On June 1, 2022, the Morgan Hill City Council approved a new Hotel Incentive Policy (HIP). Based on program feedback from local hoteliers, a revised version of the Policy was later adopted on August 17, 2022. The Policy provides rebate incentives to encourage the construction of new hotel development and the rehabilitation and upgrade of existing hotels, to help enhance the tourism and travel experience and expand hospitality services for Morgan Hill businesses and residents.

Program Parameters and Eligibility

New Hotels

The HIP offers support for new hotel development, by providing cost-sharing of up to 50% of City required off-site improvements. The City’s contribution will be deducted from future TOT revenue generated above an established TOT baseline.

1. Location of new hotel development shall be in conformance with the City’s General Plan and Existing Zoning.

2. The City’s contribution shall be up to 50% of the costs associated with off-site/public improvements such as: roadways, sidewalks, utility undergrounding and other

offsite improvements required of a new hotel construction in a greenfield development.

3. The City’s contribution will be in the form of a rebate deducted from future TOT revenue generated above an established TOT baseline and shall be paid within 10

years.

4. The rebate ends after the 50% contribution has been financed or after 10 years, whichever comes first. If the Subsidy Cap has not been received by the end of ten

(10) years, the incentive program may be extended at the discretion of the City Manager for an additional five (5) years during which time the City shall pay to the

operator thirty-three percent (33%) of the transient occupancy tax generated above the established TOT baseline until the Subsidy Cap is reached.

5. The baseline will be equal to a corresponding chain scale hotel’s annual average TOT revenue generated per guest room in Morgan Hill during FY 2019/2020.

The baseline will be updated every five years.

6. Only up to 50% of TOT generated above the baseline will be applied to the rebate.

7. The City Council shall approve Hotel Incentive agreements over $100,000.

8. The HIP does not limit hotel developments from accessing other local or regional incentive programs.

Existing Hotels

The HIP offers support for existing hotel properties, by providing cost-sharing of up to 50% of costs associated with property improvements needed to obtain a higher quality standard that upgrades the hotel brand, or a 50% cost sharing up to $250,000 for property renovations. The City’s contribution will be deducted from future TOT revenue generated above an established TOT baseline.

1. Existing hotels must be an established hotel located in Morgan Hill city limits.

2. Participating hotels that are currently branded as a chain or independent can either (a) achieve an upgrade of at least one chain scale after renovations are

completed or (b) apply for a maximum rebate of up to $250,000 for renovations.

3. The City’s contribution shall be up to 50% of the costs required to achieve the chain scale upgrade or increase in quality through renovations, as supported by the

brand’s Property Improvement Plan (PIP) document and receipts of completed items listed on the PIP.

4. Hotel upgrades must meet the California Building Code and must obtain required City permits. The City’s contribution will be calculated based on the cost estimate

submitted to the City for building permits.

5. The City’s contribution will be in the form of a rebate deducted from future TOT revenue generated above an established TOT baseline and shall be paid within 10

years.

6. The rebate ends after the 50% contribution has been financed or after 10 years, whichever comes first. If the Subsidy Cap has not been received by the end of ten

(10) years, the incentive program may be extended at the discretion of the City Manager for an additional five (5) years during which time the City shall pay to the

operator thirty-three percent (33%) of the transient occupancy tax generated above the established TOT baseline until the Subsidy Cap is reached.

7. The baseline for established hotels will be based on the individual hotel’s average TOT revenue generated in FY 2019/2020.

8. Only up to 50% of TOT generated above the baseline will be applied to the rebate.

9. The City Council shall approve Hotel Incentive agreements over $100,000.

Contact the Economic development team