Law, Marketing, PR & Advertising, and Travel & Tourism

Lawsuit brings hotel assessments under scrutiny

Northern Michigan hotel owner says government-approved room fees used to subsidize marketing campaigns violate free speech rights.

March 10, 2017
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The local tourism industry is keeping its eye out for the results of a free speech lawsuit against the Sleeping Bear Dunes Visitors Bureau.

The Mackinac Center Legal Foundation last month filed a lawsuit on behalf of David Gersenson, owner of Glen Arbor’s Lakeshore Inn and the Sylvan Inn Bed & Breakfast, alleging Sleeping Bear Dunes Visitors Bureau and the Michigan Strategic Fund violated Gersenson’s free speech rights via a 5 percent assessment on each of his rooms to subsidize visitors bureau marketing campaigns he did not want to be part of.

The Community Convention or Tourism Marketing Act (Public Act 395 of 1980), and a half-dozen other such laws throughout the state, including P.A. 25 in Kent County, authorize visitors bureaus in consultation with the Michigan Strategic Fund to levy the assessments as one of several revenue streams that fund so-called “destination marketing.”

Gersenson and the Mackinac Center argue that the assessment and Act 395 are unconstitutional. They say the U.S. Supreme Court has held in the past that a person may not be forced to subsidize speech against his or her will, regardless of the message, so the room assessment amounts to compelled speech.

Steve van Stempvoort, a Miller Johnson attorney specializing in First Amendment issues, said the question is whether the room assessments fall under government speech or private speech.

He said compelled speech is when the government forces one private entity to pay for another private entity’s message.

“If the government is compelling a specific private person to subsidize another private person’s speech, and it’s not related to another government regulatory scheme, that’s unconstitutional,” he said. “The government can’t tell one private party to pay for another private party’s viewpoint.”

On the other hand, he said the court may find the assessment subsidizing the visitors bureau marketing campaigns amounts to government speech.

“The First Amendment does not prevent the government from saying a private party has to fund government speech,” he said. “The government is allowed under the First Amendment to tax private parties and use those tax dollars to disseminate government speech.”

Although most visitors bureaus operate as private, nonprofit or not-for-profit entities, van Stempvoort said it is unclear whether the marketing campaigns funded by room assessments would qualify as private speech, because the Michigan Strategic Fund, a government entity, oversees the assessment districts.

Either way, he said if the court strikes down one region’s assessment statute, it might have statewide implications, as individuals elsewhere could bring similar suits.

Experience Grand Rapids, Kent County’s not-for-profit convention and visitors bureau, currently derives about 80 percent of its budget from hotel room assessments, which are set at 4 percent per room.

Doug Small, president and CEO of Experience Grand Rapids, said hotel guests pay the assessment and the hotels pass the funds on to the CVB to fund destination-marketing campaigns.

He said the room fees do not classify as taxes, and hotels signed on voluntarily to levy the assessment.

“Some people say if it walks like a duck and quacks like a duck, it’s a duck. But the hotels in Kent County voted to assess the guests in this way in 1997 (under P.A. 589).”

The region’s hotels voted in 2007 to double the assessment from 2 percent to 4 percent, under P.A. 25.

“We had to get a majority of the hotels to approve it,” he said.

Small said Experience Grand Rapids operates with “open communication” when it comes to use of the funds.

“On my board of directors, the majority must be hotel operators, because they supply us with the majority of our funding. In addition, we have a hotel advisory committee made up of nine hoteliers of all sizes — small, mid-size and large.

“That advisory committee meets every other month, six times a year. The sole purpose is for the hotels to approve or disapprove what we’re doing to market them.”

He said it’s very possible the lodging owner in northern Michigan does not have the same voice in the process as Kent County hoteliers do.

“Not all convention and visitors bureaus operate the same,” he said. “I won’t be the last one to say there’s a lot out there who need to sharpen their game.”

Small said the state also holds Experience Grand Rapids accountable in its use of the levy.

“The head of Travel Michigan, Dave Lorenz, of Pure Michigan, sits on that advisory committee to approve and oversee our actions,” he said.

“In addition, we have a governor-appointed state travel commission, and one of those travel commissioners serves on my board of directors.”

He said the oversight measures Experience Grand Rapids has adopted are largely voluntary, but in light of the Mackinac Center lawsuit, he and several CVB executives around the state, as well as the Michigan Association of Convention and Visitors Bureaus, are working with attorneys on a bill that will ensure the same level of oversight statewide.

“It would cover any legislation that allows for collection of a hotel assessment,” he said. “New language will be written, so there is more protection at the state level for the hotel owner.”

Ed Wilson, general manager of the East Beltline Country Inn & Suites and chair of Experience Grand Rapids’ hotel advisory committee, said local hotels generally support the room assessments they are charged, and he “wouldn’t think of it” as a free speech issue.

“We as hoteliers voted to assess ourselves through Experience Grand Rapids years ago, and then a number of years later, we voted to increase the assessment,” he said. “If it wasn’t working, the hoteliers would say, ‘We don’t want to do this anymore.’”

Wilson said Experience Grand Rapids has made good use of the funds in marketing the region as an appealing destination over the years.

“Occupancy has had a great run for seven years in a row,” he said, referring to the increase in hotel occupancy in Kent County from 49 percent in 2009 to around 68 percent in 2016.

“On the other hand, all of these new hotels are coming into town, so it will make for more competition,” he said.

Wilson said Kent County hoteliers have plenty of opportunities to voice their concerns, both in Experience Grand Rapids’ annual survey to general managers and through serving on the hotel advisory committee.

“With (spots for) 13 hoteliers, one of your neighbor hoteliers is going to be on this board at some point and will have input,” he said.

Gersenson, the northern Michigan plaintiff, alludes to not having that kind of representation with the Sleeping Bear Dunes Visitors Bureau.

He said the CVB’s website fails to mention many of the amenities and services offered at Gersenson’s inns or the fact they are open in winter — the one season when they could use more visitors.

“We’re not really advertised as anything much but a little mom-and-pop shop,” he said, noting that in the age of the internet, he can advertise effectively enough on his own, in the way he sees fit.

“I’ve been in business for over half my life. I’m 40 years old,” Gersenson said. “I’ve become a successful businessman. … I know what I’m doing in business.”

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