hotel/motel tax diversion and a roughly 12- to 15-year TIF.