Lodging tax hikes up for grabs

DOVER — In late June, Delaware’s General Assembly passed two separate bills that gave the green light to Kent County and the city of Dover each to impose an additional 3 percent lodging tax on hotels, motels and tourist homes.

As of Friday, both bills still were awaiting the governor’s signature.
But the city of Dover already started its process to enact its tax hike, which city officials said could generate an estimated $600,000 to $800,000 in revenue.
On Monday, Dover City Council’s Legislative, Finance and Administration Committee voted unanimously to move forward an ordinance that would apply the 3 percent lodging tax in city limits. The tax hike must be approved by City Council vote before it can be adopted.

Likewise, Kent County Levy Court will need to approve an ordinance to create its tax, with a public hearing required as part of the process. The legislation allowing the county’s tax hike earmarked that revenue — an estimated $950,000 — to go toward a specific beneficiary: the Kent County Regional Sports Complex Corp., a nonprofit corporation that owns the DE Turf sports complex near Frederica.

Legislation for the city of Dover didn’t specify how revenue would be used, but discussion at last week’s meeting suggested it would pay for investments in infrastructure, parks and building improvements.
While the new measures are supported by a majority of politicians, some hoteliers have been taken by surprise.

As leaders of the Kent County Tourism Corp. pointed out, if implemented by both the county and city, the lodging taxes would overlap in Dover’s city limits.
“When rolled up, this means guests staying in Dover hotels could potentially see a 14 percent lodging tax added to their room rates (8 percent state, 3 percent county and 3 percent city of Dover), which would be the highest in the state,” said the tourism group’s interim president Pete Bradley. “All of the parties should be sensitive to the potential impact on overall hotel business in Kent County, especially groups and conventions in the Dover market.”

For years, the state has placed an 8 percent tax on hotels and similar short-term rentals. Lawmakers last year approved legislation allowing New Castle County to create a lodging tax of up to 3 percent, and bills giving that same power to municipalities such as Newark, Middletown and Seaford soon followed.
Apparently blindsided by the new changes, a leader of the Delaware Hotel & Lodging Association said its membership regrets that it wasn’t part of the recent tax-hike discussion and has reservations with the proposal.
“We’re usually roped in on things like this, but this was all final days of the legislative session-type stuff,” said association treasurer and board member William Sullivan. “That’s disappointing because it doesn’t give us a chance to express our opinion about it or even get any sort of clarifications.”

Mr. Sullivan said he feels that the hotels and motels specifically in Dover — where the taxes may stack — will be pressed too hard.
“A 14 percent lodging tax in Dover? That’s a bit high,” he said. “This is crazy to have two new separate taxes like that. It’s really going to hurt their ability to be competitive and even to attract new hotels to the area.”
The association takes particular exception with the new Kent County tax benefiting the DE Turf. The legislation states that the sports complex could use the revenue for anything from advertising and marketing to expenses and debt service.

Mr. Sullivan called that “beyond unreasonable.”
“Honestly, this is unheard of,” he said. “Lodging taxes have always gone to the government. The state’s tax has allocations for the beach fund, but to earmark all this revenue to one non-public entity like this? It’s shocking.”
According to Mr. Sullivan, 5 percent of the revenue from the state’s 8 percent lodging tax is allocated to Delaware’s general fund. And 1 percent goes to each of the following: DNREC’s Beach Preservation Program, each county’s visitor’s bureau and the Delaware Tourism Office. Additionally, New Castle County, Newark and Middletown have all implemented their own 3 percent lodging taxes, with the revenue going toward their respective general funds. However, New Castle County’s lodging tax only affects the unincorporated areas, rather than overlapping with municipal jurisdictions as the proposed Kent County lodging tax would.

Many Kent County elected officials and DE Turf leadership have justified the new tax by claiming the complex has been a large driver of local tourism since its opening in 2017. DE Turf officials said in January more than 102,000 people visited the complex in 2018, creating an economic impact of around $31 million. Per the complex, those visitors booked nearly 14,000 hotel or motel rooms last year.
Despite the turf being described as a runaway success, supporters of the tax said the complex needs funds to continue competing in its industry.

While Kent County Tourism is supportive of the DE Turf, the group is wary of new taxes.
“The DE Turf is a vital attraction for Kent County that we want to see succeed,” said Mr. Bradley. “Our organization’s mission and passion is to drive overnight stays by supporting the DE Turf, along with the other great and diverse attractions that Kent County has to offer. One of our strengths as a county has been that it’s an affordable destination with a good cost-to-value ratio and relatively low taxes.

“We want to maintain this strength while at the same time ensuring that DE Turf and all of our attractions grow and remain competitive. We support any effort that will work to bring more people to experience Kent County. I am hopeful that Kent County government will fully vet this important issue by listening to all the appropriate stakeholders, quantifying the true need for DE Turf, and if decided, authorizing the lowest possible lodging tax rate to meet that need.”

Fans watch a field hockey game at the DE Turf Sports Complex.

Genesis of the legislation
Both pieces of legislation allowing the taxes were passed in the final days of the General Assembly’s session.
Senate Bill 178 enabling Kent County to enforce the tax was sponsored by Sen. Trey Paradee, a Dover Democrat. It sailed through 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.

Sen. Paradee also co-sponsored House Bill 255, which authorizes Dover’s tax. That measure flew through both chambers as well with only one vote against it in the House.
Believing it’s appropriate, albeit “unique,” for tax revenue to benefit a private corporation, Sen. Paradee said DE Turf’s impact on the local economy justifies the situation.
“The purpose of it is to generate more marketing funds for them,” he said. “The DE Turf has been wildly successful. I think it’s far exceeded anyone’s expectations and been a huge boost to the economy — especially for the tourism industry — hotels, restaurants and etc. But the reality is that the sports industry is apparently changing and in order to attract a lot of the bigger tournaments, they have to have some cash incentives to bring them in. These bigger tournaments are bringing dozens of teams and thousands of parents and spectators with them.”

DE Turf leaders explained the need for additional revenue in similar fashion. Bill Strickland, board chairman of the DE Turf sports complex, 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.
“A year ago, we hosted a National Lacrosse Tournament, shortly after the conclusion of that week-long event — that generated $18 million in direct economic impact to the area — they notified us that they were leaving the DE Turf for next year’s event,” Mr. Strickland said. “Even though we’d had a three-year contract, they had to buy themselves out of it. They were relocating their tournament to Richmond, which was offering financial incentives for them to do so.”

However, Mr. Strickland said DE Turf convinced them to stay.
“We were able to buy ourselves some time, get some sponsorships to fill the financial gap between what Richmond was doing and what we would to get them to reconsider, and they stayed with the turf,” he said. “But our lesson learned was that in order to remain competitive for these significantly larger travel team tournaments, it’s become pay to play. In the balance of 2018, we saw a series of situations like that. What we’ve identified is that there are tournaments we were not able to secure because we couldn’t offer the prerequisite or ultimate financial reward to host the tournament.”

Mr. Strickland said the new tax would fulfill a strategy to raise those funds.
“We wanted to be sure we were coming up with a way to finance this in a way that wasn’t costing the residents of Kent County any impact — the lodging tax uniquely does that,” he said.
According to estimates based on tourism data, Mr. Strickland said he believes the new lodging tax could generate $950,000 of revenue per year for the DE Turf’s use.

Drafting the legislation themselves, DE Turf leaders first approached Kent County Levy Court leadership about the idea, Mr. Strickland said. Finding no objections there, they took it to the General Assembly.
Benefit to local hotels?
For hoteliers like Sten Daniel, the general manager of the Dover Super Lodge on U.S. 13, news of the legislation was a “nightmare.”
“I had no idea this was happening. Where can my voice be heard on this?” he said. “I just woke up one day to read in the newspaper that we’re going to have two new taxes coming — 6 percent on top of the state’s tax. I’m not trying to fight the system — we pay our taxes. We’re happy to pay our fair share, but this just does not make any sense.”

Though he’s heard that local hotels have benefited from the influx of tournament-goers visiting the area from out of state, he said the Super Lodge and other small motels in the area have not seen a boost to business. Having an organization collect a tax from his business without any reciprocity is “simply not fair,” he said.
Though proponents have repeatedly trumpeted the increase in hotel room rentals brought by the DE Turf’s well-attended tournaments, few appear to be aware of the organization’s accommodation policy that spreads the benefit at its discretion.

The claim that demand for local hotel rooms increases dramatically during a tournament appears to be demonstrably true — however, the hotels that benefit are ones that have contracted directly with DE Turf’s booking provider in advance. As explained by the sports complex’s website and staff, all incoming tournament-goers must choose from a list of hotels provided through this booking service rather than making their own accommodations.

Fifth District Levy Court commissioner George “Jody” Sweeney — a supporter of the new tax — was unaware of that situation.
“I would be surprised if that were true,” he said. “If that’s the case, there should not be exclusive booking rights. I’d have to look into it more.”

Kent County Administrator Michael Petit de Mange was also surprised, noting that often the tournaments were so busy, attendees were hard pressed to find nearby accommodations.
“I’m not familiar with how their rooms are booked so I can’t confirm that” he said. “But I do know that on several occasions they’ve had major draws to that facility and it caused virtually every hotel room in the county and beyond to be booked. During the Junior National Lacrosse Tournament, I’d heard that people were staying in Maryland and driving over because they couldn’t find hotel rooms. They were using Wesley College dorm rooms to stay in at one point.”

The primary sponsor of the legislation called the suggestion of the sports complex having a selective booking policy “absolutely ridiculous.”
“I don’t think that’s true,” Sen. Paradee said. “My understanding is that for some of the larger tournaments, literally every hotel room from Wilmington to Fenwick to Salisbury was packed and the DE Turf does not have exclusivity with a certain group of hotels in Delaware. That’s just ludicrous. We’re hearing stories about people who are coming to tournaments who are having to stay at hotels that are out on Kent Island, Maryland, or on the other side of the Bay Bridge because those are the only hotel rooms that they could find within a reasonable driving distance. To say a select group of hotels is benefiting is absurd.”

Nevertheless, even a cursory glance at DE Turf’s booking site, deturfhotels.com, shows clearly that all tournament attendees are required to book a hotel during their stay through DE Turf’s provider, HBC Event Services.
“This is a STAY-TO-PLAY TOURNAMENT — all hotel reservations must be made through HBC Event Services,” reads an alert on the top of the booking page on the website.

DE Turf Executive Director Chris Giacomucci confirmed Wednesday that rooms are booked that way.
“With the volume of hotel rooms that travel sports provides, on average we’ll need at least 500 to over 1,000 rooms on a weekend,” he explained. “We’ll contract out 20 to 50 hotels in Delaware on a given weekend. With that volume, the standard industry practice with sports tourism has become to rely on a third-party housing agency to manage booking all the rooms and coordinating the contracts with all the hotel properties — there are a lot of man hours that go into that. It’s a very common practice.”

Calling it an “open opportunity,” Mr. Giacomucci said all hotels can attempt to secure the incoming business, but they’re subject to approval. To be listed, interested hotels must respond to a request for proposals ahead of a given tournament by offering a reserved “room block.” However, which hotels get listed is a matter of discretion, he said.

“Agreements are put into place, but there are also some minimum quality standards too,” he said. “When you’re thinking about wanting to attract visitors to the state, you have to keep quality in mind. So it’s twofold; there are minimum quality standards, and then it’s also on the hotels to want to obtain the business as well.”
DE Turf is able to extract compensation from that arrangement.
“It’s a nominal revenue producer,” said Mr. Giacomucci. “The majority the fees actually collected will either go to HBC or go toward whoever is producing the tournament — we really don’t see much of that revenue.”

While he is located 15 miles north of the Frederica sports complex, Mr. Daniel said he’s never hosted visitors at the Super Lodge who were attending a tournament.
“It seems to me that they’re just putting the taxes on every hotel and motel owner in the county but they’re only benefiting select hotels. That’s completely unfair,” he said. “They’re just using their power to manipulate things and make more money. I’ve never had a single customer stay here that was going to the complex. I would love to have that type of customer.”

Tax on the poor?
Hoteliers also are seeking clarification on what effect the new taxes will have on impoverished, longer-term residents of the area’s hotels and motels.
Referring to them as “residential hotels,” Mr. Sullivan noted that it’s common for people unable to afford an apartment to sometimes live in these hotels. Occasionally, those establishments act as transitional housing for homeless people attempting to climb out of poverty and the new taxes may raise their costs of living.

While the state’s 8 percent lodging tax doesn’t apply to people who’ve lived in a hotel longer than 90 days for this reason, says Mr. Sullivan, it remains unclear how the Kent County and Dover taxes will be handled.
Sen. Paradee was unsure of the legislations’ affect. When asked, he said that scenario could be best described as an unintended consequence.
“I’m certainly sympathetic to folks who’ve fallen on hard times, but I think the issue of homelessness and affordable housing is really a separate issue entirely that we need to continue to address,” he said. “Certainly, we don’t want to create any additional hardships for those folks, but it’s just another issue that we need to focus on.”
DE Turf officials declined to comment on questions about the potential effect on indigent citizens.

“I’m not familiar enough with that situation. I don’t know how much that does or doesn’t go on in Kent County,” said Mr. Strickland. “I’d rather not comment on something I’m not familiar with.”
Mr. Daniel said he sees that type of customer “all the time” at the Super Lodge.

“Those types of customers definitely live here,” he said. “I have a couple who’ve lived here for three months trying to find jobs locally and eventually move to an apartment. Sometimes people need somewhere to stay because their house burnt down or they’re doing repairs. If there is a person making a minimum wage with nowhere to live, I’m able to give them a cheap room, but how can I continue to do that with such a large tax increase? Higher fees will absolutely be a hardship for them.”

Next steps at county level
As yet, it’s unclear when Levy Court will vet the proposed tax. Though several commissioners said they support the measure, most — Mr. Sweeney included — agree there are several specifics to iron out.
First District Commissioner Brooks P. Banta said he believes it’s “fair” and a “win-win” for all involved.
“We have to look at the economic impact and the millions of dollars the DE Turf has brought into the state of Delaware,” he said. “Kent County particularly has benefited, but hopefully New Castle and Sussex counties, too. It’s a win-win situation — no one loses. But, we’re just now getting into the workings of the bill and there are a number of intricacies. We’ll get our answers in a public way.”

Fourth District Commissioner Eric Buckson, whose area includes land where DE Turf is located — is more resigned on the issue.
“The way it was explained to me was that competitors in this space have begun to use other sources of revenue to entice these tournaments to them, so for us to compete, it seems like this is a necessary evil,” he said. “So as I understand it, I don’t like it, but I get it. I’ll wait till the turf comes and presents what it is that they expect or need from this. It’s obvious that we have the ability to say yes, but we’re going to want a clear understanding of it.”

Sixth District Commissioner Glen Howell is not in favor.
“I don’t even like the word ‘tax’,” he said. “We’ve never raised taxes since I’ve been here. I don’t take all the credit for that, but we haven’t needed to. I might be outvoted on this, but I don’t want anyone in Delaware to pay this lodging tax. What if someone’s coming down from Hockessin and staying in a hotel here? I also really don’t like when I hear about something like this for the first time by reading it in the paper.”

Mr. Strickland said he welcomes the discussion.
“That’s the next step, but I also think it’s important that we reintroduce the DE Turf to the community because there are some misconceptions about it,” he said.
“Number one: it is a not-for-profit, so there’s no one getting rich down there. It is exceeding its economic impact objectives, though. It is something that’s benefiting all communities in Kent County — the city of Dover and Smyrna and their respective hotels are benefiting from the presence of the DE Turf as are restaurants and shopping areas.

“I think that as we move the discussion forward with county officials, that it’s imperative we do a good job of informing those who aren’t familiar with the DE Turf about the specifics of its business model.”

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

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