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Room Tax Increase Up for Discussion

Whether overnight visitors at area hotels will continue to pay a 3 percent occupancy tax or, potentially, up to 6 percent could soon be decided.

An on-and-off the table discussion for five years, there has been a renewed sense of urgency this year as the local hospitality industry tries to shake off the economic toll of the year-long pandemic.

On Wednesday, the Moore County Board of Commissioners are scheduled to convene a special meeting where a requested increase to the “room tax” is back on the agenda. The local Convention & Visitors Bureau (CVB) has strong support from its members for the requested increase that would, in effect, double the current rate. There is also support for an increase from many municipal leaders in the southern end of the county, where most of the hotels and short-term rentals that are also subject to the room tax are located.

Unlike sales tax, 100 percent of collected occupancy tax revenue remains at the local level. Also, importantly, since the state legislation for a room tax is unique to each community, no two occupancy taxes — or how they are allocated — are necessarily the same.

Currently the 3 percent rate — $3 on a $100-a-night room bill, for instance — generates about $1.8 million a year. That money is directed to the CVB. State law requires that two-thirds of the revenue be used to promote travel and tourism initiatives. The balance can be spent on tourism-related expenditures.

Generally speaking, tourism-related expenditures in North Carolina counties have been used to fund everything from festivals and events, to capital projects, to providing some municipal services in beach towns. CVB CEO Phil Werz said golf has been the saving grace for tourism in Moore County through the pandemic. "It is the one thing that remained constant. Golf never closed, never shut down, never stopped. If anyone took the golf industry for granted, 2020 showed once and for all that it is the backbone of this tourism destination.”

Recently the CVB has been working on the notion of a product development fund. In this model, 4 percentage points of the increased room tax would be used for promotion and marketing efforts. Revenue from one or two percentage points of the remaining room tax increase would be set aside in an account to fund grants for tourism-related projects. Towns or nonprofit organizations could apply to fund ideas that meet set criteria. Any potential grant ideas would first be reviewed by a subcommittee of the CVB, and recommended projects would then be considered by the full CVB Board.

A New Proposal Last Tuesday the TriCities Work Group, a bimonthly meeting that brings together elected officials and senior staff from Aberdeen, Pinehurst and Southern Pines in conjunction with Triangle J Council of Government representatives, considered an alternative approach to how the increased revenue stream could be allocated. Aberdeen Town Manager Paul Sabiston said the recommendations were the result of conversations between himself, Southern Pines Town Manager Reagan Parsons and Village Manager Jeff Sanborn. Their purpose was to create a starting point for discussion and did not reflect a formal plan or consensus of agreement from their respective elected boards.

Based on the assumption that commissioners approve the higher 6 percent tax, the funding model directs two-thirds of total revenue to the CVB’s promotion and marketing efforts. Where the alternative approach differed is in how the remaining portion would be allocated.

Instead of the money going into one pot, it would be split in two: one percentage point’s worth of revenue would be reserved for a tourism product development fund, as contemplated in the CVB proposal; the other one percentage point would be distributed directly to local governments using a combination of population-based and revenue-based formulas.

Half of one-percent would provide Moore County with $5,000 per year and each of the area’s 11 municipalities would receive $2,500 annually, with the remaining funds allocated in proportion by the room tax revenue generated by hotels within municipalities’ town limits. The other half of one-percent (.5) would see an additional $5,000 set aside to Moore County and the rest distributed based on the resident population of each area.

All revenue distributed to local governments would be spent in compliance with a pre-approved list of “expense type” categories the CVB classifies as legitimate tourism-related expenses. In addition, local governments would be required to submit an annual report to the CVB detailing how any room tax funds were used to ensure compliance. According to the proposal, a sample list of potential pre-approved expense categories might include: construction, debt service or maintenance costs for recreational or cultural arts facilities that are expected to attract tourists and visitors from outside Moore County; gateway and main thoroughfare beatification and other improvements such as wayfinding signage, landscaping and hardscaping; and marketing for and production of events and activities that are expected to attract tourists and visitors from outside Moore County.

Using current population estimates and 2018 room tax collection rates, if this alternative approach was approved, Moore County would receive $10,000 annually. Individual municipalities would see varying rates, with Pinehurst potentially receiving around $240,000 a year. Southern Pines, the area’s second largest community in terms of population, would receive approximately $177,100, followed by Aberdeen with an estimated $90,660 in new revenue. Other municipalities would see annual allocations ranging from a low of $4,560 (Cameron) to $25,176 (Taylortown).

“I know every town may be at different levels as far as support of this tax, in general, and how to direct funding,” Sabiston said. “The issue we feel strongly about is there should be a direct allocation particularly to jurisdictions that have hotels.” Village Manager Jeff Sanborn said he did not speak for the Pinehurst Village Council, but agreed that the three municipal managers had come up with a plan they felt captured the broadest support from each community. “It would be helpful when the county commissioners meet to consider this topic that we have something to propose to them. I have no expectation that this will be the final solution, but it is certainly a good starting point for conversation,” Sanborn said. Southern Pines Mayor Carol Haney reiterated concerns that she and Sabiston have voiced in previous meetings, that their towns do not want to have to “stand in line” to request grant money from the CVB.

“We want our fair share. That is what I’m looking for,” Haney said.

‘More Than Golf’ Tourism is a key economic engine for Moore County. Pre-pandemic, visitors to Moore County set a new spending record providing some $563 million in economic impacts in 2019.

Visitor spending also triggered some $16.6 million in local sales and property tax revenue from “travel-generated and travel-supported” businesses. According to an annual study prepared by the U.S. Travel Association released by Visit NC, as a result, each Moore County household saves on average $445 in state and local taxes as a direct result of visitor spending.

The local travel and tourism industry also directly employed more than 6,300 people and the total payroll generated by these businesses was $134.3 million, again using 2019’s pre-pandemic figures.

With the USGA’s naming of Pinehurst Country Club as an anchor site for five future U.S. Open championships and a new second headquarters on the resort campus, there is more pressure on the hospitality community to rebound successfully. An architectural rendering of The Lodge at Pinehurst, a 34-room boutique hotel proposed to be constructed on the Pinehurst Resort campus. Image courtesy of Cooper Carry Inc.

Occupancy rates down overall about 30 percent over the last 12 months, and the CVB has had less funding available to advertise the destination for potential visitors. However American Rescue Plan stimulus funding could provide a relief valve to reinvigorate the CVB’s bottom line.

Village Council member Kevin Drum said he was worried that without structure, there was potential to “fragment the tourism market.” “I’m struggling with accountability on the impact of tourism. One reason you have a CVB is to work together for a bigger impact,” but he said he supported the other towns’ concerns about not being left out. “I am all-in with it being a county effort and not just being all about golf. We need to be more than golf here in Pinehurst. It seems like there is a lack of understanding about details and accountability.”

Aberdeen Mayor Robbie Farrell said there are 500 hotel rooms in Aberdeen but the town sees no advertising dollars directed toward things that attract visitors to the town. He cited the Malcolm Blue Farm in Aberdeen, which boasts a history museum and festival events each year. Both, he said, are overlooked by the CVB. Haney agreed. “To put all the money in one big pile, I disagree with that. It needs to be fair. We have 11 municipalities and we all bring something to the table and we all bring reasons for people to come to Moore County.”

Pinehurst Village Council member Judy Davis said she’d like to see the county commissioners ask for more detailed information on the CVB’s various promotional campaigns.

“If we had a better idea of the distribution of marketing and how those dollars were spent, we would have a much better feeling,” Davis said. “There needs to be more insight into how funds are used. We are having a great conversation but the real player is not in the room. Unless the county can look under the covers and see how the money is being spent, we are all just sitting here on the sidelines.” Sabiston said under state law the CVB can spend up to one-third of its revenue on tourism-related expenditures and facilities.

“The CVB has spent zero money on facilities in the last 10 years with the exception of an airport expenditure at some point. So if one-third of those funds can be spent on our facilities, the towns are the best ones to decide how to best spend money on our facilities,” he said.

Sabiston added that he was looking for funding for actual physical structures, such as athletic fields that could be used to attract visitors for youth sports tournaments. Aberdeen is currently constructing a six-field sports complex on U.S. 15-501, funded by the town and with private donations, after failing to win county support in years past for a larger-scale sports facility.

“The last thing I want to do is wait in line to see if someone thinks we’ve made the right decision on our own facilities,” Sabiston said. “We are talking about one-half of 1 cent of the 3 cents that would go more directly to benefit municipalities. Also we would be in line to ask for more money for big projects with the other one-half of 1 cent for a tourism product development fund.

“If we miss this opportunity now, we will not have this chance again for years. If we twiddle our thumbs, it will be left to the CVB,” he added. “They do a great job but the money will not be spent on our facilities.”

Sanborn said regardless of how the county commissioners vote on the proposed increased occupancy tax, there must be accountability to taxpayers. “It is reasonable for folks to demand that whatever is put in place ensures there is proper methodology for accountability,” he said. “The devil is in the details.” “That ties back to accountability at the local level and CVB level,” Davis responded. “Those two plans should be integrated. If we don’t operate together the boat won’t rise. We have to be pulling together.” Author: Laura Douglass - The Pilot Newspaper

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