Monday, March 31, 2008

Is new tax to blame for dip in hotel occupancy rates?

According to today's Blade, hotel occupancy rates in Lucas County declined last year.

"Smith Travel Research Inc., a private firm in Hendersonville, Tenn., that tracks hotels in major cities nationwide, estimates that six hotels have opened in Lucas, Wood, and Fulton counties since 2002. That doesn’t include the new batch, at least two of which are already operating.

On an average night, about half of hotel rooms in Lucas, Wood, and Fulton counties are filled. But occupancy rates slipped last year to 53 percent from 55 percent in 2006, the Tennessee firm said. The decline was the first in four years.

Through Feb. 29, occupancy was 40 percent, down 4 percent from 2007. Winter months are typically not strong for local hoteliers, however."

In 2007, the Lucas County Commissioners increased the hotel/motel tax two percentage points, bringing Lucas County to a combined tax rate of 16.75%, which makes this tax the fourth highest in the country. Contrast that with Perrysburg, in Wood County and only 10 minutes from downtown Toledo, which has a tax rate of 9.5%.

Our additional 2% tax is supposed to generate $43 million - enough to pay for bonds to fund half of the original projected $82 million cost of the new arena. (The currently projected cost of the arena is now around the $100 million mark with no identified additional sources of funding.)

In August of 2006, I examined the recommended sources of funding for the arena, including the impact of an additional 2% on the hotel/motel tax. I wrote:

"I don't know that Lucas County can afford to increase our taxes (especially ones paid by visitors) and not have any negative consequences of doing so. ... So even if Lucas County does increase the lodging tax, we need to balance the projected increases from the increased tax against the estimated reduction in room rentals likely to occur from an increased price.

And the whole purpose of a lodging tax is to help put "heads in beds." I've not seen anything in the report to indicate that such a tax will actually put more "heads in beds.""

While there is no empirical evidence to suggest that the additional tax is the sole cause of the decline, I cannot help but believe it is a factor. Combined with the increased gas prices, increases in other costs and general concern about the economy, those who do travel are more aware of ancillary fees and taxes associated with various prices they pay. Saving 7.25% per night on your hotel bill makes a difference and there will be some (maybe many) who will choose a location in Perrysburg in order to achieve such savings.

While the County's hotel/motel tax brought in $5.1 million last year, that was the total amount collected, less than $1 million of which was dedicated to the arena costs. The additional 2% needs to generate more than $1.4 million each year in order to cover the principle for the arena bonds - and that doesn't include the interest on those bonds. In the only arena budget made public, no accommodation was made for what has obviously happened: an increase in price reduced consumption, calling into question the ability of the tax to fund the planned costs.

In October, 2007, Commissioner Pete Gerken said, "I don't want to get tied down with a specific price and wind up getting shortchanged. We know what our base budget is, so as we go beyond that, the arena has to pay for itself."

In the same article, The Blade reported:

"The commissioners are banking on a 2 percent bump in the county's hotel-motel tax to generate between $45 million and $50 million and act as the only contribution of taxpayer dollars to the project. The rest of the arena is to be paid through revenue streams created by naming rights, suite sales, and corporate sponsorship."

(Please note that the amount the hotel/motel tax is supposed to generate has somehow increased from $43 million to somewhere between $45-50 million. What accounts for this increase?)

Commissioner Ben Konop said, "We have a plan in place with the hotel-motel tax, and it is generating a steady flow of revenue. But I'm only in favor of increasing the price if it can be proven to me that the added expenses can be paid for with added revenues."

Two commissioners are on record, in this article and in other media, as saying that the arena has to pay for itself. But the construction is ongoing with over $30 million in contracts already issued. The original financing plan had many challenges in terms of actually achieving the targeted revenue amounts. The price has gone up around $20-25 million and there has been no explanation of where the commissioners will find the extra funds.

I again call on our Lucas County Commissioners to share with the public the revised budget and funding/financing plan for this new arena.

If you agree, write them an email or give them a call and ask them where the financing plan for the arena is and where, exactly, they plan to get the money to cover the increased costs of this project.

Tina Skeldon Wozniak:
Pete Gerken:
Ben Konop:
Phone number: 419-213-4500

And if you're a bit cynical about the commissioners keeping their promise not to use other tax dollars for this project, you can enter my Arena Contest and predict when you think they'll tell us that more tax dollars are necessary.


Tim Higgins said...


I suspect that a slowing economy and horrendous winter have as much to do with the decline in occupancy as anything else (so much for gloabal warming). Many organizations are reducing travel budgets, and Toledo has had little or nothing going on through the winter to draw on the tourist trade. That Toledo and Lucas County should be on the cutting edge of this economic decline is a credit to our city and county leadership.

The decline in revenue should be a warning sign as you rightly point out however. The arena appears to be going up with little of no oversight and the little we know about the budget could only be described as a masterful piece of fiction.

I fear that we will only begin to understand the terrible truth after we are committed enough to keep us from going back. Only then will our county commisioners reveal themselves as Oliver Twist, asking for, "more please".

Robin said...

No one has money to travel. And if you do have money to travel, why come to Toledo?

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