Kent County lodging tax splits public at forum

WOODSIDE — Leaders of DE Turf last week sought to address “concerns and misconceptions” regarding a proposed lodging tax that would benefit their sports complex in Frederica.

The proposal would funnel the proceeds of a 3-percent lodging tax imposed on Kent County’s hotels and motels directly to the Kent County Regional Sports Complex Corp., the nonprofit corporation that operates DE Turf.

DE Turf officials estimate it would produce an added $950,000 of revenue that they said they need to offer incentives to attract large, national- level tournaments to the county, in turn having a positive economic impact on local businesses.

The proposal first drew widespread attention when legislation allowing the tax hike shot through both chambers of Legislative Hall in the final days of the session that ended June 30.

Sponsored by Sen. Trey Paradee, a Dover Democrat, Senate Bill 178 passed the Senate with unanimous support (only one absent vote) and did nearly as well in the House with 37 voting in favor and two representatives opposing the bill.

It was joined by a raft of other legislation that allowed several municipalities and Sussex County to institute their own 3 percent lodging taxes on top of the state’s existing 8 percent tax. However, Kent’s was distinct in two ways: it overlapped all jurisdictions in the county and it had a private beneficiary rather than a public one. The city of Dover received the ability to impose its own 3 percent lodging tax to benefit the city around the same time.

Neither lodging tax has been instituted yet. Dover deferred action on its proposal until September. Kent County Levy Court has yet to set a date for discussion. However, stakeholders have raised concerns about DE Turf being an appropriate recipient of the revenue and the burden the tax may place on hoteliers — especially if Dover and Kent County each institute a 3 percent tax, creating a combined 6 percent increase on the hotels in the city limits. If passed, the new lodging taxes — combined with the state’s — would raise Dover’s to a total of 14 percent, making it the highest rate in the state and putting it in line with locales such as New York City (14.75 percent) and Washington, D.C. (14.5 percent).

Ahead of bringing the proposal to Kent County Levy Court, DE Turf held a forum Thursday to open a dialog with community members, business representatives and government leaders.

The meeting drew several dozen people to Polytech High School, where more than 20 attendees voiced support and opposition to the plan.

At the beginning of the meeting, which lasted just over two hours, DE Turf officials summarized the proposal, gave an overview of expenses versus income for the complex’s first few years of operation and talked about the need for added revenue.

Appearing to be aware of the intent of a number of the speakers, DE Turf board chairman Bill Strickland told attendees at the top of the meeting that they’d be hearing from “a lot a restaurateurs, hoteliers and other business owners who are benefiting directly from the DE Turf” at the forum. True to his statement, several local restaurant owners, DE Turf coaches, politicians, parents of athletes and other business representatives spoke in support of the proposal, saying that the sports complex was a boon to the county’s economy and was a destination worth supporting.

However, the only hotelier heard in support of the lodging tax proposal submitted his opinion via a letter read aloud by Mr. Strickland during the public comment section. Mr. Strickland said the letter was from Robert E. Hartly, a managing partner of the MainStay Suites in Dover.

Though supporting the Kent County lodging tax, Mr. Hartly condemned Dover’s proposal.

“I expect this small investment (Kent’s proposed lodging tax) to return strong dividends,” Mr. Strickland read from Mr. Hartly’s letter. “I do not support the city of Dover’s piggyback 3 percent increase. Their increase is a tax grab, adding to taxes that are already too high.”

Several residents, hoteliers and tourism advocates expressed their reservations about the proposal.

As he has in the past, Kent County Tourism Corp. president Pete Bradley urged stakeholders to consider a “go- slow approach.” He noted that the tourism board recommends that both the city and county impose no more than a 1 percent lodging tax increase for two years so the impact can be appropriately measured.

“One of our strengths as a county is that we’re an affordable destination and we really want to maintain that strength to ensure that DE Turf and all of our attractions remain successful, grow and prosper,” he said. “We should take the time to vet this issue out and listen to all the appropriate stakeholders.”

Bill Silva, chairman of the Delaware Hotel & Lodging Association board, called the path the proposal was taking “dangerous.” While praising the impact DE Turf has had on “room nights” for local hotels, Mr. Silva said that increased lodging taxes would choke growth in the county’s hotel sector.

Finances outlined

Since late July, stakeholders have been inquiring about the DE Turf’s organizational composition and fiscal health. Opponents of the proposal have alternatively said that if the complex is profitable, why would it need a public subsidy and if it was not profitable why should it be given a “ bailout.”

Hoping to clear the matter up, DE Turf’s board treasurer Dr. Sean Mercer gave a lengthy synopsis of the sports complex’s financial performance since its inaugural year of operation in 2017. It was made clear that DE Turf was owned by the board- operated 501(c)(3) nonprofit, the Kent County Regional Sports Complex Corp. It is a private entity.

Dr. Mercer noted that with the exception of 2017, which was a partial year of operation, the complex has turned a profit every year and added to its cash reserves.

“DE Turf is not losing money,” he said. “Despite the small loss we suffered in 2017 associated with a partial year of operations and startup costs, we project to be in the black at the conclusion of 2019, spanning our entire operational lifespan.”

In 2017, the revenue collected was $635,000 with expenses totaling $2.7 million, said Dr. Mercer. In 2018, the first full year of tournaments, the facility took in $1.3 million with expenses of $1.08 and so far in 2019 it is operating on a “ balanced budget” with revenues of $1.2 million and expenses $1.1 million, he added.

“We project similar performance through the remainder of the year resulting in a projected revenue of $2.2 million and continued operational profit despite the start of our bond repayment,” said Dr. Mercer.

Reading DE Turf’s cash flow directly from tax documents would result in misleading conclusions, he said, because in its first years, the DE Turf reported both depreciation and capitalized interest that would give the impression of a significant loss.

“On paper, there was an accounting loss, but these were non- cash expenses,” he said. Dr. Mercer said DE Turf main tains four full-time employees, but uses contractors and part-time staff to meet the rest of its needs, adding that all board members are uncompensated volunteers.

Mr. Strickland said he believes the sports complex has exceeded expectations.

“Are we achieving what was projected? I’m pleased to tell you that not only did we achieve it, but we doubled down,” he said. “Our first year, they said we’d be lucky to have 10 tournaments, but we had 20. Our second year they said we’d be lucky to have 20, but we had 40. This year, we’re on schedule to have 42 tournaments. Each one of those tournaments averages alone somewhere between $500,000 to $1 million in direct economic spending to Kent County.”

To the point of why an already successful organization would need additional subsidy, Mr. Strickland said it’s becoming common practice in the travel sports industry to offer financial incentives to attract and keep the large tournaments that contract with them. These “ bid fees” can run from $75,000 to $150,000 he said. These are funds the sports complex can’t currently generate internally, he added. “We’ve identified 12 tournaments that, if we landed them by meeting a bid fee, they would generate $30 million in impact to Kent County,” Mr. Strickland said. “What we’re really talking about is taking an asset to Kent County that is performing well, and looking to grow its size and scope to better provide a greater economic rate of return to the residents of this county, state and region.”

Officials also pointed to several other multi-million dollar proposed sports complexes in the region that are gaining steam and may soon drive competition — themselves the recipients of public dollars.

Referring to it as “keeping up with the Joneses,” DE Turf Executive Director Chris Giacomucci said they’ve been monitoring competitors closely.

“Seeking out support to keep ourselves competitive seemed like a natural solution, especially when you look at a lot of these

other sports complexes — the common practice right now and business model that this new boom of sports facilities has developed has been to utilize some form of lodging tax or sales tax to support those efforts of putting out bid fees,” he said.

He told those gathered at the forum that those competitors have been successful in obtaining public subsidies because “their county and city saw the value of the economic impact they bring.”

Objecting, forum attendee Tom Pledgie asked why DE Turf would attempt to compete in a market where these incentives seem likely to rise.

“Why do you want to get into a pay-to-play environment?” he asked. “Why would you want to get into this when there is another nearby facility planning to build a $200 million complex just on the horizon? Do you think those guys are not going to be able to come up with matching money? They can match it, double it and triple it. Why do you want to even get into that environment?”

Attendees also asked officials why their extensive feasibility study didn’t see this expense coming, how long they expect to need the subsidy and what was to prevent them from returning to Kent County Levy Court in a year to ask for more funding.

Mr. Stickland said that despite hiring industry professionals to inform their feasibility study, they failed to predict this “evolution” in the travel sports industry. He also said that he could give “no assurances” that the need for more funding wouldn’t arise and that officials “can only look at the playing field as it exists today and respond accordingly.”

As for the timeline, Mr. Strickland said the current proposal would make them the recipient of the lodging tax revenue in perpetuity.

“As of right now, we’re saying it’s indefinite,” he said. “Someone suggested a sunset date to this proposal, and we’d welcome that discussion. I think that’s a reasonable way to look at it. Perhaps that’s something that our board can study and see if thats something that makes sense for us.”

Speaking on behalf of the Delaware Hotel & Lodging Association, Joe Fitzgerald expressed frustration that state legislation was passed before “relevant stakeholders” had a chance to come to the table with their concerns.

“We really would have liked for there to have been more time for comment from the industry,” he said. “The Kent County legislation was introduced on June 26, without a committee hearing in either house and the Dover legislation on June 27. Relevant stakeholders had no time to comment on this legislation. We sincerely believe a combined 14 percent lodging tax in Dover is not sustainable, and frankly we would have had the time to bring empirical data to the table to make that argument had the bill been introduced more than three days before the end of the (legislative) session” Mr. Strickland disagreed with that characterization, saying the proposal had been discussed since the beginning of the year. “The discussion of this began at the very beginning of this most recent session,”’ he said “The enabling language was originally placed as epilogue language within the state of Delaware’s bond bill. It was during the last week of the session that leadership felt this language should be moved to legislation along with other legislation that was being introduced for lodging taxes in other areas of the state.”

Mr. Fitzgerald fired back, claiming that epilogue language in a bond bill is even more opaque than quickly introduced and passed legislation.

“Having it in the epilogue language of the bond bill would have been worse because the general assembly receives the bond bill as a whole and the agenda would not have specifically listed this item as a matter of discussion,” he said. “So I guess it’s only a little better that this became a bill, but I think it should have waited till next January, with all due respect.”

When asked about the precedent that may be set by awarding a private entity with tax dollars, Mr. Strickland said he felt the word “tax” was a bit of a “misnomer.”

“It’s my understanding that pursuant to Delaware code this has to be characterized and classified as a tax,” he said. “It is from my perspective, more of a user fee. I continue to struggle with the word tax.”

Obviously perturbed by the suggestion, Mr. Fitzgerald said, “This is a tax. It’s not a user fee.”

At the end of the meeting, DE Turf officials thanked attendees for their input and said they’d take it under consideration before approaching Kent County Levy Court in pursuit of the proposal.

Staff writer Ian Gronau can be reached at 741-8272 or igronau@newszap.com

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