Lodging Tax Is Up But Not Enough

May 7, 2004
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GRAND RAPIDS — Revenue from the Kent County lodging excise tax grew during the first quarter of this year compared to the same period last year. But the growth rate was smaller than what was projected for the year, and that isn’t real good fiscal news.

The county uses receipts from the lodging excise tax, more commonly referred to as the hotel-motel tax, to fund much of the local convention industry.

Roughly $92 million of the revenue is committed for the next few decades to paying off bondholders who bought the debt instruments that helped build DeVos Place, the new $216 million convention center. Receipts from the account are also used to fund services done by the Convention and Visitors Bureau.

These dollars are also spent on the zoo and administrative needs.

The convention center bond payment is $4.01 million this year and the bureau will get $840,000 from the tax in 2004. The bond bill is about $600,000 more than last year’s, while the expenditure to the CVB is $80,000 less than it was in 2003.

But total expenditures from the tax fund are expected to exceed its revenue by slightly more than $1 million, meaning the county will have to dip into the fund balance to cover the difference. Doing that would drop the fund balance to $5.5 million, an amount that is a tad higher than this year’s total expenditures.

Revenue from the fund was projected to increase by 3.4 percent this year to $4.2 million. The result from the first quarter, though, showed a smaller rise of only 1 percent to nearly $866,000. If that growth rate remains steady for the year, the fund will yield $3.46 million, a figure $740,000 less than the anticipated total and $600,000 less than last year’s take.

Kent County Fiscal Services Director Robert White noted last week that receipts for the first quarter were from December 2003 through February 2004, a period in which the exhibit space at DeVos Place opened.

White told members of the county Financial and Physical Resources Committee that the new exhibit space had a negligible impact on the hotel-motel tax for those three months.

“The increased level of activity at the convention center did not have a significant impact on the hotel-motel tax revenue generation,” he said.

White added that revenue needs to pick up dramatically in order to meet expenditures, most notably the bond payments. If it doesn’t, White said the county could have a deficit in the fund balance in six years. If that happens, Kent would have to fill the gap with money from another source.

The county is looking at a $6 million operating shortfall this year and the five-year fiscal projection isn’t promising.

But White also told the committee that it takes time to grow a convention business, and that DeVos Place was filled with consumer shows and not with trade meetings in the first quarter. He said most conventions are booked years before the meetings are held and the lodging excise tax is actually generated and collected. So more time is needed to determine how the convention center will eventually affect the tax revenue.

Still, White advised the committee to keep a close eye on receipts and expenditures.

As for DeVos Place, the building has broken even in its first four months of operation.

The lodging excise tax adds 5 percent to a visitor’s bill at a hotel or motel in the county. Hotel and motel operators collect the tax and then turn the revenue over to the county.           

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