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South Lake Tahoe, California

The City of South Lake Tahoe, population 21,403 (2010), lies at the southern end of Lake Tahoe in the Sierra Nevada Mountains of eastern California. Surrounded by mountain peaks, the natural beauty of Lake Tahoe makes the City an ideal location for hotels, vacation complexes and retirement homes. In addition, just across the city limits are the casinos of Stateline, Nevada, making the area an even more attractive travel destination.

To protect the fragile ecosystem of the Lake Tahoe Basin, the states of California and Nevada formed the Tahoe Regional Planning Agency (TRPA). The City of South Lake Tahoe and portions of five counties lie within the 230,000-acre watershed of Lake Tahoe. These communities are all subject to TRPA’s stringent environmental standards and can use TRPA’s multi-faceted TDR program so that new development can occur with minimal environmental degradation, particularly of Lake Tahoe’s water clarity. The basic features of the TRPA TDR program as a whole are described in The TDR Handbook (Island Press 2011). This profile does not reiterate any of that information. Instead, this profile describes how one hotel project navigated these TDR requirements with the help of the South Lake Tahoe Redevelopment Agency (Agency). This description is based on Tahoe Basin Marketable Rights Transfer Program Assessment, a 2003 report prepared for The League to Save Lake Tahoe by Solimar Research Group.

Process

The economic vitality of downtown South Lake Tahoe has been weakened in recent decades by low-end motels and hotels primarily built in the 1960s. Plans were approved to recycle these properties to new resort hotels for several reasons, including: to improve the appearance and image of the downtown; to replace complexes built before TRPA’s modern construction standards with new developments featuring nature-friendly components like storm-water retention basins; and to increase tax revenue by promoting higher-end tourist units and reducing the plethora of inexpensive accommodations that were depressing local room rates.

For over two decades, the Agency has condemned and/or acquired many of these older hotel/motel sites usually paying between $15,000 and $25,000 per room. Most of these properties were planned for reuse as future commercial and hotel projects. But some of these acquired sites were planned for housing and environmental improvements such as habitat restoration, storm-water management and water quality projects. Importantly, the Agency banked marketable development rights acquired along with these properties in the form of Commercial Floor Area (CFA) and Tourist Accommodation Units (TAU) marketable rights. (See The TDR Handbook for details about these marketable rights.)

The $230-million price tag for the entire redevelopment effort was largely financed by bonds backed by anticipated tax revenues to be generated by the future development. Transient occupancy tax revenues of 12.05 percent on room rates are essential to paying off this debt. In 2003, Solimar reported that the Agency had spent over $8 million on TAUs alone. However, the Agency recouped $3.8 million by selling 400 TAUs and 6,000 square feet of CFA to Embassy Suites, Redevelopment Project 1, a 400-room hotel located immediately west of the California-Nevada state border on Lake Tahoe Boulevard (Route 50).

In this early redevelopment project, the Agency demonstrated its ability to facilitate the complex approval process associated with TRPA’s development requirements. Developers know that they will be able to acquire the necessary TAU and CFA rights from the Agency without necessarily trying to find and buy these rights on the private market. In order to make a project financially feasible, the Agency can also write down the cost of these TAU and CFA rights in the same manner that redevelopment agencies often write down land costs. In order to improve the market, TRPA amended its initial  regulations. Specifically, TRPA reduced the original requirement from 1.5 TAUs to 1 TAU for each new hotel/motel room and allowed TAU to be converted to CFA in order to motivate developers of commercial space to buy TAUs.

Program Status

As reported by the Solimar study, the market for TAU rights was slow due to the large number of hotel/motel units in the Tahoe Basin (estimated at 2,200 units on the south shore and another 6,000 units in the rest of the basin.) But by 2001, the SLT Redevelopment Agency had acquired 781 TAUs and used 696 TAUs in downtown revitalization projects. A large percentage of these TAUs resulted from the acquisition of environmentally sensitive sites that had been inappropriately developed under pre-TRPA regulations. Many of these sites underwent a natural restoration process to provide habitat and/or water protection features including storm-water retention basins. Alternatively, some properties in non-sensitive locations were reused for downtown revitalization but using development techniques designed to safeguard the clarity of Lake Tahoe.