By Karen Gleason
The 830 Times
City councils have much discretion on how to use hotel taxes the city receives, but all funds must directly promote tourism and the hotel and convention industry, a hotel tax expert said.
Scott Joslove, president and chief executive officer of the Texas Hotel and Lodging Association (THLA), made a presentation about how the city can use hotel occupancy tax (HOT) revenues during Tuesday’s council meeting.
Joslove, appearing via Zoom, told the council he has served as president and CEO of the THLA for 25 years and also holds a master’s degree in public administration – city management – and a law degree. He has also worked as the lead attorney for the Texas Municipal League and chief of municipal affairs for two Texas Attorneys General.
“Back in 1989, I wrote an article called ‘What Cities Need to Know to Administer the Local Hotel Tax,’ and I’ve updated that article every legislative session, when they make the changes to the laws,” Joslove said, noting council members should have the article and promising to email them copies if they did not.
Joslove said the article covers the nine uses of hotel tax
Association, on Tuesday gave a presentation to Del Rio City Council about the legal uses
of hotel occupancy tax (HOT) revenues collected by the city. (Courtesy photo)
permissible under Texas law, as well as the two-part test for expenditures of the tax.
Joslove said while the city’s revenues from property taxes and sales taxes can be used for any public purpose, “the local hotel tax is different.”
He said he would speak about how the city is currently using its HOT revenues, then address the two-part test for HOT fund expenditures and the nine categories.
Joslove then went over specifics of the city’s current budget for revenues and expenditures of HOT funds.
Joslove then spoke to the council “about what state law provides.”
“Basically, every expenditure of the hotel tax needs to meet a two-part test. The first part of the test is every expenditure must directly promote tourism and the hotel and convention industry.
“When you’re talking about every expenditure must directly promote tourism, that means bringing people from another city or another county to your area and it also needs to directly promote the hotel and convention industry, so it’s not just that they come for the day and go home, they have to also have to have some impact on the hotel and lodging industry, and that’s typically heads in beds,” he said.
Joslove said every hotel tax expenditure also needs to fit into one of nine statutory categories, and he enumerated those.
The first category is convention centers, and he noted Del Rio spends about $110,000 a year from HOT revenues to operate its civic center. Joslove noted, however, that in order to qualify as “a convention center,” more than 50 percent of the people who use the facility must be “conventioneers or out-of-town guests or . . . more than 50 percent of the bookings are out-of-town guests or conventioneers.”
“If you don’t meet that ‘over 50 percent,’ you can use your property tax for that facility or your general sales tax, but you can’t use your local hotel tax,” Joslove said.
The second category is registration and convention delegates, and he said this is “basically a big-city cost” to cities who pay persons paid to hand out materials to convention delegates.
Category three is “advertising and promotion.”
“That’s usually what your CVB (convention and visitor bureau) is involved in, where they’re doing ad buys, they’re getting you listed on tourism web sites, your hotels. They’re doing social media, radio, TV, print, all that stuff, trying to bring travel writers into your town to talk about all the beautiful things to do in the arts and culture and places to visit in Del Rio. That’s advertising and promotion,” Joslove said.
He said this category has a minimum expenditure: One-seventh of the HOT collected, or 14 percent of annual revenues, must be spent on advertising and promotion. He said most Texas cities he works with typically spend much more, between 30 and 70 percent of their annual hotel tax revenues.
Joslove said this category could also cover a sponsorship of an event.
He said the fourth category is promotion of the arts, and he noted this category has a cap: The city cannot spend more than 15 percent of the total hotel tax collected annually on this category.
The same is true for category five, historical preservation and restoration, which also has a 15 percent cap.
Category six is sporting-related events, and category seven is sporting-related facilities.
Joslove said spending on sports facilities has a “return on investment” requirement, meaning if a city spends $300,000 or $500,000 on improvements, the city has five years to show it has generated at least that amount in hotel night revenues from events held at that facility.
Category eight is tourism-related signage, and category nine is shuttle transportation between area hotels.
Joslove asked for questions, and Mayor Pro-tem Jim DeReus asked, “If we give maybe a lump sum to (an organization) – and we do this for multiple organizations – each year, rather than for one specific event, do they have to spend all that money in that fiscal year or can they carry it over?”
Joslove said that is a council decision, adding some councils require an organization to spend all of the money in the same fiscal year, and those councils also require organizations to return unspent HOT funds to the city.
“Generally, it’s a good idea to always do an application for funds and, even more important, a post-event form that asks the same questions. So if your application for funds says how many tourists you anticipate coming to your event, your post-event form will ask how many tourists you actually got,” Joslove said.
“It’s important when you delegate that funding to a third-party entity, whether it’s the Hispanic chamber, in your case, or the CVB, it’s good for them to have to report back to the council on ‘here’s what our goals were and here’s what our actual performance was’ and that you kind of measure what their impact was,” he added.
Councilwoman Carmen Gutierrez asked if there was a percentage or a number by which the city could gauge “if it’s the appropriate amount of heads in beds for an event.”
“What is an adequate return on (your) investment in Salado, Texas, is different than it would be in Waco, Texas, which would be different than it would be in San Antonio. . . So it would be a local determination on what your return on investment would be. What I always argue, as city council members you have a fiduciary duty to (the citizens) – and hotel tax dollars are public tax dollars – so you want to get a return on your investment that is reasonable,” Joslove said.
He said the council should look at “what fills the most hotel rooms in Del Rio and then look at, whatever that is, whether it’s hunting and fishing or construction or weekend travel, or whatever it is, look at your hoteliers, talk to your hotels, your CVB, figure out what is filling them up, and put the most hotel tax in the events and investments that will continue and retain that.”
“Then go to the next level and the next and try to invest in that and grow those numbers.
“Basically, you do impact-based budgeting. You generate five to 10 rooms, we’re going to authorize at least this much in hotel tax; you generate 100, we’re going to authorize this much,” he said.
Gutierrez then asked if an organization estimates it will have 75 hotel room nights, but can only prove up 35 nights, would the organization need to reimburse the difference back to the city?
“State law doesn’t require that they have to refund it back, but a lot of communities they do one of two things. Some communities only do hotel tax payments as reimbursements for actual expenses after the event, and in that way, you right-size the amount: If they projected 75 room nights and they only proved 35, then you would proportionately reduce the amount,” he said.
But, he added, this decision was at the discretion of the council.
“The value of doing it based on impact is that it encourages them to make sure they get that impact. If it’s just a ‘money out’ program, and you aren’t measuring what the impact is, then they don’t have much motivation to try and replenish that fund by creating more hotel activity and tourism,” Joslove said.
Following another question by Gutierrez related to non-profit organizations putting on events, Joslove said the city is already is doing a “best practice” by allocating 50 percent of the money an organization requests for an event so they can afford to do the event, and the other 50 percent is given “after the event and you can see if they did what they promised to do.”
Councilwoman Ernestina “Tina” Martinez asked what a new organization has to have to qualify for hotel tax funding from the city.
“There’s nothing they really have to have that’s required under state law. That would be a matter of your local hotel tax ordinance and what you’re comfortable with,” Joslove replied, adding some cities require an organization to be a non-profit, and some require a federal designation as a non-profit entity.
“But state law doesn’t require that you be a non-profit or that you even be organized as a non-profit organization or a charitable entity. That’s a local provision that you would decide as a city council,” he said.
He emphasized it is important for the council to make clear its expectations for an organization applying to receive hotel tax monies.
Joslove said in some cities, councils provide hotel taxes to commercial businesses like nightclubs or musical venues that bring in tourists.
“You can be privately owned and still get hotel tax money if you have a direct impact on tourism and hotel activity,” he said.
Councilman Jesus Lopez Jr. asked if city hotel tax monies could be spent on event held at the county fairgrounds, and Joslove said the city could partner with the county since such an event would benefit hotels in the city.
The writer can be reached at delriomagnoliafan@gmail.com
