In 2003, the Nevada Legislature enacted, and the Governor signed into law, Assembly Bill 205.  This legislation, subsequently codified in Chapter 432, Statutes of Nevada, Sec. 6.6 to 6.9, imposed an additional tax at the rate of two and half percent (2.5%) on the gross receipts from the rental of transient lodging in the City of Sparks.  The Lodging Tax is paid to the Reno-Sparks Convention and Visitors Authority which distributes the proceeds to the City Council of Sparks.  The City Council may expend these proceeds after obtaining the “advice and recommendations” of the Sparks Tourism Facility and Revitalization Steering Committee, which is created per Sec. 6.8 of Chapter 432.

The Committee is required, per Sec. 6.9 of Chapter 342, to develop a master plan that identifies:

*  Proposed projects or capital improvements in Victorian Square, or that would provide a direct benefit to Victorian Square, that the Committee has determined would be advisable to promote tourism in Washoe County.

*  Method(s) pursuant to which the proposed projects and capital improvements identified in the plan will be financed.

The Committee first adopted a master plan in 2004 and amended it in 2008.  On June 10, 2016 the Committee again amended the master plan, referred to as the 2016 Victorian Square Master Plan.  On that date the Committee also adopted Resolution No. 2, which, among other recommendations, advised the City Council that the Committee has determined that all projects and capital improvements identified in the 2016 Victorian Square Master Plan are advisable to promote tourism in Washoe County.  The City Council accepted Resolution No. 2 on July 11, 2016.

Among the projects and capital improvements identified in the 2016 Victorian Square Master Plan as advisable to promote tourism in Washoe County are incentives for substantial upgrades to existing privately owned entertainment venues and facilities that increase the regional appeal of such facilities.  The 2016 plan did not identify specific private retail or entertainment projects for funding but requires a Committee recommendation, in the form of a resolution, for any expenditures of Lodging Tax proceeds for a proposed project.

The Victorian Square movie theater closed in September of 2016 after Cinemark, the company previously leasing the cinema property from Syufy, ceased operating and vacated the premises after removing all the fixtures, furnishings, and equipment.  In late 2016 Syufy Enterprises, which owns the real property, submitted a request to the City for Lodging Tax proceeds to fill a financial gap in the cost of renovating that property as a state-of-the-art 14 screen movie theater.  Syufy now intends to enter into a lease with Galaxy Theatres, which operates the Galaxy Imax Luxury+ Theatre in the Legends shopping center, to renovate, re-open and operate the Property.  Per Syufy’s proposal to the City, the remodeled theater would feature luxury recliners and state-of-the-art digital projection and sound systems; the lobby entrance and concession areas would be renovated with finishes comparable to the quality found at Galaxy’s Legends cinema.  Syufy estimates the costs of the upgrades at approximately $7.6 million and has informed the City that, but for the provision of $1.5 million of financial assistance by the City, Syufy and Galaxy do not find it financially feasible to undertake the project.

On January 31, 2017, the Committee considered and approved, by a vote of 4-1, Resolution No. 3, which formally advises and recommends to the City Council that it expend up to $1,500,000 of Lodging Tax proceeds, beginning in City fiscal year 2017, to incentivize substantial upgrades to the Victorian Square theater property.  The City Council is anticipated to have the opportunity to consider and accept Resolution No. 3 on February 27^th prior to considering this agenda item.

This agenda item asks the Council to review and approve the attached Financial Incentive Agreement (the “Agreement”) with Syufy Enterprises.  The proposed Agreement is based on terms negotiated by Syufy’s representatives and City staff following Syufy’s submittal to the City, in late 2016, of a request for financial assistance.  Syufy’s request was vetted by City staff, who were advised by private retail and cinema consultants on contract to the City.

The Lodging Tax proceeds the City would provide Syufy are intended to close a projected financial gap between the estimated cost of fully renovating the cinema property and the level of private investment that the projected revenues for the upgraded facility would support.  Specifically, a City investment of $1,500,000 is expected to enable Syufy and Galaxy to achieve sufficient cashflow, based on projected operating revenues and expenses, for these parties to invest $6,100,000 to renovate and re-open the Victorian Square cinema.  City staff has been advised by the City’s consultants that the projected target rate of return on the private investment in this project is, after the proposed City investment, within the range of what is considered traditional in the cinema industry.

Notably, Syufy’s request also reflects their and Galaxy’s confidence that the Victorian Square and Legends mall cinemas can be operated in a coordinated, complementary manner, thus enabling the Victorian Square cinema to achieve significantly higher revenues than other theater operators might generate in this location.  This is attributable to, as stated by Syufy, Galaxy Theatres being “uniquely positioned to capitalize on its market knowledge, studio relationships, and operating metrics to develop an exciting new venue at Victorian Square”.  Galaxy also believes it can do so without substantially reducing the revenue it generates at Legends.

Key proposed terms of the Agreement include the following:

*  Project definition.  All 14 auditoriums will be renovated with luxury recliners and state-of-the-art digital projection and sound systems; the lobby entrance and concession areas will be renovated with finishes comparable to the quality found at Galaxy’s cinema facility located at Legends.  Attached to this agenda item are images provided by Galaxy Theatres that are indicative of how Galaxy is proposing to remodel the Victorian Square cinema facility.

*  Project deadline.  The project must be completed and open to the public prior to December 31, 2017.

*  Syufy and Galaxy will collectively invest at least $6,100,000.  Syufy will provide the City documentation their and Galaxy’s respective investments in the project.

*  The City will pay $1,500,000 to Syufy from Lodging Tax proceeds as follows: i) $1,000,000 upon the opening of all 14 auditoriums of the Project to the general public; and, ii) provided the cinema remains open to the public, $100,000 per year for five years.

*  Prior to the initial payment, Syufy will provide the City a signed and recorded Memorandum of Lease between Syufy and Galaxy for the Victorian Square cinema property. The Memorandum of Lease will provide the City the ability to verify that the lease grants Galaxy Theatres an initial lease term of at least 10 years while prohibiting Galaxy during that same period from removing the fixtures, furnishings and equipment installed unless such removal is for the immediate replacement or to enhance the facility.

*  The City would be obligated to consider requests from Syufy or Galaxy for improvements to the lighting in the parking garage adjacent to the cinema building and cosmetic improvements in the public areas in front of the cinema.

The reopening of an upgraded Victorian Square cinema would advance the City’s goal of creating a highly energized, mixed-use district to draw local residents and visitors.  With over 500 residential units recently completed or currently under construction, the biggest challenge for the Victorian Square area is the need for complementary activity-generating uses, including additional retail, dining and entertainment uses, that will draw visitors to Victorian Square even when special events are not occurring.  Most immediately, Silverwing Development, which is constructing the adjacent Fountainhouse at Victorian Square and the Bridges apartment communities, intends to develop – if the theater is going to reopen – a pair of mixed-use buildings on the grass pads directly in front of the theater.  These new buildings would include restaurant/retail spaces on the ground floor directly facing the entrance to the theater building.

A City investment of Lodging Tax proceeds to renovate and reopen the Victorian Square cinema will also advance numerous goals and policies adopted as part of the City’s 2016 Comprehensive Plan.  These include all six of the Managing Growth goals but, in particular Goal MG5, which calls for the City to “Prioritize development and enhancement of the Downtown Sparks Center”.  Of the policies supporting the Managing Growth goals, Policy MG 15 is specifically applicable: “Continue to implement the Victorian Square Development Plan as it may be amended”.  Other relevant Comprehensive Plan goals and policies include Community Character Policy CC2 “Promote a mix of uses, including restaurants and shopping, to create a vibrant downtown district at Victorian Square” and Economic Vitality Policy EV2, which states “Enhance Sparks’ appeal to visitors to the region by strengthening arts and entertainment offerings”.

The Council could reject the Financial Incentive Agreement or, subject to Syufy’s concurrence, modify its terms.

I move to approve the Financial Incentive Agreement (AC5343) between the City of Sparks and Syufy Enterprises to provide up to $1,500,000 in Lodging Tax proceeds for renovation and re-opening of the Victorian Square cinema property.