Desert Hot Springs, CA Expands Hotel and Spa Incentives to Boost Revenue

The City of Desert Hot Springs (DHS) has rolled out its Hotel and Spa Incentive Program, an updated initiative designed to safeguard and enhance its signature economic asset: the natural mineral spring spas. The program, an evolution of the 2021 Spa Revitalization Incentive Program, forms a cornerstone of the city’s broader strategy to strengthen the hospitality sector and achieve its ambitious goal of doubling Transient Occupancy Tax (TOT) revenue within a decade.

Strategic Economic Defense
Centered on the city’s unique, odorless hot mineral springs, the local spa and hospitality sector is a critical driver of municipal revenue, generating an estimated $2.12 million, or 9% of DHS’s Total General Fund, in fiscal year 2022-23. City officials characterize the incentive as a strategic economic defense, intended to spur renovation, preservation, and new development of spa properties. The previous 2021 program had limited uptake, prompting DHS to introduce more robust incentives, including support for new hotel construction.

Program Details and Incentives
The program offers temporary waivers of the city’s 12% TOT, with terms tied to property status:

• Non-Operational Properties (Revitalization): Up to 100% TOT waiver for two years or until renovation costs are fully recouped.

• Operational Properties (Renovation): 100% waiver on net increases in monthly TOT generated post-improvements, capped at two years or the investment cost.

• Ground-Up Hotel Construction: Phased TOT waivers over six years—100% in years 1-2, 50% in years 3-4, 25% in years 5-6—up to total project investment.

City Council approval is required for waivers exceeding $100,000, ensuring municipal exposure aligns with verified private investment. Officials anticipate long-term TOT growth through expanded room counts and enhanced property quality.

Short-Term Rental Regulations Adjusted
In tandem with the updated incentive program, DHS revised its Vacation Rental (VR) regulations to address declining TOT revenue linked to restrictive oversight. The new ordinance, introduced December 2, 2025, reduces the general minimum distance between VR parcels from 500 feet to 250 feet, while maintaining stricter 500-foot spacing in Rolling Hills, DHS 41, and Hacienda Heights—neighborhoods with high rental concentration. The adjustment aims to stabilize revenue while preserving residential character in targeted areas.