Revenue from hotel tax dips even more

September 3, 2010
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In his last few months as Kent County Fiscal Services director, Robert White said the lodging excise tax fund was now in a "subsidy situation."

When White made that remark in October, the fund's reserve account was nearly gone, and county commissioners agreed to transfer $1.8 million from the general operating budget to cover the expenses that the 5 percent hotel-motel tax wouldn't meet. Their action followed a $500,000 transfer in 2009.

The biggest expense last year — and every year since 2002 — was the bond payments for the construction of DeVos Place, the city's convention center and $212 million jewel of the local hospitality industry. In 2009, the semi-annual payments totaled $4.86 million. This year, that number jumps nearly 12 percent to $5.44 million, while total expenses for the fund rise by 8.6 percent to $6.4 million.

Current County Fiscal Services Director Stephen Duarte recently said tax revenue to the fund for the first half of this year was only $1.8 million, a figure that was down by 7.6 percent from the first six months of last year. This year's projection was that tax receipts would be off by only 1.5 percent from last year, which hasn't proved to be the case for the year's first half.

Total revenue to the fund for the first two quarters was at $2.5 million, up by 27 percent from last year, but that was because the county deposited nearly $700,000 of its $1.8 million transfer into the account.

Duarte said that if the tax-revenue projection is met, the receipts will cover about 85 percent of the county's debt service but not all the fund's expenditures. He also said if the tax revenue tracks during the year's second half at roughly the same pace as during the first half, then receipts would only cover 79 percent of the DeVos Place debt service.

The lodging excise tax fund also pays for the county's financial support of the Convention and Visitors Bureau, which is $625,000 this year, down from $700,000 last year. The county also funds the West Michigan Sports Commission and downtown's Festival of the Arts from the account at $200,000 and $10,000, respectively, this year.

A few years ago, the county moved $1.4 million of the fund's expenditures to other accounts. Kent shifted its brick-and-mortar funding of $200,000 for the John Ball Zoo to the general operating fund and a smaller DeVos Place bond payment of $1.2 million to its capital improvements budget in an effort to reduce expenditures from the lodging excise tax fund.

The county can't raise its hotel-motel tax because the 5 percent it charges is the maximum allowed by state law. The CVB also charges guests a 3 percent tax but can add another percent under state law. County Commissioner Dick Bulkowski encouraged the CVB last year to raise its tax to 4 percent to help alleviate the fund's structural deficit, but he found little support for his suggestion.

The hotel-motel tax fund has recorded a deficit for the past eight years, but may not do so this year due to the county's subsidy. Duarte, however, said another subsidy from the general operating fund would be needed for the account next year.

The DeVos Place bonds reach maturity in 2031. County Administrator and Controller Daryl Delabbio said the final payment that year is "on the other side of $11 million," or more than double this year's outlay.

Lots of vacancies in lodging taxes

Over the last eight years, revenue to the Lodging Excise Tax fund has fallen $7.2 million short of meeting the account's expenditures. The fund's annual deficit from 2002 through 2009 has averaged $903,480. The projection for 2010 is a break-even year, but only because Kent County transferred $1.8 million from its general operating budget to meet the fund's expenses.

Year

Lodging Excise Tax Revenue

Interest Income & Other

Total Revenue

Total Expenses

Annual Surplus (Deficit)

2010* 

$4,613,447

$1,820,429

$6,433,876

$6,433,876

$0

2009

$4,684,675

$541,786

$5,226,461

$5,922,882

($696,422)

2008

$4,998,168

$91,952

$5,090,120

$5,774,960

($684,840)

2007

$5,049,642

$185,522

$5,235,164

$6,626,290

($1,391,126)

2006

$4,776,054

$242,002

$5,018,056

$6,171,955

($1,153,899)

2005

$4,472,315

$184,626

$4,656,941

$6,023,221

($1,366,280)

2004

$4,190,347

$113,118

$4,303,465

$5,407,809

($1,104,344)

2003

$4,359,180

$113,930

$4,473,110

$4,920,470

($447,360)

2002

$4,111,426

$163,581

$4,275,007

$4,658,590

($383,583)

*2010 figures are projections.
Note: Interest income & Other category has grown in 2009 and 2010 due to subsidies from the county's general operating fund: approximately $500,000 in 2009 and $1.8 million in 2010.

Source: Kent County Fiscal Services Department, August 2010

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