TO: Mayor and City Council
THROUGH: Steve Powers, City Manager
FROM: Robert Barron, Chief Financial Officer
SUBJECT:
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Public Hearing on Ordinance Bill 16-19 creating Salem Revised Code (SRC) Chapter 38 establishing a Tourism Promotion Area and amending Salem Revised Code (SRC) Chapter 37
Ward(s): All Wards
Councilor(s): All Councilors
Neighborhood(s): All Neighborhoods
Result Area(s): Strong and Diverse Economy; Welcoming and Livable Community.
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ISSUE:
Shall the City Council advance Ordinance Bill 16-19, amending Salem Revised Code (SRC) Chapter 37, creating SRC Chapter 38, to establish a Tourism Promotion Area, to second reading for enactment?
RECOMMENDATION:
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Advance Ordinance Bill 16-19, amending Salem Revised Code (SRC) Chapter 37, creating SRC Chapter 38, to establish a Tourism Promotional Area, to second reading for enactment.
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SUMMARY:
Travel Salem, the City’s current Destination Marketing Organization (DMO), and the Salem Lodging Association, requested that the City establish a Tourism Promotional Area (TPA) and collect a fee on behalf of lodging establsihments. Establishing a TPA is in the City’s 2019 Policy Agenda. A TPA provides resources beyond what is currently provided by the City’s Transient Occupancy Tax (TOT). The creation of a TPA would allow the City to collect the proposed two percent (2%) fee from hotels, motels, and booking agents, such as Expedia. Revenues will be allocated to the DMO, currently Travel Salem, to promote overnight tourism and improve the lodging business environment through advertising, branding efforts, promotions, sponsorship of special events, and other programs that will increase overnight transient lodging stays. As proposed, short term rental operators as defined in chapter 37 would not be subject to the TPA.
It is expected that the marketing activities funded through the TPA will increase overnight transient lodging stays, leading to an increase in TOT revenue.
Notice of the November 25, 2019 public hearing was mailed to affected parties on October 17, 2019. If approved, the TPA would take effect on January 1, 2020.
FACTS AND FINDINGS:
Oregon Revised Statutes (ORS) chapter 223 allows cities to establish Economic Improvement Districts (EID) to impose a fee on affected businesses to raise revenue for the cost of an economic improvement. The definition of economic improvement includes, but is not limited to, promotion of commercial activity or public events, as well as district planning and management activities. The TPA described in this ordinance would operate as an EID in both scope and statutory limitations. This includes a periodic review of the TPA every five years including a public hearing by City Council to determine whether the TPA should be dissolved. As required under state law, if 33% or more of the businesses subject to the TPA fee object to the formation of the TPA, the TPA would be required to dissolve.
The City Attorney has indicated that it is necessary to follow the statutory EID process for the TPA, to set it apart from the City’s Transient Occupancy Tax program. City staff have worked with the Salem Lodging Association on developing this TPA proposal.
Statutory Criteria
Under ORS chapter 223, an Economic Improvement District, such as the proposed TPA, may not impose a fee for an economic improvement that does not primarily benefit persons conducting business within the TPA. In this case, the fee is imposed on transient lodging operators and booking agents that will primarily benefit from the proposed uses of the fee.
The ordinance proposing the TPA must:
1. Describe the economic improvement project to be undertaken,
2. Contain a preliminary estimate of the probable cost of the improvement,
3. Describe the boundaries of the TPA in which property will be assessed the fee,
4. Specify the number of years, to a maximum of five, in which the fee will be imposed,
5. Contain provision for notice to be mailed to affected persons regarding the creation of the TPA, and
6. Provide for a public hearing where the TPA will be considered.
Upon consideration of the TPA, Council must determine; 1) whether the businesses benefited shall bear all or a portion of the cost of the economic improvement proposed, and; 2) the amount of the fee. Council must also consider the objections of persons subject to the proposed fee and may modify the proposed fee accordingly.
The TPA may not be established if at the public hearing the City receives written objections from more than 33 percent of persons conducting business within the TPA, who will be subject to the fee.
Findings of Compliance with Statutory Criteria
Ordinance bill no. 16-19 contains provisions and findings of compliance with the statutory criteria. At the public hearing, staff will provide an update of any written objections received, and whether the number of written objections is enough to prevent the formation of the TPA.
Fee Structure
The proposed fee is 2% of taxable rent as defined in the ordinance bill. As proposed, the exemptions used for TOT calculations will be the same for the TPA for ease of implementation and administration by the transient lodging operator. Payment and reporting of the fee will be made monthly to the City. This will be done on the same schedule, payment, and reporting method which the TOT is submitted.
Revenue Uses and Special Revenue Fund
The TPA funds would be distributed annually to the City’s DMO, with up to five percent (5%) retained by the City to cover administrative costs for the collection of the fee and administration of the program. A special revenue fund will be created through a supplemental budget action to segregate TPA revenues from TOT revenues. Both programs’ revenues and expenditures will be accounted for separately.
State law limits the use of the revenues generated under the TPA to:
• The planning or management of development or improvement activities,
• Landscaping or other maintenance of public areas,
• Promotion of commercial activity or public events,
• Activities in support of business recruitment and development,
• Improvements in parking systems or parking enforcement, and
• Any other economic improvement activity for which an assessment may be made on property specifically benefitted thereby.
This proposed ordinance further limits the use of the funds collected through the TPA to tourism related uses. Specifically, revenues may only be used for economic improvement or the administration thereof, and the funding of programs by this fee must be designed to benefit transient lodging operators and may include, but are not limited to:
• Internet, radio, television, and print advertising,
• Branding efforts,
• Sales promotions,
• Sponsorship of special events which attract out-of-town visitors; and
• Other programs designed to, or have the effect of, increasing overnight stays at transient lodging facilities.
Area Boundary and Impacted Parties
As proposed, the TPA and its corresponding fee would only be assessed on hotel/motel operators and intermediary booking platforms. Short term rental operators, and intermediaries like Airbnb are not subject to the fee.
The TPA boundary would encompass City limits. TPA revenue can be use more broadly than TOT revenue. Unlike TOT revenue, TPA revenue can be used for promotion of tourism events and activities anywhere in the region, if the promotion will have the effect of increasing overnight stays in Salem lodging operators.
Estimated TPA Collections
The table below outlines the collected TOT from the past fiscal year and applies what the TPA fee would have equated to in dollars. A total of approximately $907,000 would have been collected last fiscal year had the TPA been in place.
Next Steps
The second reading of the ordinance bill is scheduled for tonight’s meeting. If passed at second reading, the ordinance would go into effect on January 1, 2020.
Anthony Turley
Financial Reporting Manager
Attachments:
1. Ordinance Bill 16-19
2. Exhibit A to Ordinance Bill 16-19