The Convention and Visitors Bureau has begun the new year with a new three-year agreement with Kent County. But how much financial support actually will go to the bureau will largely depend on the hotel-occupancy rate.
The bureau is guaranteed to receive a minimum of $625,000 this year from the county’s lodging excise tax — a 5 percent levy to each guest’s room tab. But that minimum could go higher if the occupancy rate jumps from the current level, which has been hovering at about 52 percent. It would have to be a large leap, though, because the bureau’s minimum represents 13.6 percent of the fund’s $4.6 million revenue estimate for 2010.
The contract calls for the CVB to receive the minimum or 12.5 percent of total revenue, whichever is higher. For the bureau to receive more this year, the hotel-motel tax revenue would have to top $5 million. The minimum amount isn’t likely to rise however, because it already tops the contract’s 12.5 percent take for this year. The minimum is also $75,000 less than the CVB got from the county in 2009.
In 2011 and 2012, the CVB will receive 13.5 percent and 14.5 percent, respectively, of the fund’s tax revenue. For those two years, the bureau isn’t guaranteed a minimum payment.
So if the tax revenue fails to rise or even falls for those years, the bureau’s payment could be the same or less than this year’s minimum, even though the CVB’s percentage of the tax will go up.
“If we don’t get the room tax up to $5 million a year or more, we would basically be breaking even to what we were paid in 2008 and 2009. And the room tax is not projected to grow. That’s the only year we built a minimum into the contract,” said Doug Small, CVB president.
“So if the room tax does not grow, then our organization will have less,” he added.
According to county records, 2007 was the last year the tax topped $5 million.
The lodging excise tax fund has been projected to have a shortfall of nearly $1.8 million this year. The county will fill that gap with a tit-for-tat subsidy from the general fund. The account’s largest expense is the bond payment that covered much of the construction tab for DeVos Place. That payment totals $5.4 million this year and represents 84 percent of all the fund’s expenditures for the year.
Because of the deficit, County Commissioner Dick Bulkowski asked Small if the bureau would raise its hotel assessment from 3 to 4 percent, the highest rate a state statute allows. Raising that assessment would add about $1 million in revenue to the CVB budget over the course of the year. Small said he raised the 1 percent issue with operators in the Kent County Lodging Association and they told him they weren’t interested.
“The hotels feel that they are a collection agency for the room tax, and it does affect their business because they do have to add an additional 5 percent to their room rate. And with that, they feel they should have some say in how that room tax is spent,” said Small.
State law requires the county to spend lodging taxes on tourism infrastructure, like the convention center, and tourism marketing, which is why the CVB gets a cut.
But the lodging association feels that marketing efforts to draw convention delegates and tourists here should be the primary use of those dollars because the revenue is coming from their businesses. Instead, they see most of that tax money going to the DeVos Place bond.
The bureau has a budget of $3.98 million this year, slightly smaller than its 2009 plan. Only about 16 percent of those dollars will come from tax receipts, while the rest will come from private sources.
“One of the initiatives in our five-year strategic plan states that we need to look for ways to increase our funding because we’re competing with cities sometimes twice our size,” said Small.
“And those convention centers that we compete with have anywhere from a $6 million to an $8 million budget. So our goal as an organization is to try to find ways to increase our funding. We would have liked to see the county increase our funding and not decrease it. However, we’re very grateful that we got anything at all. But that puts more pressure on me to find other ways to find funds.”
Small said he doesn’t want to batter the hotels for more funding. But he also said that he was putting together a specific strategy that would detail how the bureau could spend the additional revenue generated from a 1 percent increase to the assessment in a way that would benefit all the hotels.
Even though the CVB doesn’t have to get the hotel operators’ approval to raise the assessment, Small said he wouldn’t arbitrarily implement the increase.
“I like to consider myself a good and fair businessman, and I would never just say, ‘Hey, we’re going to collect this.’ I want consensus, so I will seek consensus for it.”
Bulkowski also tried to get the county to reduce the term of its new agreement with the bureau from three years to one year because the county will face even tougher fiscal sledding for the next fiscal year. Small said he was relieved when commissioners didn’t shorten the contract’s length.
“I understood the tough task that was ahead of them. To come out of there with a three-year contract — we’re very, very pleased with that. We’re fortunate.”