The Erosion of Original Intent

Since the 1980s, most communities in the United States have had the ability to assess a Hotel Occupancy Tax (often referred to as “Room Tax”). And, in most cases, the creation of that taxing authority was actually supported by State and local hoteliers because the revenue stream that would be generated was designed to fund destination marketing…something that, if executed correctly, would increase their bottom line.

Let’s linger here for a moment. An industry that willingly says, “tax us,” is about as rare as a curly tailed lizard in the Antarctic. And yet, those early pioneers did. To be sure, for some it was begrudgingly…but they were able to connect the dots and identify the reality of the situation. Most individual hotels didn’t have the ability to mount a marketing campaign of sufficient size to make a meaningful dent…but there was power in several hotels getting together to develop the message that their community was worthy of consideration and that visitors would find an ample and diverse collection of hotels upon their arrival.

So, those visionary hoteliers petitioned local government to impose a tax on occupied rooms so long as that revenue would be dedicated to destination promotion. Indeed, the original legislation in Illinois back in the early ‘80s stipulated that fully 98% of the revenue generated was to go to the local Destination Marketing Organization.

Over time, of course, the funds that were once dedicated to Destination Marketing began to be chipped away. As more than one elected official has said to me over the years, “I don’t give a damn about original intent,” there is always something that is seemingly more important than marketing. And yet, those forces are reticent to look to a community’s General Fund to cover those costs. After all…residents might experience that increased cost on their property tax bills; they won’t feel the encroachment on Room Tax revenues.

But, they will. It will just be insidiously hard to identify the damage until it manifests itself in a loss of brand awareness, overnight stays, independent businesses, jobs and the non-resident taxes that help keep their taxes lower. It’s not unlike the President’s recent move to import foreign beef to, ostensibley, reduce the price of hamburgers before the mid-term elections. A short-term gain (maybe) for consumers…but a potentially long-term existential pain for America’s ranchers and farms.

So, I guess it’s no surprise when a local government defends using Room Tax dollars for its Library because it maintains a CD collection of local artists (the local culture argument). Or States (I’m looking at you, Colorado) that have decided Room Tax should support housing and daycare.

But an “idea” (not yet a proposal) recently floated by the Head Football Coach of West Virginia University is the newest in the race to make the most bizarre case for diverting Room Tax from its original intent.

It all centers around trying to find alternative revenue sources to fund NIL (Name, Image & Likeness) payouts to student athletes. The Coach holds that hotel occupancy (and thus Room Tax revenue) has increased since NIL has made the University’s sports program more competitive…and I can’t argue that notion without better research than he is claiming.

But, here’s the problem: the local community is already charging the maximum Room Tax it can under State law. Without going to the State to remove or increase the cap, the University is effectively blocked from this “idea.”

The answer? According to a piece in West Virginia Sports Nation:  The statute directing where Room Tax can be invested includes “convention centers, parks, arts, historic sites, air service, and emergency services in qualifying counties. Athlete compensation is not on the list. Redirecting existing collections would mean defunding the CVB by statute, and redirecting that money to WVU Athletics.”

Pardon me? You’re blocked on two fronts so the initial response is to defund your Destination Marketing Organization? What about redirecting revenue from parks (as that really should be handled through General Fund revenues) or air service (because those subsidies rarely work)? No, your first option is to defund the DMO?

And that, my friends, is the barbarian at the gate. A beloved institution and football team needs money. So, let’s take it from the most impactful (and yet misunderstood) agency in the region when it comes to economic and community development, talent acquisition and the generation of non-resident taxes…because Joe and Jill Public won’t notice nor care.

Oh yeah…and let’s pitch this “idea” (to which the Coach says State Legislators have been “responsive”) when the local DMO was between CEOs.

Another great example of why DMO Boards need to be prepared to step up.

Til Next Time,

Bill

For the Complete September Edition, CLICK HERE.