Clarification on Ocean Vista’s QC application

Response to Bo Palacios, Business Development Manager, J. C. Tenorio Enterprises: In response to your testimony, as the consultant for the project, I provide the following for your consideration, to correct some misinformation contained in your written testimony, and respond to public comments posted to respective media websites in regards to your testimony:

1) The QC program is not a tax loophole. Tax loopholes are akin to looking for gaps in the tax law for which due to some legislative oversight allows a taxpayer an unintended tax advantage.

The QC Program was established by CNMI Public Law 12-32, the Investment Incentive Act of 2000, on Dec. 1, 2000. It is cited in the CDA website. It is touted at business seminars that promote doing business in the CNMI. All businesses can avail of the program as long as they meet the defined investment criteria.

Ocean Vista Resort’s application was completed and filed pursuant to approved regulations with the Commonwealth Development Authority.

Ocean Vista Resort will not be the only resort hotel in the CNMI. Among other reasons for filing was to be competitive with other hotel operations (present and future) who may currently avail of below fair market value leases of government properties for which you describe as an incentive, that have currently approved QC incentives, or that may apply in the future for QC incentives and be approved.

2) Ocean Vista Resort is not leasing government land. It has secured a 55-year leasehold of 4.5 hectares of private property for the project.

3) Hotel investments require a lot of capital. This project is estimated at $46 million. It also comes with risks: a) Volatile airline services b) High cost of utilities c) Natural disasters in our region d) Volatile economies of Asia e) High maintenance costs f) Labor market challenges (for which you mentioned). Ocean Vista Resort shareholders will have to manage or neutralize the above risks, hopefully recover their investment and realize some reasonable return.

The QC program provides the incentives to help manage or neutralize the stated risks, recover investment, and realize a reasonable return. We must all bear in mind that recovering your investment and realizing a reasonable return will not happen overnight. It will take time and lots of effort on the part of the investors.

4) Ocean Vista Resort projects to contribute tax revenues, directly, in the form of hotel occupancy and employment taxes projected at $40 million over the 25-year period. The $40 million is $18 million dollars more than it projects to receive in incentives over the 25-year period. Furthermore, as a hotel operation, it will purchase from local vendors goods and services. In addition, hotel guests of Ocean Vista Resort will also patronize local restaurants, events, shops, and recreational activities’ vendors. This economic activity beyond the hotel property is known as the economic multiplier effect of a hotel operation. A hotel operation does create more jobs and more revenues not only for itself but also for our local vendors and in turn also generate additional government revenues. I am sure that the restaurants and shops that surround Fiesta and Hyatt are very appreciative of the presence of those operations.

5) Ocean Vista Resort will have to pay for improved traffic development at its entrance plus upgrade of water supply and sewer lines to service the project.

6) Ocean Vista Resort is not boasting about any of its claims or projections and nor does it make any guarantees. It presents information for CDA’s review and consideration pursuant to the regulations addressing the application process.

7) The application process does not guarantee that the requested incentives will be granted. Ocean Vista Resort respects the process for which its application is reviewed and considered. It will provide CDA with any additional information as requested. It understands that CDA may recommend to the governor to approve the request, reduce the requested the incentives, or not at all for which Ocean Vista Resort will have the option to consider and make an informed decision in how it will best move forward with the project.

Tony Muña
Consultant, Ocean Vista Resort