County Needs More Room Reservations For Bonding

May 18, 2008
Text Size:
GRAND RAPIDS — There isn’t another public entity that wants to see the occupancy rate at local hotels rise more than Kent County does. Since 2002, the rate has been stuck at around 55 percent after hovering in the mid-60s for many years.

Hotel occupancy is a concern for the county because it uses receipts from the lodging excise tax to pay the bondholders that bought the construction bonds for DeVos Place, the $200 million convention center that is so vital to the region’s hospitality industry.

And for the past six years, revenue from the 5 percent tax that guests pay on their lodging bills hasn’t kept pace with the fund’s expenditures, which has forced the county to shift a few of those expenses to other funds. Those transfers have placed some fiscal strain on the budgets that received the expenses the hotel-motel tax once covered.

In 2007, the lodging excise tax fund had total revenue of $5.2 million with slightly more than $5 million being generated by the tax. But expenditures last year from the fund totaled more than $6.6 million, leaving the account with a $1.4 million deficit that the fund balance had to pick up.

So county commissioners moved and reduced about $900,000 worth of expenditures from the lodging excise fund in order to cut the annual flow of red ink for this year. The county’s support for exhibit construction at John Ball Zoo was shifted to the capital improvements budget, and the smaller of the two DeVos Place construction bonds was moved to the general operating fund. Kent also lowered its yearly contribution to the Convention and Visitors Bureau.

Despite the expenditure shifts, the forecast for this year still has the lodging excise fund losing nearly $350,000 based on a revenue expectation of $5.4 million, a figure that is up from last year. The hotel-motel tax itself has been projected at $5.26 million for 2008, a 4.3 percent rise from last year’s total.

At the end of the first quarter this year, total revenue to the fund was $757,385 or nearly 2 percent more than the same period last year. The tax receipts alone were 5 percent higher than the first three months of 2007 and totaled $742,575.

“It’s up this year. Our budget is a 4.3 percent increase. Year-to-date for the first three months, we were up 5.5 percent over the same period last year. But even with a 4.3 percent increase, we’re looking at $5.4 million in revenues overall, we’re still spending $5.7 million,” said Kent County Fiscal Services Director Robert White.

White said the expected shortfall comes after the county moved the $400,000 outlay for the zoo to the CIP budget and after the 2003 series DeVos Place debt service — another $400,000-plus expense — was moved to the general fund.

“We still anticipate a deficit this year. The revenues are up a little bit but they’re not going to eliminate this $300,000 deficit. We’re still spending down the fund balance,” he said.

What makes this balancing act difficult for the county is Kent can’t spend the entire fund balance to cover the shortfalls. The fund balance, or reserve account, stood at $1.8 million at the beginning of this year and has been projected to drop to $1.4 million by year’s end. The fund, though, needs a balance of $1.17 million to meet a commitment made to buyers of the convention center bonds.

“That’s a minimum designated amount of fund balance. It’s an amount equal to 25 percent of the annual debt service,” said White.

There are two bonds that covered the convention center’s construction. One was issued in 2001 and brought in $86 million in revenue. Its debt service this year is $4.68 million and will be paid by receipts from the hotel-motel tax.

The other was issued in 2003 and was worth $5 million in revenue. Its debt service was transferred to the general fund. The county also reduced its annual support of the CVB to $700,000 this year, after it awarded the bureau $1.1 million last year.

Despite spending reductions and fund transfers that eliminated 13 percent of the lodging excise fund’s expenditures for this year, the fund’s balance is getting precariously close to bottoming out.

“There still is a little room for this to fall. It can fall from $1.4 million to $1.2 million. But you can see that if we don’t make other significant changes, we will be at that point at the end of ’09. We’re still spending more than we’re taking in,” said White.

“In ’07, we spent $1.4 million more than we took in. We got $5.2 million and we spent $6.6 million. That’s why it was so traumatic this year — reducing debt service, reducing the contribution to the convention bureau and reducing the contribution to the zoo, we still don’t have a surplus. So we’ve gotten ourselves pretty far behind in that fund.”

Recent Articles by David Czurak

Editor's Picks

Comments powered by Disqus