Tuesday, December 2, 2008

Budget Myth and Budget Fact #3: The Hotel/Bed Tax

One of the most counterproductive myths about our budget--and this one has been circulated time and again--is that we as a County can and should spend dollars from our hotel/motel tax (paid by those who visit and stay in our County's hotels) on basic county operations.

The Myth: It is suggested that if only we didn't spend the proceeds from the hotel/motel tax on the convention center, or on marketing our region for tourism, we could/should spend this money paying for the basic services in our general fund.

The Facts: Three responses:

1) The Law. Ohio law is clear that this money must be spent for the kind of convention center projects, and/or the kind of marketing activity, for which it is now being allocated. To divert it to the general fund would be inappropriate and a violation of state law. Some suggest the law be changed--but we don't control that, we shouldn't budget based on what is today an illegal expenditure, and most importantly, it is plain as day that the state legislature will never amend it in this way, for many reasons.

2) The Basic Agreement. In this case, the hotel tax was raised a number of years ago to pay specifically for the convention center project. This was at the consent of the local hotel industry (who are the ones most sensitive to that tax rate), because they believed it was an important project for their industry (and they've turned out to be right). Excess funds from the increase (beyond the costs of the convention center itself) are largely spent on marketing the new center, and the entire region's tourism industry, again to bolster tourism and the number of hotel stays. Again, this makes sense to the hotels because it is supporting the promotion of the industry.

Given the basic agreement that the hotel tax increase was acceptable because the proceeds would be invested back into growing the industry voluntarily shouldering that tax, to divert the proceeds down the road to completely unrelated general County expenditures would be one more broken promise by County government. (Would be just like breaking the County's commitment on the PTR, which we refuse to do).

3) The Economics. Finally, this is all about economic growth. As I've written about over and over again on this blog, the only way we're going to get out of this budget mess is to grow our way out. To compete in this highly competitive world. To bring new dollars here. Dollars from outside our region, spent here in the County. Without that, we simply dwindle away, cutting more as revenues dry up.

Here, we have a resource that is dedicated to promoting that badly needed growth--and, guess what, it's working, with record-setting growth in our tourism industry. This is (not coincidentally) all happening just as we began investing this money wisely, and even as a recession has been occuring in every other aspect of the economy. And while most of the country is seeing fewer tourists and visitors, we're seeing record high numbers:(http://cincypeptalk.blogspot.com/2008/11/new-record-set-for-tourism.html)

It's common sense. Dedicating this money to growth leads to more growth. The investment more than pays for itself and then some, replenishing the fund with even more money year after year. And it's even happening in 2008 amid all the other dismal economic news. No doubt, the thousands of visits and millions spent locally by these visitors also keep our sales tax from falling even further in this tough economic time.

To divert this money to basic county operations would freeze this growth. Rather than promoting, and growing, ourselves, which leads to an ever growing revenue stream in, we'd shut down. The fund would quickly dwindle, and we'd have yet another negative economic trend to contend with. And whatever money we began diverting to general operations would diminish year after year.

This type of economic downward spiral is the last thing we should do.

1 comment:

Fortune Park Hotels Ltd said...

Inflation is hitting and it’s hitting hard. Apart from the retail industry relatively, almost all other industries are suffering dearly in the face of the global inflation and recession, more so the US economy. The US hospitality industry is suffering loses in three key parameters in the financial year 2008-09 as compared to the previous year. As per STR the industry’s revenue fell 13.2% per available room as compared to that of 2007. The occupancy rate also fell 11.6 % and the average daily rate dropped 1.7%. Interestingly the budget hotels in the countries like India are not suffering to this extent, as these hotels also fulfill the business parameters and business is only growing in India, thanks to industrialization and foreign investment. As for example, the rising number of hotels in Bangalore the IT capital of India shows that the business or the budget sector of the industry is not suffering that much. The Bangalore hotels also have a certain advantage owing to the climate conditions and growing business.

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