FRP tax: Impact on county business

All I can say is, someone did her homework. This letter, sent to the Henderson County Board of Commissioners, is long, but read it all--there's a lot of info here:

To: Henderson County Commissioners
From: Kaye Caldwell
Date: July 17, 2012
Re: Occupancy Tax Increase and TDA membership

I am writing to urge you to NOT increase the occupancy tax. With the new tax Henderson County’s tax rate would be 50% higher than Buncombe County and 100% higher than Polk County. It should be noted that the county has raised occupancy tax by 67% since 2006. One would expect a significant increase in room occupancy due to such a significant increase in tourism efforts. On the contrary, room occupancy had actually decreased 14% in that time(1). How much of a additional decline will be caused by the proposed additional tax?

(1) From the Travel and Tourism Committee’s Room Tax Revenues chart, showing fiscal year 06-07 rooms rented of 287,986 when the tax was 3%, and fiscal year 10-11 rooms rented of 246,898 at the tax rate of 5%.

The commissioners have available to them a group of people experienced in tourists’ visiting habits, interests, and price sensitivity. This group owns businesses for which 100% of their customers are visiting tourists. This group of experts has not been consulted by the commissioners, in spite of their unique expertise in the matter of tourism. Who are they? The county’s lodging business owners. Because we talk to visiting tourists and prospective visiting tourists every day, we know them better than any other segment of Henderson County merchants or entertainment providers. We do not need to do zip code analysis with possibly flawed assumptions to determine whether our customers have come from out of the area. We know they have because they are either staying overnight or planning to. It is essential that the commissioners confer with this group before imposing a harmful tax increase that may have little if any benefit to tourism in the county.

Here’s what the county commissioners could find out if they conferred with the county’s lodging business owners:

• That the effect is of non-completive occupancy tax rates (as compared to adjacent counties) is lost reservations, particularly lost multi-unit, multi-day reservations.
• That lodging businesses are seeing a decline of interest in Flat Rock Playhouse tickets.
• That there is a lack of co-operation between Flat Rock Playhouse and lodging businesses in some cases.
• That advertising in Flat Rock Playhouse playbills fails to attract guests to lodging businesses, indicating a scarcity of Playhouse attendees interested in overnight stays.
• What it actually costs in advertising and promotion for a lodging business to attract overnight guests. This could be compared to the proposed costs for the Flat Rock Playhouse to attract some speculative and unproven number of new tourists, who may or may not stay overnight.

The commissioners should also question:

• Whether this tax increase will negatively impact lodging businesses, particularly those outside the cities of Hendersonville and Flat Rock.
• Whether this tax increase will provide any positive effect on lodging businesses. Will it increase bookings during slow times, such as winter months or midweek? Or will the tax increase merely add to the decline in bookings?
• Whether the Flat Rock Playhouse’s downtown location is good for tourist businesses downtown, especially in light of two downtown restaurant closures since the downtown theater opened.
• What exactly the impact on overnight tourism is from the Flat Rock Playhouse – does their zip code analysis show how far theater attendees come to attend a show? Just saying they are from out of town is not relevant, what is relevant is whether they are from far enough to stay overnight. How may of the out of town attendees arrive by bus and leave without staying overnight?
• How has the Flat Rock Playhouse worked with local lodging business owners in the past and how will this be improved in order to provide the expected tourism increase.
• Exactly how much should the county expect tourism to increase as a result of this expenditure?
• How will the effect on tourism be measured?

I strongly urge the commissioners to hold a workshop with lodging business owners to discuss this tax increase before moving forward with the increase. I understand that the Flat Rock Playhouse has raised significant amounts of funding from Henderson County, Hendersonville, and Flat Rock, and has just undertaken a $240,000 fund raising effort. Surely the Flat Rock Playhouse can withstand a delay in imposing a controversial tax on tourists in order to determine the likely effects of such a tax.

Further study is particularly important in light of the statements made at the May 29th commissioners meeting discussion on this matter:

• One commissioner stated that our occupancy tax rates are the same as Buncombe County. However Buncombe County’s website says that their occupancy tax rate is 4% (and 0% for some), which is less than Henderson County’s current rate. With the new rate Henderson County would be 50% higher than Buncombe.
• Another commissioner stated that he did not mind paying 6% on a recent trip. However that commissioner’s profession (lawyer) is the 6th highest paid profession according to the U.S. Department of Labor. In contrast, our guests are from much less well-paid professions. They are typically teachers, firemen, nurses, law enforcement officers, pastors, retired persons, and other with similar income levels. Quite of few of our guests are active duty military on leave from war zones. The commissioner’s reaction to the tax is not representative of the reaction of our prospective guests.

If the commissioners feel that they must increase the tax now, I would request that they enact a six-month sunset date for the tax increase. At that time the effects should be evaluated to see whether the tax increase should be continued. Furthermore, the reporting imposed by state law is inadequate. In addition to reporting tax receipts and expenditures from those receipts, Flat Rock Playhouse should be required to report what results were received from those expenditures. Also they should report what they expect to expend funds on in the next quarter and what results they expect.

Please also consider whether some measures could be taken to alleviate the negative effects on lodging business owners, such as providing a property tax credit or business property tax credit to compensate lodging owners for lost reservations and increased advertising and promotion costs. I note that our lodging businesses pay these taxes – while the Flat Rock Playhouse is exempt. In addition, ask the Flat Rock Playhouse to provide free or significantly discounted theater tickets to lodging business owners that we could sell to our guests. In addition to offsetting the lost income and increased costs for lodging owners, this would be a good indication of actual interest in theater attendance from overnight tourists.

I am sure that if the commissioners held the above requested workshop other suggestions would be made that could alleviate the negative effects on lodging businesses from this tax increase.

Regarding the appointment of members to the Tourism Development Authority, I would urge that the following principles be adhered to:

1. In order to avoid the appearance of a conflict of interest, no member of the Authority should be affiliated with an entity that receives funds from the occupancy tax. One would hope this goes without saying.
2. Members collecting the tax (lodging business owners) should be as equally represented as members spending the tax (promoters of travel and tourism). This can be done within the constraints set by the law. Since all lodging business owners are, by the nature of their business, active in the promotion of travel and tourism in Henderson County, the Commissioners can appoint 5 members that are affiliated with businesses that collect the Occupancy tax (and therefore also promote travel and tourism). The remaining 4 members can be members that only promote travel and tourism, but do not necessarily collect the tax. Technically, if all 9 members were affiliated with businesses that collect the tax, the requirement for half of the members to be affiliated with businesses that promote travel and tourism would also be met.

In summary, I ask you to adhere to certain principles when appointing the members of Tourism Development Authority, and to reject this proposed tax increase, at least until further study is done. If you do impose the tax increase I urge you to enact measures that limit its negative effects on lodging businesses.