The 6 percent solution

N.C. cities and counties have cut budgets and raised taxes in response to a sputtering economy, reduced federal and state revenues, stagnant property values and new spending mandates. Thanks to our thriving tourism industry, the Great Recession was kinder to Asheville and Buncombe County, yet both local governments have raised property taxes recently to cover capital improvements and meet other needs.

About $1.5 billion in tourist dollars flows into our local economy annually, with a total impact of more than $2 billion, the Buncombe County Tourism Development Authority reports. Hotel revenues alone totaled $195.3 million last year. But Asheville and Buncombe County lag behind their rivals in harnessing those tourist dollars to improve residents’ lives.

A complex web of stakeholders and politics inhibits cohesive vision. To keep pace with other destination cities, however, we need to raise the hotel occupancy tax rate and consider additional commonly used revenue options.

A staggeringly small portion of the sales-tax revenue generated by our flourishing downtown and local tourism actually comes back to us. For every $5 million spent, Asheville receives only about $15,000 in sales-tax revenue. That same $5 million yields about $60,000 for Buncombe County and other local entities like fire districts and schools.

Tourism strains city and county infrastructure and requires additional expenditures to attract visitors. Asheville recently committed $2 million for art museum renovations, and some on City Council want to invest more in downtown’s South Slope and River Arts neighborhoods. Absent other revenue sources we’re reduced to trying to build our way to prosperity, which inevitably means more infrastructure costs to get those property and sales revenues up.

And money invested in downtown projects isn’t available to support neighborhood services, education, social welfare or work-force housing. The recently announced Eagle Market Place redevelopment will provide affordable housing alongside retail space, but this wouldn’t have happened without significant government involvement and yet more city revenues.

Buncombe County’s 4 percent room tax is about average for local governments in the state. But many of those other counties are less urban and aren’t nationally known tourist destinations.

Still, Charlotte/Mecklenburg County charges 8 percent; Durham, Blowing Rock and Boone 6 percent; Henderson, Madison and McDowell counties 5 percent.

Even in conservative South Carolina, Charleston, a destination city similar to Asheville, has a 6 percent room tax rate and a prepared food tax. Savannah, Ga., is at 6 percent; countless others are higher still. By failing to capture those dollars, we’re missing a major opportunity.

North Carolina law currently sets the maximum rate at 6 percent; special legislation allows Mecklenburg County to charge more. Buncombe’s 4 percent goes to the Tourism Development Authority to help attract more tourists, rather than supporting local services. If the law were changed, the additional 2 percent could go to the city, the county, the TDA or all three, helping keep more tourism revenues in the local economy.

Meanwhile, state legislators have given several Tar Heel cities and counties a prepared-meals tax, whose proceeds must be used to promote tourism or for cultural projects. A similar tax here could free up money that’s now spent on projects like the art museum or the River Arts District to address other needs. Residents dining out would also pay the tax, but public finance experts say there’s not much else localities can do except raise property taxes or levy business license fees.

The politics behind all this are remarkably complex. Past local efforts to raise the hotel tax failed, despite having mostly Democrats in the local legislative delegation and in Raleigh. Now local leaders must work with a largely Republican delegation.

Many questions arise. Will the tourism industry support a rate increase? Will our local delegation? Who would get the additional money? How might it be spent?

Despite those challenges, I remain an optimist. Other cities and counties have pulled this off; we have great leadership, and the timing is right. Several new hotels are in the works for downtown Asheville, the tourism industry is booming, the River Arts District and South Slope are about to explode, yet local governments are reduced to cutting services and raising property taxes. Additional revenue streams can support tourism while nurturing a diversified economy and improving social equity.

Let’s start a communitywide conversation and see where it goes.

— Roger Hartley is a professor of political science and public affairs at Western Carolina University.