Loading...
HomeMy WebLinkAboutTransient Lodging Tax Discussion PointsDepartment of Administrative Services Dave Kanner, County Administrator 1300 NW Wall St, Suite 200, Bend, OR 97701-1960 [541) 388-6570 - Fax (541) 385-3202 www. co. deschute 3. or. us February 6, 2008 TO: Board of Commissioners FROM: Dave Kanner RE: Proposed transient lodging tax increase I have now had the opportunity to speak to each of the three of you individually about the above subject and I think it is fair to say that there is divergence of opinion on the path forward. I believe there are some basic questions that need to be answered and perhaps we can use this as a starting point for a work session discussion. It has been proposed that we ask the voters to increase our transient lodging tax from 7% to 9%. This would generate (approximately) an additional $900,000 per year. Under legislation adopted in 2003, 70% of any new or increased TLT must be spent on tourism promotion or tourism related facilities. The remaining 30% can be spent on anything the County chooses. This discussion, of course, began last year as we were looking at options for replacing lost timber receipts in the Road Department budget. We have already cut the Road Department budget and increased the solid waste tipping fee and we will have an SDC ordinance in front of you this spring. However, these measures are likely not enough to replace all of the lost revenue. The questions to be answered are: 1. Should we go forward with asking the voters for an increase in the TLT? 2. If the answer is "yes," should we seek a 1% ($450,000), 2% ($900,000) or 3% ($1,350,000) increase? 3. Again, if the answer is "yes," should we seek voter approval in May or November? 4. If voters approve, how should the new revenue be allocated? These questions are intertwined, but here's a discussion of each, in order: 1. Should we go forward with asking the voters for an increase in the TLT? Discussion: Transient lodging taxes may be considered a relatively easy sell to the voters, because local voters typically do not pay the taxes. The TLT rate in the cities of Bend and Redmond is already 9%, so if we got voter approval to raise the county rate to 9%, we Enhancing the Lives of Citizens by Delivering Quality Services in a Cost -Effective Manner would simply be raising our rate to the same level as that in the incorporated areas. Lodging industry providers will argue that an increase in the tax rate will hurt business, and have told me in earlier meetings that there have been studies done that show a 4% decrease in bookings for each 1% increase in the tax rate. Although I have asked for them, I have not been provided with copies of these studies. (I have also talked to others in the lodging industry who tell me those studies are very old and the results are not considered solid.) The large resort areas further argue that they already charge additional assessments to their guests to provide services that might otherwise be provided by local governments and that they are already among the largest property tax payers in the County and should not be singled out for additional taxes. However, transient lodging taxes are assessed for the purpose of compensating local governments for the impacts on county services that are created by tourists and for which the local government is either not compensated or not adequately compensated by property taxes. Even this premise will be disputed by some in the lodging industry, who will argue that transient lodging taxes are assessed for the purpose of tourism promotion and should not be increased except at the lodging industry's request. Clearly, the 2003 legislation that restricted the use of new or increased TLTs was a direct response to two large local governments enacting increases for general fund purposes, although I believe that even this will be disputed by some members of the lodging industry. In either case, the split in the 2003 legislation was a compromise and both premises have some validity. A ballot measure seeking an increase in the TLT may face an opposition campaign from individual lodging purveyors or from the Oregon Lodging Association, which is generally opposed to increases in TLTs, much as the Builder's Association is generally opposed to increased SDCs. However, based on my conversations with local providers, I do not believe there would be a widespread, locally based opposition campaign. Even if the County does not use all of the increase for road maintenance (see discussion of question 3, below), I think there is merit in seeking an increase in the TLT and continuing to diversify our revenue base. 2. If the answer to question 1 is "yes," should we seek a 1% ($450,000), 2% ($900,000) or 3% ($1,350,000) increase? Discussion: An increase to 9% puts the county at the same level as the cities. I believe this is reasonable. Note, too, that it is only the county that has lost timber revenues. The cities are not affected by the loss of this revenue stream. 3. Again, if the answer to question 1 is "yes," should we seek voter approval in May or November? Discussion: A double majority is not required for a TLT increase (the double majority applies only to property tax increases), so this request can go to the voters at any election. I believe we can expect voter turnout in the 75%-80% range in the November election, so if the goal is to have the maximum number of voters weigh in on this question, then November would be the choice. Too, there is a likelihood that there will be a 9-1-1 levy request on the May ballot, and it may be prudent for the County to not place any other tax requests on that ballot, no matter how dissimilar. On the other hand, the November ballot is likely to contain more tax measures than the May ballot. If approved by voters in May, we could begin collecting the tax in July '08. A November election would mean we would not begin collecting significant sums of increased TLT until peak season begins after Memorial Day '09. This is purely a judgment call on the Board's part. Note that COVA as an organization will not take a position on this or any other ballot measure. However, individual COVA board members may oppose any increase in the TLT or may work in concert with the Oregon Lodging Association to oppose an increase in the TLT. Per the Board's request, I met with the OLA and representatives of the local lodging industry last fall to discuss this idea. I believe their opposition can be summarized as follows: 1. The county's large resorts already charge resort and recreation fees in addition to the TLT and these fees allow them to offer services that might otherwise have to be provided by the county. It places an undue burden on them to have to charge an increased TLT in addition to these resort and recreation fees. 2. Since it is not a foregone conclusion that the Secure Rural Schools money really is gone, we should wait for some closure on that issue before asking voters to raise the TLT. 3. The resorts are already among the county's largest property tax payers and given the relatively low occupancy rates, these properties are already contributing more in property tax than they demand in service. 4. An increase in the TLT puts county lodging providers at a competitive disadvantage at a time when gross receipts from TLT collections are increasing. 5. It was argued by one COVA board member at their most recent meeting that the TLT should be increased only at the request of the industry (because, ostensibly, that was the intent of the 2003 legislation). I have attached e-mails from Larry Browning (Sunriver), Jim Kinney (Inn at the Seventh Mountain) and Loy Helmly (Black Butte Ranch) that expand on these arguments. 4. If voters approve, how should the new revenue be allocated? Discussion: This is the question that gets to the heart of the issue. The original proposal was to increase the TLT and use the increased revenue for maintenance of particular roads that qualify as "tourism related facilities" (list attached). A plain reading of the statutory language would indicate that many of the roads in Deschutes County qualify as "tourism related facilities" and that we would be well within the law to use an increased TLT for maintenance activities on these roads. You have previously been provided with confidential legal advice on this question. Additional legal advice will be forthcoming in a separate, confidential memo. In addition, shortly after the passage of ORS 320.300 in 2003, the Association of Oregon Counties distributed a memo (attached) advising all counties to begin documenting which roads could be deemed "tourism related facilities." According to AOC, it was the legislative intent that these increased TLTs could be used for road maintenance activities under certain circumstances, a position that will be strenuously disputed by the lodging industry. Even if the use of these funds for road maintenance activities is allowable and justified, I believe an attempt by the County to do so will immediately bring litigation by the Oregon Lodging Association, as well as an all-out effort by the OLA to further refine the Iaw in the 2009 legislative session to expressly prohibit the use of TLT for road maintenance. This could tie us up in litigation for years, during which time we might either be denied access to the TLT revenue or be forced into the position of not spending the increased TLT collections until the litigation is resolved. We might also wind up with legislation even more restrictive than what is already on the books, which would be a very negative outcome not only for us, but for all local governments. Here are a couple of options we might consider: Option 1 Voters approve an increase in the TLT to 9%. The increased revenue is distributed as follows: • 30% of the increase ($270,000) is given to the Road Department. • 35% of the increase ($315,000) is given to the Fair and Expo Center. • 35% of the increase ($315,000) is given to COVA. Discussion This option offers a couple of benefits to the County. It would allow us to supplant the money we currently provide to the Fair and Expo Center from the general fund ($270,000 this year; $300,000 last year) and it would increase our contribution to COVA for marketing, at a time when increased marketing is probably a good idea. Note, too, that this option was tested in the recent community survey which showed overwhelming support. Opponents of this option, in addition to the arguments elucidated above, may argue that the Fair does not qualify as a tourism related facility that is eligible to receive TLT funds. I believe this argument is easily refuted. In fact, in the first six months of FY '08, more than 80% of the visitors to the Fairgrounds fit the statutory definition of "tourist." However, there may be additional pressure from other organizations for some of this TLT and we may want to consider a means by which to address that. Option 2 Voters approve an increase in the TLT to 9% and 100% of the new revenue is given to the Road Department for maintenance of roads that qualify as tourism related facilities. Discussion As stated above, I believe that doing this would instantly make us a statewide test case in court and lead to a legislative battle in the '09 session. During this time, we would be prudent to escrow any increased collections in case a court ordered us to pay them back should we lose the legal fight. That means we could collect increased TLT but be unable to spend it for a period of perhaps years, with no guarantee that we'd ever be able to spend it at all. More recently a local lodging provider (and member of the COVA board) has offered that an attorney general's opinion stated that it is specifically prohibited for a local jurisdiction to spend TLT on road maintenance. I checked with the Attorney General's office and they say no such opinion exists. However, the AG's Office did issue an opinion in 1985 that stated a local government is limited to spending TLT on only those things enumerated in the ballot title. Thus, if we were to pursue this second option, I believe we would have to clearly state in the ballot title that the increased collection would be spent on maintenance of roads that qualify as tourism related facilities. Next steps: I have attached a decision tree that might be useful to you in determining where you'd like to go with this very important issue. I would also like to suggest inviting local lodging industry providers in to meet with you face-to-face in a work session so that you can hear from them directly. (I would note that they were invited to the stakeholder meeting you held last March at which you discussed road maintenance funding, but none attended.) The deadline for the Board to submit a measure to the May ballot is March 20, so I would hope such a meeting could be held in February, if it is the Board's wish to proceed. Shall we ask the voters for a TLT increase? No Yes 1% increase 2% i crease November May November May A/-7 AZ\, 0/N4 Option 1 Option 2 Option 1 Option 2 Option 1 Option 2 Option 1 Option 2 Tourist Roads in Deschutes County Road Name (o 0 rn01NNr)d-rnN aco - rficorncoom Winter Parks Access O (0 a) V) Yp _] C N CO C f0 W LL O C E C a 'a F- V) J a) -oU ✓ CUY O ▪ U < 1- 4-1 -- - C 4-3 C C C 4-1 C ▪ U an c c c� c U 0 L. o 0 0 V) 0 ▪ (00 ODUU 4)U con Y LU 0 L- Lli LL m Lu to r\ d'N VI Lll N 0 o r\ � co o M ri 1-1 ,-1 CO ri ri Ll1 V' d- N N d Ln Total Miles File: C:\Data\EXCEL\County Mileages a) o E 4) Q Q 0 c coo - o o c ti o o U U) O)) M -a a) -co c 0) a`0 LOCAL TRANSIENT LODGING TAX INCREASE OR NEW ADOPTION AFTER JULY 1, 2003 Brief overview of requirements of House Bill 2267(2003) After July 1, 2003, a county may increase an existing county transient lodging tax (CTLT) or adopt a new one under the following limitations. • Permit the transient lodging provider to retain a collection reimbursement charge of at least five percent of all collected CTLT revenues [HB 2267 sec. 10(2)&(3)]. • An increased CTLT may not decrease the percentage of revenues actually expended to fund "tourism promotion" or "tourism -related facilities" [Sec. 11(3)]. • At least 70% of net revenue shall be used to fund "tourism promotion" or "tourism -related facilities"; or to finance/refinance debt of "tourism - related facilities" and pay reasonable administrative costs incurred [Sec. 11(5)&(6)]. • Not more than 30% of net revenue shall be used to fund general county services [Sec. 11(5)&(6)]. • "Tourism promotion" means [Sec. 1(7)]: 1. Advertising, publishing, or distributing information to attract "tourists". A "tourist" travels more than 50 miles from the community of residence or stays overnight [Sec. 1(10)]. 2. Strategic planning and research. 3. Operating "tourism promotion agencies". A "tourism promotion agency" includes a nonprofit organization or governmental unit responsible for year-round promotion; a nonprofit entity that manages tourism -related economic development plans, programs, and projects; and a regional or statewide tourism -related business association [Sec. 1(8)]. 4. Marketing special events and festivals designed to attract tourists. • "Tourism -related facility" means [Sec. 1(9)]: 1. "Conference center" — at least partially owned by a unit of local government, governmental agency, or nonprofit organization; and meets the membership criteria of the International Association of Conference Centers [Sec. 1(2)]. 2. "Convention center" — new or improved facility; capable of attracting and accommodating conventions from international, national, and regional markets requiring exhibition, ballroom, meeting rooms, lobby, and registration space; has meeting room and ballroom space between one-third and one-half of total size of exhibition space; generates a majority of business from tourists; has room -block relationship with local lodging industry; and is owned by unit of local government, governmental agency, or nonprofit organization [Sec. 1(3)]. 3. "Visitor information center" — building or portion of building for the main purpose of distributing or disseminating information to tourists [Sec. 1(13)]. 4. "Other improved real property that has a useful life of 10 or more years and has a substantial purpose of supporting tourism or accommodating tourist activities". Note 1. "Substantial purpose" is not defined. In law, "substantial" has a wide range of meanings, from not imaginary to valuable. Comments in committee and on the floor indicate that facilities that fall within this definition include county fairgrounds; improvements and access to natural and recreational facilities; historical and cultural facilities; and the Hult Center, Keller Auditorium, and the planned Salem Conference Center. Note 2. A tip to consider through county counsel: The county governing body should take official action listing improved real property within the county that has a useful life of 10 or more years and has a substantial purpose of supporting tourism or accommodating tourist activities (e.g., county roads leading to public land trail heads or viewpoints, the county fairgrounds, improvements at viewpoints, historical and cultural museums and structures, and access to attractions). Association of Oregon Counties (9-8-03) TES Department of Administrative Services UJ Dave Kanner, County Administrator February 19, 2008 TO: BOARD OF COMMISSIONERS FROM: DAVE KANNER RE: TLT QUESTION AND OPTION 3 1300 NW Wall St, Suite 200, Bend, OR 97701-1960 (541) 388-6570 - Fax (541 ) 385-3202 www.co.deschutes.orus Countywide vs. unincorporated vote During our last discussion of transient lodging tax, a question was raised as to whether a vote to increase the TLT would be a countywide vote or would go only to those voters living in unincorporated areas. According to Nancy Blankenship, it would be a countywide vote. Option 3 In my February 6 memo to you on this subject, I suggested two options for how the funds from an increased TLT might be used. These were provided for illustrative purposes and if we go forward we are by no means limited to only those two options; we can mix and match. There is a third option that I had suggested in my first couple of meetings with representatives of the local lodging industry, however their reaction was vehemently negative and I set it aside. That option, which I still believe is worthy of your consideration, is to increase the transient lodging tax to 9% and divide the increased revenue thusly: • All of the unrestricted revenue (30% or $270,000) to the Road Department • Of the restricted 70% ($630,000), $200,000 would come "off the top" for the maintenance of River Summit Drive (FS Road 45). The remainder of the restricted 70% ($430,000) would go to tourism promotion and tourism related facilities, with the exact split to be determined by the Board and the Budget Committee. The amount that comes "off the top" under this option would change annually, depending on the projected actual cost of maintenance activities on River Summit Drive. This option provides increased first-year revenues of $470,000 to the Road Department, while still providing a significant increase in funding for COVA and other tourism functions. Enhancing the Lives of Citizens by Delivering Quality Services in a Cost -Effective Manner