Letter: Is hotel tax break fair?

Most people would like to see the full-service downtown hotel (Hotel MoHi) completed. 

The hotel’s skeleton was built in 2019, but very little has been done since then. Two years ago, Frank Leal, the hotel’s developer, came to the Morgan Hill City Council and requested that his hotel exceed the height limits for downtown Morgan Hill so that he could obtain the necessary funding to finish the project. 

The city council gave him that concession, permitting him to have a five-story hotel, with 13 more rooms than originally planned. Two years later, the hotel still hasn’t been completed. 

Now, Mr. Leal and his partner Appellation Hospitality told the city council that their budget for building the hotel has gone from $40 million to $75 million in just two years. Their latest request is to have a $6 million dollar tax break in today’s dollars, which results in a potential tax break of $10.4 million dollars over 15 years. That’s right, $10.4 million dollars!

I would like to see a full-service downtown hotel with a Charlie Palmer restaurant in Morgan Hill, but how much should we be willing to pay for it? Morgan Hill often has a budget deficit of several million dollars. 

Should the city’s coffers be used to help build a downtown hotel? Or should Morgan Hill use that tax revenue that it would have collected for infrastructure or public safety?

What about the increase in costs? Doesn’t it seem unusual that a full-service hotel that cost $40 million dollars two years ago to build would now cost $75 million dollars? Sure, there has been inflation, but nearly doubling the price tag isn’t explained by inflation. 

The plans have always been to build a luxury hotel, so why does it cost so much more now? Their answer was Covid, but Covid was already an issue four years ago. 

The developers’ requested “tax sharing plan” is one where Morgan Hill would receive taxes first before the hotel receives a tax break. In other words, only if the hotel exceeds a certain threshold, would the hotel be entitled to a tax break. I would love to request that the IRS engage in a “tax sharing plan” with me so that if I decide to work next year I wouldn’t have to pay as much as I am legally required to. 

In other words, this is a handout to the developers to finish their project. 

Furthermore, this large tax break to the downtown hotel is 40 times as much as what the existing hotel owners can access through the city’s Hotel Incentive Plan. Disclaimer: my mother owns the Comfort Inn & Suites in Morgan Hill. And yes, we have been fully paying our transient occupancy tax even though our costs have risen, and revenue is down. 

Our tax rebate is limited to $250,000 if we decide to renovate the hotel.  

Two of the city council members courageously stated that this proposal was being rushed prior to a summer break and more time was needed to consider this proposal. The Visit Morgan Hill board was not ready to support the measure given the inequities to existing hotel owners. 

Perhaps the mayor said it best when he exclaimed that “this or future councils may not have the appetite to do this,” just before the city council narrowly approved the measure by a 3-2 vote. 

Any bets on when the developers will return to the city for the next concession they need? 

Asit Panwala

Santa Clara County