Hospitality tax back on tourism agenda?

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With world-famous accomodations, The Broadmoor is the region’s largest LART contributor.

With world-famous accomodations, The Broadmoor is the region’s largest LART contributor.

After a couple of rough years, the hospitality industry hopes that 2011 will be a recovery year. It’ll also be the year that Doug Price takes over as head of the Colorado Springs Convention & Visitors Bureau.

Although it’s too soon to know what Price will do, one of his concerns is funding, which has been an industry-wide concern for several years, but especially this year. That’s because the City of Colorado Springs drastically cut the amount of Lodgers and Automobile Rental Tax, or LART, revenue it allocated to the CVB, from two-thirds to half.

The difference went to city coffers for municipal services — a severe measure, city officials said, that was necessary to balance the budget. For 2011, the bureau’s portion returns to the customary two-thirds.

The LART, which is expected to raise $3.95 million this year, consists of a 2 percent lodging tax and 1 percent auto rental tax. It has been unchanged since 1995. Combined with city, state and county taxes, the total tax for renting a room in the Springs comes to 9.4 percent. Compared to Denver’s 14.85 percent, it’s a steal. The lodging portion of that tax is 10.75 percent for Denver, vs. 2 percent in the Springs.

The lodging tax in other Colorado cities ranges from 6.9 percent in La Junta, a tiny town on the eastern plains; to 10.8 percent in Woodland Park; and 15.7 percent in Pagosa Springs.

Whether to raise lodging taxes is being debated across the country. St. Peters, Mo., a city in suburban St. Louis, for example, included lodging tax increases on this week’s ballot. And Teton County, Wyo., put a 2-percent lodging tax increase on its ballot. Missouri voters struck down their proposed increase, while Wyoming voters approved theirs by a landslide. In Cripple Creek, voters this week rejected a $5-per-night lodging tax. Similarly, voters in Fountain defeated measures that would have boosted the lodging tax by 2 percent.

The Aspen Chamber Resort Association recently conducted a member survey on the issue. Seventy-nine percent of the respondents supported a 1-percent lodging tax increase.

LART’s many uses

By law, the city must use its share of LART revenue to promote tourism and visitor attraction, as well as for economic development activities.

LART dollars also may be used for the acquisition, construction, maintenance and operation of public works or public improvements which are in part visitor or tourist attractions.

The city uses its portion of LART to maintain some of the parks, and for police- and fire-department support of special events, including the Pikes Peak International Hill Climb, the Pikes Peak Ascent and Marathon, and for 2011, the U.S. Women’s Open, said Kara Skinner, financial services manager for the city.

Increasing the LART would require voter approval. It could be placed on the ballot by the City Council or a citizens’ initiative. Changing the allocation to the CVB, however, only requires a vote of city council.

Tourism is a $6 billion industry in the region, so the community benefits if the CVB has a steady revenue stream for promoting even more tourism, group and convention business.

“It’s important to fund the CVB to attract visitors and conventions to this area, especially because the city is already at a competitive disadvantage because it lacks enough convention space,” said Tom Zwirlein, professor of finance at the College of Business at UCCS and director of the Southern Colorado Economic Forum.

“We could easily double our LART taxes without any fallout,” Zwirlein said. “Relatively speaking, our LART is incredibly low.”

Zwirlein doesn’t believe the city’s low lodging tax draws more visitors here, nor does he think that raising it — in moderation — will repel visitors.

The type of visitors a region sees does make some difference, industry experts say.

“If (the area has) a high mix of business customers that will have less of an impact because they have to be there for business,” said Bill Carroll, a senior lecturer at the Cornell University School of Hotel Administration.

The Pikes Peak region has a healthy mix of business, group and leisure visitors.

Another factor is how the tax revenue is spent.

“If the tax dollars get funneled back into investment and infrastructure or tourism marketing activity — which drives more business to the area — then it’s a cost-benefit for the region,” Carroll said.

“(And) if you’re not bringing people to the region, then you’re hurting the region,” he said.

Obstacles and objections

The topic of increasing lodging rates, however, tends to raise the ire of those in the hospitality industry.

Critics contend that raising the tax rate would only further beat down an industry that’s suffered because of the recession and the loss of revenue after the AIG business travel scandal of 2008. Room rates, nationwide, have steadily regressed to 1995 levels.

“You could argue the LART’s comparably low, but (we need it) to compete in that group market,” said Steve Bartolin, CEO of The Broadmoor. “It might sound subtle, but it’s an edge.”

That’s because group planners don’t plan conventions strictly around the scenery, one of the region’s biggest draws for leisure travel.

Meeting planners factor in room rates, taxes and airfares to calculate a per-person cost. Colorado Springs is already hampered on this score because it has fewer low-cost airlines serving its airport.

“Many times The Phoenician (in Scottsdale, Ariz.) can quote a $50 per person higher (group) room rate and still beat Colorado Springs,” because its overall costs can be lower, Bartolin said.

The state tourism board has other motives for opposing LART increases.

“One of the reasons we oppose lodging tax increases is that you are singling out one industry to make up any shortfalls rather than looking more broadly at a tax increase,” said Christine R. O’Donnell, president of the Colorado Hotel & Lodging Association.

Moreover, there’s a misconception, she said, that it is a tax only on visitors and has no effect on residents.

“With the tight economy, there are more staycationers (people who vacation in their own region) than ever. (A higher tax) means some Colorado residents may decide to staycation at another location rather than your city,” O’Donnell said.

“This is just another burden for the lodging industry to take on,” O’Donnell said.

While the CVB’s incoming CEO has yet to start his job, Price has stated that one of his first goals is to help business leaders in the region “understand the impact that tourism has on our community, and how important it is that we fund it.”

Whether he intends to lead a charge to increase LART remains to be seen. In a region long opposed to tax increases, it may be years before the lodging tax is raised.

On the other hand, the industry could easily find itself short of promotion dollars the next time the city can’t find the money to pick up trash.

Lodging taxes in other cities

State City County Lodging Other Total
Colorado Springs 2.9% 2.5% 1% 2% 1% 9.4%
Denver 2.9 0 1.2 10.75 0 14.85
Fort Collins 2.9 3< 0.8 3 0 9.7
Boulder 2.9 0 1.85 5.5 0 10.25
Aspen 2.9 2.2 3.5 1 0 9.6
Chicago 6.17 3.5 1.08 0 4.64 15.39

Voices

“We could easily double our LART taxes without any fallout.”
— Tom Zwirlein, professor of finance, College of Business, University of Colorado at Colorado Springs

“One of the reasons we oppose lodging tax increases is that you are singling out one industry to make up any shortfalls rather than looking more broadly at a tax increase.”
— Christine R. O’Donnell, president, Colorado Hotel & Lodging Association

“This is no time to be having a discussion about raising taxes on anybody. I cannot think of a worse idea. We’re doing the best we can to keep jobs and keep business going. It’s as tough a time as I’ve seen in 35 years.”
— Steve Bartolin, CEO of The Broadmoor

“Any further increase in LART would put us in the category of causing potential clientele to search for alternate destinations. Right now our LART tends to give us an edge on business.”
— John Branciforte, VP of marketing, Cheyenne Mountain Resort