City tax dollars collected from a 4 percent charge on hotel rooms — which once helped fund such community events as Independence Day at Fort Vancouver and the Vancouver Wine & Jazz Festival — now go exclusively to pay off debt at the Hilton Vancouver Washington.
The tax traditionally went to paying debt on the $68 million hotel and convention center downtown, with the rest dedicated to city and community events and programs that promote tourism. State law prohibits the lodging tax from being spent on anything besides tourism promotion.
The idea was: When needed, the tax would help cover the debt payment for the Hilton, and whatever the Hilton didn’t need, would go to tourism-related events.
But the trouble with a lodging tax is that it goes down as the number of reserved rooms drops, meaning there’s less tax to go around. Problems for the Hilton are compounded, as fewer rooms booked also mean a smaller profit margin.
The result: The city feels the lodging tax will be more consistently needed by the Hilton — so it’s cut off the money for the events.
The tax has supplied events anywhere from a high of $176,500 in 2007 to a low of about $70,000 in 2010 — before the city council approved a two-year budget that cut off the lodging tax money flow entirely.
Instead, about $85,000 a year in 2011 and 2012 is being drawn from the general fund for events. It’s a trickle that City Manager Eric Holmes said he’s likely to stop in his recommendations for the 2013-14 budget.
“It’s highly probable, in the next biennium, those resources won’t be available,” Holmes said Friday.
Value of tourism
Wine & Jazz Festival Director Michael Kissinger said the loss of lodging tax money for events like his represents a “huge policy problem” for the city. The tax was a tool that allowed the city to collect money from out-of-towners and reinvest it into drawing more tourism, he said.
“We used that money for marketing and promotion, we used it for advertising. … The city of Vancouver has received huge benefit from that,” Kissinger said, adding that estimates have shown the annual summer event has brought a $9 million benefit to the city over its 15-year history. “Now that lodging tax is being shifted from its original intent. It’s being shifted to pay for the convention center. It’s unfortunate, it’s just unfortunate.”
The popular event got $20,000 in 2011, down from a high of $40,000 in 2007. He called the end of city support for the program “a gigantic chunk of money we lose.”
Along with Independence Day and the Wine & Jazz Festival, lodging tax dollars in the past have also gone to the Clark County Historic Museum, Discovery Walks, the Confluence Project and the Vancouver Downtown Association.
Of course, the Hilton itself has also played a prominent role in bringing visitors to the city. Recent events have included Libertarian Ron Paul’s visit on Thursday, a summer anime convention this and countless community events like the Rotary’s New Year’s Gala.
$4 million a year
As the economy continues to hobble the hotel industry, the city-owned hotel and convention center operated by Hilton Corp. has struggled to make its $4 million annual bond payments.
The city had to dip into reserve funds in December 2010 to cover the $584,420 it was short on its $1.6 million payment. No reserves were tapped in 2011. Each year, the city is financially obligated to provide up to $650,000 to pay off debt, should the Hilton fall short.
City Chief Financial Officer Lloyd Tyler said lodging tax collections should be high enough to cover any debt payments. The city’s general fund — which covers public safety and other core services — is the final backstop if all other reserves are exhausted.
Before 2010, the Hilton was able to meet its annual bond payments through its operating revenue, the lodging tax and a sales tax credit from the state.
The city said Friday that it also corrected a banking error, in which the Hilton’s financial trustee, U.S. Bank, was drawing money from a reserve fund to cover debt payments, rather than covering shortfalls via lodging tax reserves.
Vancouver transferred $1.7 million into the bank reserves from its lodging tax stores. The money does not represent additional funds to the Hilton, but rather a correction of the banking error.
“The bank should have sent us the bill first,” rather than use its operating reserves — similar to the way a homeowner’s escrow account would be used before a homeowner’s own savings, Holmes said.