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Room tax benefits Walworth County resorts and communities

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Stan Milam
August 11, 2012

— They are contentious and unifying.

A source of pride and concern.

State statutes require that room taxes be used to support "tourism promotion and development," but municipal officials and resort owners don't always agree on what that means.

"Our concern is the number of communities that simply fold the room tax revenues into their general operating budget," said Trisha Pugal, president and chief operating officer of the Wisconsin Hotel and Lodging Association. "Those revenues were never intended to subsidize local services."

The League of Wisconsin Municipalities disagrees.

"The league's position is that the room tax is a local tax and should be administered by local municipalities," said Dan Thompson, the League's executive director. "It ought to be a matter of local control."

In Walworth County, municipal room taxes funnel hundreds of thousands of dollars into local coffers. Some are used for tourism, but people disagree on the amount and what qualifies as spending to support tourism.

"We retain all room tax revenue for tourism-related operations," Fontana Village Administrator Kelly Hayden said. "We apply the revenue to staffing needs, maintenance, parking and our parks. For example, putting in our pier and maintaining it is a major expense that benefits tourism in the village."

David Lindelow, general manager of The Abbey Resort and Spa, thinks room tax money should be used differently.

"We believe that the room tax should be used not only for local improvements, but for regional tourism promotion that goes beyond just the local community," he said.

In 2011, Fontana's room tax revenue totaled about $349,000. Of that, the Abbey contributed about $325,500 or 93 percent.

Grandfathered in

State statutes dictate how room tax revenue can be used by municipalities.

Beginning in May 1994, state law required that 70 percent of room taxes be applied to "tourism promotion and development." The room tax statute does not define what constitutes "promotion and development."

Municipalities with room taxes prior to 1994, including the city of Delavan and the village of Fontana, were grandfathered in with no restrictions on how the tax revenue can be spent.

Delavan had a 6 percent room tax in place when the law was changed. The city increased the tax by 2 percent following the law change, making the 2 percent subject to the 70/30 split but not the original 6 percent.

As a result, Delavan supports tourism with 17.5 percent of its room tax revenueŚ70 percent of the taxes generated by the 2 percent increase.

The remaining 82.5 percent of room tax revenue is used to cover other city spending.

Delavan room tax revenue in 2010 totaled $451,4512. In 2011, the total dropped to $252,132, a reflection of the closing of Lake Lawn Resort for seven months. The city is projecting a comeback this year to $473,472.

"We cap the amount of room tax for general city operations at $110,000," Delavan City Administrator Denise Pieroni said. "Tourism promotion and development receives 17.5 percent, projected to be $82,858 this year, but it will go higher if room tax revenue exceeds our projections. The remainder, in this case $280,615, is budgeted for capital improvements."

Lake Lawn is by far the largest room tax contributor in Delavan and has the most at stake when the discussion turns to how Delavan's room tax revenues should be spent.

Lake Lawn General Manager Dave Sekeres said room tax revenue spent on general city operations and capital improvements is not necessarily money diverted from tourism.

"Lake Lawn benefits from capital improvements in infrastructure, for example," he said. "I think we have a very good relationship with the city and a good understanding of how we depend on each other for success."

Neither Pieroni nor Sekeres would disclose how much of the room tax total Lake Lawn pays other than to say it is "significant."

The city and Lake Lawn have weathered an economic storm that required cooperation in spite of competing needs.

"I'd call it a handshake," Sekeres said. "We see direct benefits from the room tax, and without the tax, the city would have to make up the shortfall."

If Sekeres sounds like he's advocating for Lake Lawn and the city, there's a good reason. He not only manages Lake Lawn, he's on the city's Room Tax Advisory Committee.

Differing, common goals

The Abbey supports legislation to phase out the grandfather clause in the 1994 law, a move that would require all communities with a room tax to spend 70 percent of all room tax revenues for tourism promotion and development.

"The lodging industry and municipalities don't agree on how room tax revenues should be spent and who should decide how they are spent," Lindelow said, "but that doesn't mean The Abbey and the village of Fontana are at odds.

"We have 430 employees with a payroll of $10 million," Lindelow said. "We live and work in the village, so we all want to see it succeed along with The Abbey."

The Abbey will continue to work with the village toward common goals, Lindelow said.

"Fontana is a great village, and the administration, led by Kelly Hayden, is great," he said. "She is responsible for providing us a great place to do business. This is only a situation where we are looking at different perspectives."

The trade groups representing lodging and municipalities have widely differing goals on room tax revenues.

Pugal said the Wisconsin Hotel and Lodging Association will seek out legislators to introduce a bill to phase out the room tax law's grandfather clause over a three-year period.

"It's fair to phase it out so that municipalities can adjust their budgets over time, but it needs to go," she said.

"We would like to see the room tax applied consistently throughout the state," Pugal said. "This change would still provide municipalities with up to 30 percent of the revenue for operating expenses."

The League of Wisconsin Municipalities opposes any change in the law.

That doesn't mean all municipalities would keep 100 percent of the room tax revenue for municipal operations, Thompson said.

"Sheboygan, for example, retains only 15 percent for city operations and uses 85 percent for tourism purposes," he said. "This should be a local matter decided by local communities and their lodging partners."

Communities such as Fontana are in a difficult position, Thompson said.

"The village's primary source of revenue is the property tax," he said. "If room tax revenues are diverted, property taxes go up, and The Abbey pays property taxes. That's why these issues should be settled at the local level rather than a one-size-fits-all approach at the state level.

In the end, the Legislature will decide how room tax revenues will be spent, Thompson said.

"We have legislatively competing views with the lodging industry," he said. "We both want to see our communities and the tourism industry succeed. The Legislature will decide how we do that."


 
 

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