Government attempting to renegotiate hotel tax rebate
Cayman’s largest developer Dart Realty has requested that government “confirm its commitment” to fulfill its “outstanding obligations” under the National Roads Authority agreement, including the closure of a second section of West Bay Road and a 50 percent rebate on hotel room taxes.
The developer says it is moving ahead with its side of the bargain and has spent nearly $25 million to date on the construction of the Kimpton hotel, as well as $30 million on the extension of the Esterley Tibbetts Highway into West Bay.
Premier Alden McLaughlin said Monday that his administration had made “no progress” in its efforts to renegotiate parts of the agreement struck between the developer and the previous government.
High on the list of government’s concerns is a 10-year rebate on room taxes given to Dart for any hotel developed or refurbished within the next 30 years – a concession that consultants estimated would be worth around $60 million within 20 years.
Hotel taxes are currently charged at 13 percent of the price of a room, so for every tourist booking a $100 hotel room in the Cayman Islands, government would ordinarily get $13.
Jackie Doak, chief operating officer of Dart Realty, said the developer had been willing to discuss alternatives to the rebate but expected government to honor its “contractual obligations” if no acceptable amendments could be agreed.
Negotiations appear to be gridlocked currently. On Monday, Kurt Tibbetts, the minister for infrastructure, commented, “One side can see one way and the other side doesn’t see it that way up to now.”
Ms. Doak said Dart had last met with government officials on Feb. 5 and was still waiting for an invitation to continue discussions over its requested changes to the National Roads Authority agreement.
She said, “The NRA Agreement is a binding agreement and Dart continues to fulfill all of its obligations. On a number of occasions, most recently on March 18, we have requested that government confirm its commitment to address its outstanding obligations. We have not received a substantive response from government.”
She said Dart had received assurances that the second half of the West Bay Road closure would take place as agreed, but had been given no dates for implementation.
Meanwhile, work continues on the Kimpton hotel, with the foundations nearing completion, and the official opening penciled in for summer 2016.
Ms. Doak said government had first indicated a desire to renegotiate the hotel tax rebate – which was part of the signed agreement – in July last year.
She said the developer had proposed “several different solutions” following meetings in October last year, and government had replied with a proposal of additional changes.
She said Dart was prepared to discuss the changes, despite having a signed agreement in hand.
But, she added, “In the absence of any agreed amendments, we expect government to honor its contractual obligations made under the executed NRA Agreement.”
A PwC value-for-money report estimated the value of the hotel tax rebate at around $60 million over 20 years and expressed concern that this and other concessions would put other players in the local hotel market at a competitive disadvantage. The report also concluded that the first hotel alone would be worth $755 million in economic benefits for Cayman over the 20-year period.
Ms. Doak said this week that similar hotel tax rebates are used across the world to stimulate hotel development.
“The hotel tax rebate is a widely used incentive structure in many jurisdictions, and its purpose in the NRA Agreement was to incentivize Dart Realty to develop resort hotels in the area of the West Bay Road closure.
“The incentive also functions as a mechanism for Dart to recover some of the extensive investments in the infrastructure and economy that we have made in performing our obligations under the agreement,” she said.