Scottsdale shifts bed tax tourism allocation philosophy

A view of Old Town Scottsdale, which is oftentimes a destination of those who visit the city of Scottsdale throughout the year. (Independent Newsmedia/Arianna Grainey)

Scottsdale has approved modifications to how bed tax revenues are internally assessed and allocated that ultimately could decrease the amount of dollars and cents available to help fuel and maintain the great tourism draw of The West’s Most Western Town.

In late March, Scottsdale City Council approved — by a 6 to 1 vote with Councilman David Smith dissenting — modifications to Financial Policy No. 21A, which defines the amount of revenue available to the municipality for primarily tourism development. The vote took place at Scottsdale City Hall, 3939 N. Drinkwater Blvd.

Approved by the Scottsdale electorate in 2010 at a rate of 5 percent, which was a 2 percent increase ratified by voters, the transient lodging tax known within municipal hallways as “bed tax” is a fund designed to help pay for and fuel various tourism efforts.

Jeff Nichols

Since that time, City Treasurer Jeff Nichols explains, the funds and its allocations have been modified, cut and reassessed as tourism needs and wants have shifted.

“We started adopting policies back in (fiscal year) ‘94-’95 and have made proposed adjustments every year,” Mr. Nichols said of the fluid nature of the tourism development fund.

The major philosophical change of revenue allocation regarding bed-tax dollars has been a shift from dollars and cents to percentages, according to Mr. Nichols.

“In July 2010, the city created a policy where 50 percent of the taxes would go to Experience Scottsdale,” he said of an unwaivering tenet of the bed tax allocation. “In May 2012, the city council approved a special revenue fund — the tourism development fund — to be used for tourism-related projects.”

The city of Scottsdale has an all-funds General Fund budget of about $285 million of which $1.5 million is derived from the bed tax allocations, according to Mr. Nichols.

Bed tax funding, which is a tax applied to hotel rooms within Scottsdale city limits, will now be divided as follows for fiscal year 2018-19:

  • Experience Scottsdale will still be allocated half of the taxes collected with an estimated $9.7 million allocation.
  • The city’s General Fund will continue to see about 12 percent with an estimated $2.3 million allocation.
  • Event promotion will see about 9 percent of the fund with an estimated $1.7 million allocation.
  • Administrative salaries and research efforts will continue to see 4 percent with an estimated $800,000 allocation.
  • Multi-year tourism related funding requests will see a 20 percent allocation totaling an estimated $4.9 million.

One-time commitment revenue will be absorbed by multi-year project funding requests meanwhile dollars derived from a lease agreement between the Fairmont Scottsdale Princess resort, 7575 E. Princess Drive, and the city will also be absorbed, according to Mr. Nichols.

“We wanted to add language to allow for the impact of projects that were built with tourism funds that had operating impacts on the General Fund to be funded from this revenue source,” he explained of staff’s request.

Scottsdale Stadium, 7408 E. Osborn Road, is in the heart of downtown Scottsdale. (Independent Newsmedia/Josh Martinez)

“So that they couldn’t just build capital projects then we were expected to pay for all of the operating expenses for those projects. I also want a commitment that tourism development revenues would be allocated for debt service — we have made that commitment to the people who buy our debt that we are going to repay them for loaning us that money.”

However, a $5 million commitment to Scottsdale Stadium earlier that evening will have an impact on a carry-over balance now estimated to be about $7 million, shrunk down from $12 million.

“We have worked up to the point now that carry-over estimate is $12.7 million available,” he said of dollars accumulated due to a no-spend policy embedded within the bed tax funds. “Scottsdale Stadium though gets $5 million, which leaves $7.7 million of undesignated funds.”

A catalyst for the request of policy change, Tourism Director Karen Churchard says, is oftentimes event funding requests are on an annual case-by-case basis.

“The way we fund Scottsdazzle, the way we fund Western Week, the way we fund most of those projects, we have to ask for carry-over funds,” she said. “Each year they are not automatically applied. The other items relate to events that happen every few years — we do have a need for those dollars.”

It has been tradition

Moving allocations from fixed dollar amounts to percentages will allow for fluctuations in revenue to be incorporated into the allocation, a better reflection of spending history and will allow for flexibility for operating expenses, city officials contend.

David Smith

“In 2010, when the city increased the bed tax from 3 to 5 percent it was a time to look fresh on how the city should spend its allocation and, of course, the majority goes to Experience Scottsdale,” Councilman Smith said of the city’s relationship with it’s third-party marketing arm.

“It doesn’t have to go to them by the way, it is just the chosen entity. The other half stays with the city and so we put together an allocation methodology.”

Inflation happens and Mr. Smith explains the fixed dollar amounts oftentimes would not account for the fluctuation of the value of the American dollar.

“In changing it into a percent they played a bit of catch-up for those lost years of escalation,” he said pointing out the various increases for each funding allocation jumps hundreds of thousands of dollars.

“If you increase one category you are pulling $1.6 million out of the bucket that might otherwise be used for what the voters really wanted. If you have reduced my cash flow by $1.6 million that takes away $12 to $15 million to finance a project through an MPC bond for example.”

As city leaders continue to contemplate the possibility of a general obligation bond program, Mr. Smith explains bed tax dollars can only be allocated for tourism-specific projects.

“The kinds of things we have done with it were for the Museum of the West,” he said. “We had to pay for the improvements for TPC Scottsdale. We had to pay for a variety of improvements for WestWorld. It is always limited for tourism projects. It is just $15 to $20 million fewer tourism projects we can do.”

Northeast Valley Managing Editor Terrance Thornton can be contacted at tthornton@newszap.com

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