Lodging tax debate in Kent raises more questions
By Alex Vuocolo
A debate is underway in Kent County over the age-old question of who gets taxed and where the money goes.
At the end of the last legislative session, the General Assembly passed a bill enabling Kent County to impose an extra 3% tax on hotel stays. New Castle County in 2018 passed a similar law, imposing a lodging tax in unincorporated areas. The big difference here is that the new revenue would go toward a single institution: the DE Turf Sports Complex in Frederica.
The sprawling multi-field arena, which hosts traveling sports teams from across the country, has made the pitch that it needs additional money to compete in the competitive landscape of regional sports arenas. In particular, the nearly $1 million in annual projected tax revenue would help the sports complex attract bids for tournaments — the bread and butter of the industry.
In theory, more tournaments means more hotel stays, restaurant visits and other benefits to the local economy. This point is not lost on hoteliers and tourism boosters, but the prospect of giving a direct line of tax revenue to DE Turf is a hard pill to swallow. While the sports complex is widely seen as a potential boon for the county — which otherwise boasts few economic anchors — there is a hesitance to burden hotel visitors.
“To maintain the vitality of DE Turf and attract tournaments, they do need the financial help, but long-term they have to figure out how to be self-sufficient,” said K.C. Sheth, owner of Fairfield Inn & Suites by Marriott and the Super 8 by Wyndham in Dover.
Complicating the matter further is an effort by the City Council of Dover to impose an additional 3% lodging tax on hotels within the city. If you factor in the existing state-wide lodging tax of 8%, Dover visitors could pay up to 14% extra on their hotel bills. For comparison, Rehoboth Beach currently has the highest lodging tax burden in Delaware at 11 percent.
The possibility of a 14% rate has made even the most vocal supporters of DE Turf nervous about the potential impact on the hospitality industry, which aspires to draw visitors outside of sports teams and their families.
“One thing I want to make clear is that DE Turf is the best thing to happen to Kent County, but 6% is excessive,” said Sheth.
As the Kent County Levy Court considers whether to act on the legislation passed by state lawmakers, questions of fairness and good business practices have shaped the debate over whether DE Turf should get special treatment.
Some in the hospitality industry are asking why DE Turf needs more money so soon after launching three years ago with considerable government support in the form of $21 million in Kent County-backed revenue bonds.
“I think they should have had a better business plan,” said Bill Sullivan, managing director of the Courtyard by Marriott – Newark at the University of Delaware and board member of the Delaware Hotel & Lodging Association. “I don’t question whether they need the money, but they should have anticipated that from the beginning.”
Another concern is whether any private institution should get a permanent, dedicated stream of tax revenue. Usually local governments collect taxes and then appropriate them as needed to individual recipients. This essentially is what happens every year with the grant-in-aid and bond bills.
“This is different in that it’s directly going to help subsidize DE Turf, which is a great facility, but this is not the way to fund it,” Sullivan said. “They need to stand on their own and generate revenue just like everyone else.”
DE Turf, for its part, maintains that it is financially sustainable and able to make its debt payments, but that the extra money is necessary to compete and grow.
Dedicated funding bills have proven a difficult sell before in Delaware. Lawmakers earlier this year quashed an effort by Delaware Technical Community College to raise its own taxes to pay for maintenance needs. Opponents expressed concerns about establishing a precedent that would lead to other institutions reaching out for dedicated taxes.
Scott Kidner, a lobbyist and head of legislative affairs at the Central Delaware Chamber of Commerce, attributes the backlash to a mixture of concerns. “What makes this catch everyone’s eye is the nature of how it was passed, the tax rate, and how prescriptive the bill was,” he said.
Judy Diogo, president of the Chamber, said the DE Turf bill marks a return to the kind of earmarked legislation that was more common in decades past. “It’s been a while since we’ve seen that. It’s something you would have seen even 10-15 years ago. But then that kind of stopped.”
For the moment, at least, the debate will continue at the local level. Both the Kent County Levy Court and the City of Dover plan to hold public meetings later this month.