Cash-strapped cities around the country have proposals for hotel tax increases on the November ballot, sparking hot debates and causing meeting planners and hoteliers to watch the elections extra closely this year.
Among cities in the midst of a hotel tax increase controversy is San Francisco, where Proposition J, backed by union groups, would raise hotel taxes from the current 14 percent to 16 percent for a period of three years. Money from the increase, which would go into effect Jan. 1, would go into the city’s general fund—not directly to the visitor industry.
San Francisco Mayor Gavin Newsom, who, along with the San Francisco CVB opposes the measure, has placed another proposition (Proposition K) on the ballot that, if passed, would nullify any hotel tax increase.
The San Francisco CVB recently released a statement saying the city could miss out on upwards of $150 million in lost businesses if Proposition J passes.
According to Joe D’Alessandro, president and CEO of the bureau, a number of top convention customers are “already on the borderline of not returning to San Francisco” because of taxes and other costs.
“There is tremendous loyalty to our destination by these clients and many of them have met here for more than four decades, but business is business,” D’Alessandro says. “An increase in hotel tax is a significant factor in the selection process for every meeting planner, no matter how attractive the destination.”
St. Joseph, Mo., is another city where a tax increase proposal is causing controversy, in this case between city officials and the visitor industry.
“We are proposing a 5 percent increase over our 3 percent current tax,” says Mary Robertson, spokesperson for the city of St. Joseph. “Of that, 3.5 percent will be dedicated to downtown and riverfront revitalization. The remaining 1.5 percent will go to museums, arts organizations and festivals.”
Marci Bennett, executive director of the St. Joseph CVB and chairman of the Missouri Tourism Commission, is among those in the visitor industry who are strongly opposed to the tax increase.
“If this hotel tax passes, I think it will be very detrimental,” she says. “If you are paying a huge tax on your hotel room, you will go somewhere else. It will kill the golden goose—tourism—that creates economic development.”
Increases would affect every group market segment, Bennett says.
“When meeting planners look at a destination, they price out the total check out tax,” she says. “This would affect everyone, including government groups. Government and nonprofit groups are tax exempt from state and local taxes, not from hotel taxes.”
Unlike Bennett, Robertson says she isn’t worried that the tax would decrease convention business in St. Joseph, adding that funds may someday pay for a new events center.
“While St. Joseph may initially be on the higher end of the industry within the state, I think other communities will follow,” she says. “When they see that they can increase current hotel and motel taxes to use for capital expenditures, we will see more increases, which will put St. Joseph on the lower end again.
“We are already limited in what we can recruit in the form of conventions and conferences,” she continues. “To attract more, we feel it is necessary to move forward with the plans to expand our events facility and bring in larger events.”
Found Money
While hotel tax increases may spark emotion on both sides of the fence, hotel consultant Mark Eble, regional vice president for PKF Chicago, notes that they are nothing new.
“Within the last five to 10 years, most cities have visited this well,” he says. “Municipalities are looking for every penny that they can find. If that penny comes from someone who isn’t a voter in that region, it is essentially found money.”
On the surface, Eble says residents can find merit in taking money from visitors, but problems arise when taxes put hotels at a disadvantage to their competitors.
“When hotels are pitching meeting planners, they are looking for all of the ammunition they can get,” he says.
How much do tax increases hurt hotels?
“They don’t hurt an individual hotel, but they hurt groups of hotels by city,” he says. “In the list of top 10 reasons to come to a city, tax rates are big. Even so, no one can point to a city raising its taxes and draw a direct connection to a loss of business.”
Planners’ Perspective
While cities lobby for tax increases and convention bureaus fight against them, some meeting planners take a more complex view.
“There are no good sides on this issue,” says Joan Eisenstodt, meetings and hospitality consultant, facilitator and trainer for Washington, D.C.-based Eisenstodt Associates. “As a resident of any city, everyone knows that services have been cut horribly. I know people are saying this would drive tourism away, but as a meeting planner, I want to know that my group will be safe in a city and if I know that the city is cutting back, that is not good.
As long as taxes will benefit the greater good, Eisenstodt says she can understand increases, but has a difficult time when monies are being funneled into things not directly related to the hospitality industry.
“I don’t think they [hotel taxes] should be used for new baseball and football stadiums,” she says. “Those are only occasionally being used by visitors.”
Deborah K. Gaffney, director of conference planning for Washington, D.C.-based Tax Executives Institute, takes a more negative view of hotel tax increases.
“I didn’t think there was anything left to tax,” she quips. “As a meeting planner, it makes me grumpy. You are punishing people who are coming in and bringing revenue to your state because they don’t live there.”
Does it affect her site selection decisions?
“Not very much,” Gaffney says. “It is something that I factor in all the time with every budget that I do. We always have to be aware of the tax rates to find out the real costs of everything, and it seems that we have to be more and more cognizant of getting that information up front so we can budget.”
Instead of using taxes as a sole determining factor in her selection of a location, Gaffney crunches the numbers in a larger formula.
“It [hotel tax] is part and parcel of why we may not go to certain locations—if they are too pricey overall,” she says.
Independent meeting planner Peggy Young, director of Peggy Young & Associates in Santa Cruz, Calif., says she understands why municipalities want to increase hotel taxes.
“It is part of the economic downturn,” she says. “It is happening in all sectors, not just the hotel industry. All businesses, organizations and attendees need to adjust.”
According to Young, hotel taxes do not affect her selection of a meeting site, but if they are high, she will try to negotiate.
“Since it [hotel tax] is non-negotiable and affects the overall costs, I may try to negotiate other line items,” she says. “Something like the elimination of a resort fee may help off set costs, for example.”
Words of wisdom
What should planners know when navigating the world of hotel taxes?
“You have to completely educate yourself on the specifics of your group,” Gaffney says. “Really know your group and what is important to them. It comes down to this: Do you want to be in this location badly enough?”
All planners need to know the ins and outs of current and pending legislation, Eisenstodt says.
“You have to know what the current taxes are and know what ballot issues are up in city council,” she says. “Ask those questions. You don’t want to be caught short. Venues and vendors need to provide that information.”
What does the hotel tax future look like?
“We all live in hope that the economy in general will pick up and more tax revenue will begin to pour back into our state and city coffers,” Gaffney says. “But in my 32 years as a meeting planner, hotel taxes have ebbed and flowed, but there has always been a steady creep.”
-- Katie Morell is a Chicago-based freelance writer and former Meetings Media editor.
