More work needed on lodging fund

November 21, 2008
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Despite the adjustments the county has made to the lodging excise tax revenue fund over the past few years, at least one more is needed — even though revenue to the account is expected to rise next year.

And a sense of what the latest tweaking to the fund might be could be coming next week.

Although county commissioners transferred the annual payment of $400,000 for exhibits at the zoo to the capital improvement fund and cut the annual support for the Convention and Visitors Bureau by $400,000, the lodging account continues to leak red ink.

The fund is expected to spill nearly $331,000 worth this year and $294,000 next year.

Those shortfalls are marked improvements, though, from recent years; the fund had deficits of $1.1 million in 2006 and an even worse $1.4 million in 2007.

Kent County Fiscal Services Director Robert White said the smaller shortfalls for this year and next are the result of changes the county made and not because the incoming revenue is covering the gaps.

The changes dropped the account’s expenditures from $6.6 million last year to $5.7 million this year. Expenses, though, are expected to grow again, to $5.9 million next year.

Most of the revenue to the fund comes from the lodging excise tax, also known as the hotel-motel tax. It’s a state-approved, 5 percent levy that lodging operators add to a guest’s bill and then send the money to the county.

Over $5.2 million is expected from the tax this year — up by $200,000 from last year — and more than $5.5 million is projected to come in next year.

The next largest source of revenue is the interest earnings from the fund’s reserve. Over $189,000 is expected this year, about $10,000 more than last year. But only $75,000 in earned interest is projected for 2009, a steep slide of $114,000 from this year.

The dilemma facing commissioners is if they cover next year’s deficit with money from the reserve, that move will drop the balance below the amount the county needs to maintain for its annual debt payment to buyers of DeVos Place bonds.

The bond payment will be over $4.8 million next year. And a county policy requires the reserve balance to be at least 25 percent of the payout, or more than $1.2 million. The 2009 deficit is expected to drop the reserve below that level to $1.16 million by the end of next year, if the reserve is used to cover the deficit.

“You’re below that designation,” said White to the Finance Committee last week.

Commissioners have already shifted the payment of one of the two convention center bonds to the general fund but they can’t do the same with the remaining one, as the general fund is expected to have a $2 million deficit without that expense.

Their choices are few. They either have to find more funds, cut expenses, or change the policy by lowering the reserve requirement from 25 percent to 20 percent. The first is very unlikely, while the other two are more plausible.

“I think we need to reduce expenses to keep the reserve at 25 percent,” said Harold Mast, county commissioner.

Committee members are expected to wrestle with the issue next week and then make a recommendation to the full commission, which will make the final decision on what action to take.

The bond that helped build DeVos Place doesn’t expire until 2031, and the payment rises each year by 3.8 percent.

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