Aug. 05, 2011--SANTA CRUZ -- As a condition of their recommendation to allow a change in the city's coastal plan to build an upscale 125-room hotel, state planners say Santa Cruz should require low-cost accommodations or trade-off payments for any future development plans.

The condition, made as part of the Coastal Commission's staff report on the La Bahia hotel proposal slated for a hearing next week, has raised questions about implications for the city's overall efforts to offset an abundance of moderate- and low-priced lodging with more expensive, full-service hotels like the one planned for the historic Beach Street site.

Santa Cruz officials are also worried whether would-be hotel developers might be turned off by mandates to cut a portion of room rates or fund other off-site projects designed to create low-cost lodging.

It's unclear whether the new policy, which would require management plans subject to state scrutiny, would apply to all future hotels in Santa Cruz, including several already approved but not built.

"We have concerns about the low-cost visitor-serving policy citywide," said Juliana Rebagliati, the city's planning director. "Eighty percent of the hotels in the area are lower-cost and one of the goals in the beach plan is to provide a full-service hotel to extend our season."

In advance of Thursday's commission hearing, city officials have scheduled a meeting with the agency's planners Monday to sort out the low-cost requirement. The

long-delayed plans to demolish the 85-year-old La Bahia apartments to construct a Spanish Colonial Revival condo-hotel require the commission's approval because the proposed maximum height of the building, at 5 1/2 stories, is taller than limits in the city's Local Coastal Plan.

Susan Craig, a commission planner who contributed to the staff report, acknowledged Thursday that "there may need to be some flexibility" in the low-cost condition. "We'll talk to the city about that. Maybe there needs to be a graduated scale depending on the type of hotel."

The commission is charged with ensuring the 1,100 miles of state coastline is accessible to visitors with a variety of incomes. The agency has required affordability provisions for projects in Southern California -- defining low-cost as 75 percent of the statewide average room rate -- or set terms for a "mitigation payment" based on a complex formula.

La Bahia developer Barry Swenson Builder has already agreed to make a one-time $200,000 contribution toward improving local coastal campgrounds rather than drop room rates. But the requirement that future hotels make similar payments or lower their own rates as a condition of approval for La Bahia has drawn concern.

Merry Crowen, secretary-treasurer of the Santa Cruz County Hospitality and Lodging Association, said she doesn't understand how hotels or the city would determine whether lower-income visitors were actually the ones who rented lower-cost rooms. Crowen, who is a vice president for Santa Cruz Seaside Co. that owns the La Bahia property and is a partner in the redevelopment plans, said lowering revenue for potential hotel owners might doom future plans.

"How are we going to get these places built, when you only get five or six months' payback?" she said, referring to the tourist season. "There are certainly concerns about the cost of the program and how it would affect anyone's ability to build new upper-scale projects in the Santa Cruz area."

Craig said she appreciates the effort to offer bigger, higher-end hotels such as La Bahia, but said some of the existing motels considered low or moderately priced are actually expensive in the summer.

"Sometimes they may be higher than the statewide average in July," she said. "There is a difference between something that is older and needs updating. It may not mean it's low-cost."

The city plans to question Craig's analysis of local prices, but the affordability policy may not be the only stumbling block the city will encounter next week.

Although Craig and colleagues have recommended the commission approve the city's height variance and demolition of a historic property to build La Bahia, commissioners are likely to still raise concerns. The city and developer are seeking permission to build up to 61 feet -- 18 feet higher than the coastal plan allows -- with an additional 10 feet for some architectural elements, and has agreed to save some pieces of the original structure.

In her report, Craig said the decision to demolish the six existing buildings and construct a project that requires a variance were "judgment calls," though she ultimately concurred with the city's reasoning that saving more of the structure was not economically feasible. She also found that the proposed scale fits with other large buildings nearby, including the Santa Cruz Beach Boardwalk, and is designed to step up Beach Hill so the building is higher in back than front.

Craig declined to elaborate on her personal feelings about the proposal, but said, "It could definitely be an issue with the commissioners in terms of the historic nature of the building and the whole height. We'll have to wait and see."

County Supervisor Mark Stone, who serves as the commission's vice chair, declined to say Thursday how he might vote. Most commissioners don't telegraph their votes ahead of hearings, but Stone said the lobbying from supporters and critics has been heavy.

Opponents have long complained about the hotel's size, though the developer lowered the height by a floor and made other changes to reduce the impact on views. Labor groups have also opposed the project, insisting the developer ensure more union jobs.

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