OT Increase is Hard Sell to Businesses

Sundae Horn
OT Increase is Hard Sell to Businesses

The sense of Monday's meeting was anti-occupancy tax increase.

At a meeting Monday afternoon at the Community Center, local lodging biz owners, occupancy tax board members, and OCBA board members met county manager Bill Rich's presentation with wariness. Bill is proposing that the Board of Commissioners (BOC) vote to enact the increase that has been available, but never used, since 2006. The meeting was his attempt to "swing some people in lodging businesses to the logic" of his thinking.

"I'm totally responsible for this," said Bill, referring to the proposed Hyde County budget for 2017-18, which includes $100,000 to be raised through a 2% increase in Ocracoke's occupancy tax. In his revenue and spending projections for the next fiscal year, Bill has counted on using Ocracoke occupancy tax to fund emergency medical services (EMS) services on the island. That will require $100,000, and would, in his opinion, best be funded by occupancy tax.

"I think it's justified for visitors to help support the services we provide," he said. "If we supply the level of EMS service that's justified by the property tax paid by residents and homeowners, it's not enough. There are nine thousand extra people here every day from June to August, and we need services for them."

Ocracoke's current occupancy tax rate is 3%, one of the lowest in the state, and half that of our neighbors to the north and south – Dare and Carteret counties both charge 6%. "They are laughing all the way to the bank," Bill said. 

The county hasn't added or raised taxes in the five years since Bill has been manager, he told us. "We have massaged our budget for five years, we've cut more and more and it's been hard, but I think we've done an excellent job with the county budget," he said. "We have expenses going up and property values declining and we need the revenue."

Let's talk numbers. Ocracoke does about $16 million in annual total room sales. That gives us about $470,000 in occupancy tax revenues, and Ocracoke gets to keep 90% of that amount on the island and can spend it on "any legal purpose." The Occupancy Tax Board (OTB) has decided to hold $350,000 in reserve in the event of catastrophe. They estimate they'll have about $430,000 to spend in f.y. 2017-18. Ocracoke lodging businesses have been collecting the 3% tax since 1992. 

In 2006, the NC state legislature passed a bill allowing Ocracoke to charge another 2% occupancy tax, though that money has some strings attached. It must be spent on tourism development and Ocracoke has to start a Tourism Development Authority (TDA) to manage the marketing of the island. 

If we charged the extra 2%, Ocracoke would get about $320,000 more each year. Of that, about $9600 would go to the county for administration costs (that's how it's written, don't sweat over whether it will cost that much to administer 'cause it doesn't matter) and Ocracoke will have over $310,000 left. Woo! What's not to like? (As it turns out, a lot. We'll get to that.)

There would have to be two separate boards to dole out the money. Anything that could be considered tourism-related would move to the new board, leaving leftover bucks in the current OTB's budget. 

Bill suggested that the occupancy tax grants for OCBA, Ocracoke Preservation Society, Ocracoke Alive, and Ocracoke Foundation should move to the TDA side of the funding aisle. This year, grants for those orgs totaled $157,000. Subtract that from the extra $310,000 we'd be collecting and there's over $150,000 left over to spend on advertising! (I know that gets some of you excited.) "We'd use the extra money to shore up the shoulder season, get more heads in beds, and we could even add another $3 million in room sales," Bill said. (That would mean even more revenue!)

Moving that $157,000 to the TDA would open up that money for any legal use, which is where the EMS comes in. Bill would like the first hundred for EMS services, and the rest can support other worthy causes. 

Bill listed some Assumptions: 100% of the TDA funds would go to tourism promotion. OCBA should have a strong presence on the TDA. The TDA and OTB would meet jointly to discuss total funding. 

So........ why the resistance? 

For starters, the lodging folks feel aggrieved about having to charge their customers more money. "It's not fair," they say, to burden one segment of the economy. If the county needs more money, they say, find another way to raise it. 

Here are some suggestions:

Raise the sales tax by 1/4 of a cent, to make the rate an even 7%. Sales tax spreads the burden out to everyone, especially daytrippers. However, raising the sales tax is also a hard sell, and it can only be enacted by a county-wide referendum, and the earliest it could go into effect would be 2019. "Some counties have tried and failed to pass a sales tax increase," said BOC chairman Earl Pugh. "I wouldn't mind a sales tax increase," said pickled pirate Justin LeBlanc. "But you have to jump through a whole bunch of hoops for a referendum, and tax increases almost never pass. It's a really hard process." Also noted is that we all, including those of us who live here and can't afford a vacation to anywhere, would pay the sales tax. 

Enact a meals tax. Charge people extra for their restaurant meals. The tax is only imposed by local jurisdictions upon the granting of approval by the North Carolina General Assembly. This idea comes up a lot, but most peeps in the know think it's D.O.A. "The state senate and house won't pass a meals tax," said Harborside Inn owner Corky Pentz. For whatever reason, the meals tax no longer enjoys political popularity. 

Enact a land transfer tax. That's the tax you pay when you buy or sell real estate. "We tried a land transfer bill years ago," said OCBA president and local waterman Rudy Austin. "We ran up against a solid brick wall." Guess what? In 2007, the NC Realtors Association successfully fought a bill to allow counties to enact land transfer taxes. They didn't think it was fair to their customers. Also, the real estate lobby is the biggest campaign donor – to both sides of the aisle – in NC. Don't expect to see a land transfer tax proposed any time soon.

Raise property tax. Well, sure, the BOC can do that, and actually they will have to do that this year to stay revenue-neutral (because tax valuation has gone done.) Residents would bear the burden of an additional property tax increase, as would off-island property owners. The county could raise the rate another 5 cents. That extra expense is likely going to be passed on to the consumer, i.e., the cottage renter. 

Fire tax. The Ocracoke Sanitary District board has the ability to levy a fire tax attached to the Ocracoke property tax bill to fund the fire department. The last time it came up, they chose not to enact it. OVFD received $80,000 from OTB for a new fire truck this year. A fire tax could give them funding and free up that occupancy tax money for other needs. Darlene Styron brought this up, but there wasn't any discussion.

Spend less. "The county really needs to look at fiduciary responsibility," said Captain's Landing owner George Chamberlin, who also supports a sales tax increase. "The smart people on the OTB can look at what we're doing and say 'Do we really need this?' In my opinion, we don't need fireworks – they're a total waste of money." Sharon Miller, who owns Ocracoke Harbor Inn, says she doesn't want to offend anyone, but "things are being purchased [by island organizations] with occupancy tax money that should be paid by other sources of income." Kari Styron of Ocracoke Island Realty mentioned that the OTB is "really good at allocations." She thinks the county should have asked the OTB for funding for the EMS before suggesting this tax increase.

Commissioner Tom Pahl asked the group if there were "any circumstances where it would be favorable to increase the occupancy tax. Is this off the table for good?"

Wayne Clark of Edward's Motel is a supporter of the OCBA marketing/advertising campaign funded by the OTB. "Once we've proved it's a good program, then we could add the 2% just for that," he suggested. 

Sharon Miller said she would "feel better about the rate increase if the county had a plan to go for a sales tax increase. It would be easier to swallow if I saw it was more equitable."

I was there to be a fly on the wall, but I did ask why the meeting was focused on the lodging industry, when a tax increase of any kind would affect us all. I know, I know, the lodging businesses will have to break the bad news to their customers and collect the tax, but it will still have an impact on residents and other biz owners. If someone pays an extra $100 for their week's stay, then maybe they won't spend on something else. On the other hand, if I have an emergency in July, I want to know there's an ambulance and EMTs to attend me because we have enough services for residents and visitors. 

What does the rest of the community think about an increase in OT rates? Should we have a say? Have you ever decided on where to stay based on the occupancy tax?

Tom pointed out that anyone can comment at the budget meetings during public comment period. No one commented about the OT issue during the public comment period tonight – there was a second meeting at 6pm, but only the press and county employees returned for round two. The next chance to comment is on June 5th at the public hearing on the 2017-18 Hyde County Budget. 

At the budget meeting, Tom reported that opposition to an OT raise is focused on the unfairness of targeting one sector for the increase. It's not the two cents; it's the principle of the thing. 

Bill said he still thinks raising the occupancy tax by 2% is a win-win-win. 

He would like to hear more feedback. Is there anyone out there who thinks it's a good idea? Speak now or forever hold your peace. 



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