Background of hotel room rental tax (HRRT)
For more than 10 years, the community of Lancaster County has benefited from a robust destination marketing effort under the leadership of the PA Dutch CVB (CVB), in large part funded by the county’s 3.9% hotel room rental tax and a 1.1% excise tax.
Currently the combined tax stands at 5%. Of that number, 100% of a 1.1% excise tax goes to the CVB for destination marketing. The remainder, the 3.9%, is shared, with 20% going to the CVB for destination marketing and 80% to the Lancaster County Convention Center Authority to meet the publicly owned convention center’s bond obligations and supplement operational costs.
It is important to note that the hotel room rental tax is not by any means an income tax; it is paid by consumers who occupy hotel rooms, not by hotel owners.
An accurate account of the convention center’s success
It is a fact that, as a significant asset in the marketing of Lancaster County as a destination, the Lancaster County Convention Center is doing very well. It employs 172 people and sells an average of 80 event days per month. Even in the face of unprecedented and unanticipated market challenges due to the prolonged economic recession, the convention center is on track to exceed its sales goals in 2012.
Since its opening in June of 2009, the convention center has brought more than half a million people, most of that new business, to Lancaster County – drawing an average of 15,000 attendees per month and generating a broad spectrum of economic growth including an average of 1,500 overflow hotel room nights per month.
“Overflow” refers to all of the Lancaster County hotel rooms needed beyond the capacity of the 299-room Lancaster Marriott at Penn Square, which adjoins the convention center. Since the convention center’s opening, 40,000 room nights of primarily new business have been tracked through the CVB’s Passkey room tracking system, and this number represents only a portion of room nights brought to the county.
The economic impact of the convention center and the increased marketing revenue received by the CVB from the hotel room rental tax has been, and will continue to be, significant.
Economic challenges and resulting shortfall in funding
As an economic engine, the convention center (like the majority of convention centers) was planned to have its bond requirements and operational expenses supported by the county-wide hotel room rental tax. Because of the unanticipated impact of the recession, this revenue has been insufficient to meet funding requirements.
It is important to point out that, despite the recession, total room occupancy (total room nights sold) across Lancaster County has actually rebounded in recent years. This is good news. The challenge continues to be that the average room rate (which in early 2012 is approximately $90/night in Lancaster County) has not recovered or grown as anticipated.
This lack of room rate growth has been a result of the recession, and it has been the primary cause of a shortage in hotel room rental tax funding.
Ramifications of funding shortfall
The reduction of hotel room rental tax funding means that an immediate solution is needed to maintain crucial positions of strength for both the convention center and the CVB in order to benefit the county overall:
- The LCCCA must maintain the required reserves to meet its bond requirement and preserve current favorable interest rates, cover operating costs of the convention center, and create reserves for the upkeep of the convention center.
- The CVB must continue to receive critical funding (its 20% of the current tax revenue equates to approximately $900,000 a year) that it uses to market the county as a destination. (Of note, the CVB recently lost $1 Million in annual funding that it previously received from the Commonwealth of Pennsylvania, so the current funding is all the more crucial.)
Proposed modest hotel room rental tax increase
In January, 2012, LCCC Executive Director Kevin Molloy issued this position statement proposing a modest increase in the hotel room rental tax for Lancaster County.
The proposed adjustment to the current hotel room rental tax from 3.9% to 5.0% is a modest one. This hotel room rental tax is paid by consumers, not by hotel owners. It is not an income tax, it is a use tax paid by hotel guests, and the proposed 1.1% increase would equal about one dollar on the average county hotel room rate of $90.
The new rate would still be absolutely in line with regional and metropolitan markets.
We are completely confident that such a small hotel room rental tax adjustment would have no impact on demand for hotel rooms in Lancaster County. Again, it equals about one dollar on the average $90 hotel room cost in Lancaster County.
The bottom line
A modest increase in the hotel room rental tax would allow for: (1) financial stability of the convention center in the current economic context and support of its ongoing and long-term ability to be an engine for economic vitality and (2) the enhancement of the funding of the CVB that affects all hotels, attractions, and businesses in Lancaster County.