The URL can be used to link to this page

Home My WebLink AboutPED 2020-08-03 Item 1D - Funding - Tourism Funding: Promotion and Lodging Tax BriefingCity of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Planning and Economic Development FROM: Brandon Miles, Business Relations Manager CC: Mayor Ekberg DATE: May 20, 2020, Updated July 27, 2020 SUBJECT: Tourism Funding Discussion ISSUE In light of the COVID-19 pandemic's impact on the economy and role of tourism in business recovery, staff would like to provide an overview and background on how the City's uses the lodging tax and TPA funds. This item was originally discussed at the June 1, 2020 PED meeting. Staff would like to continue the discussion and has included a new attachment. BACKGROUND Over the last 20 years the City Council has authorized the collection of two separate revenue sources for tourism funding. These revenue sources include the City's lodging lax and Tourism Promotion Area (TPA) fee. In 2019, in total just over $1.5 million of combined funds were collected through the lodging tax and TPA fee. In light of COVID-19 pandemic's impact on the overall economy and role of tourism in business recovery, staff would like to provide an overview and background on how the City's uses the lodging tax and TPA funds. Each of the two revenue sources is authorized under a separate RCW and each have specific limitations on how the funds can be used. Lodging Tax Statutory Authority Lodging tax (City's 101 Fund) is collected pursuant to RCW 67.28 and TMC 3.40. State law allows the City to collect 1 % on eligible stays in lodging businesses (hotels, extended stays, motels, bread and breakfasts, and Airbnbs). Certain stays for emergency housing and for any stay in a lodging business that exceeds 30-days are exempt from the tax. Like retail sales tax, the lodging tax is remitted by the lodging businesses to the Department of Revenue and the remitted back to the city two months after collection. Allowable Uses RCW 67.28.1818 limits the use of lodging tax funds as follows: "All revenue from taxes imposed under this chapter shall be credited to a special fund in the treasury of the municipality imposing such tax and used solely for the purpose of paying all or any part of the cost of tourism' promotion 2, acquisition of tourism relations facilities, or operation of tourism related -facilities. " ' RCW 67.28.080 defines `Tourism' as "economic activity resulting from tourists, which m ay includes sales of overnight lodging, meals, tours, gifts, or souvenirs." 2 RCW 67.28.080 (6) defines `Tourism Promotion' as "...activities, operations, and expenditures designed to increase tourism, including but not limited to advertisings, publicizing, or otherwise distributing information for the 15 INFORMATIONAL MEMO Page 2 RCW 67.28.1816 goes into further detail about permitted expenditures of lodging tax funds, specifying: "Lodging tax revenues under this chapter may be used, directly by any municipality or indirectly through a convention and visitors bureau or destination marketing organization for. (a) Tourism marketing; (b) The marketing and operations of special events and festivals designed to attract tourists; (c) Supporting the operations and capital expenditures of tourism related facilities owned or operated by a municipality or public facilities district created under chapters 35.57 and 36.100 RCW; or (d) Supporting the operations of tourism related facilities owned or operated by nonprofit organizations described under 26 U. S. C Sec. 501(c)(3) and 26 U. S. C Sec. 501 (c)(6) of the internal revenue code of 1986, as amended. It is important to point out that RCW 67.28 provides no definition of "tourist." Historically, the City of Tukwila has defined as a "tourist" as someone who lives outside of Tukwila and visits the City, either for a day or to spend the night. Additionally, there is a common misconception that lodging tax funds can only be used to support activities that create "heads in beds" or travel more than 50 miles. Again, this is not a requirement of State law. While the City must report metrics, such as hotel stays and visitors, when using lodging tax funds. The funds do not have to be awarded to activities that solely generate hotel room nights. Under current state law, lodging tax funds cannot be used to support general city operations or activities. Attached is a memo presented to the City Council in 2016, which provides more details on allowable uses of lodging tax funds. Status of Fund As of May 7, 2020, there was $1.985 million in the City's lodging tax fund. In 2019, annual revenues for lodging tax collection was just over $800,000. With the sharp drop off in travel, the City is forecasting a significant drop off in lodging tax collection for 2020 and possibly for 2021. The City is contractually obligated through 2020 to provide Seattle Southside Regional Tourism Authority (SSRTA) $202,500 in lodging tax funds. Additionally, the City has two approved applications to the City's Parks and Recreation Department of $40,000 for art along Baker Blvd and $125,000 to help fund a master plan for Tukwila Pond'. There is no requirement that the lodging tax fund be spent down annually. Unspent funds will remain in the 101 fund and can be used in future years, subject to the use limitations outlined above. Historical Use of Funds The largest single recipient of lodging tax funds from the City over the last 18 years has been SSRTA. Until 2015, SSRTA was operated as Seattle Southside Visitor Service (SSVS) by the purpose of attracting and welcoming tourists; developing strategies to expand tourism; operation tourism promotion agencies; and funding the marketing of or the operation of special events and festivals designed to attract tourist." 3 RCW 67.28.080 (1) provides the following definition of `Acquisition' "...siting, acquisition, design, construction, refurbishing, expansion, repair, and improvement, including paying or securing the payment of all or any portion of general obligation bonds, leases, revenue bonds, or other obligations issued or incurred for such purposes..." a The City also had an approved application and contract with the Seattle Seawolves, but this contract was canceled due to the COVID-19 pandemic. Virtual Sports also had an approved application and staff has not yet entered into a contract due to the scope of work being impacted by Stay Home, Stay Healthy Order. https://tukwilawa.sharepoint.com/sites/maVorsoffice/cc/Council Agenda Items/Mayor's Office/PED, August 3/Tourism Funding, Tourism Promotion and Lodging Tax/MEMO, Lodging Tax Policy, PED, 2020.06.01, Updated July 27.doc°Tukdata2k!2r t„ 16 INFORMATIONAL MEMO Page 3 City of Tukwila. The Museum of Flight, City of Tukwila, Starfire Sports, Renton Chamber of Commerce, and Seattle Southside Chamber of Commerce, and others have also received funding in the past. Any entity, including for -profit organizations, is eligible to receive lodging tax funds, provided it is engaged in activities eligible to be funded with lodging tax funds. State Law requires that any proposed use of lodging tax funds be review by a Lodging Tax Advisory Committee (LTAC). The City's LTAC comprises four lodging businesses; four entities eligible to receive lodging tax funds; and one City elected official, who serves as the Chair of LTAC. LTAC makes a recommendation to the City Council on whether an application should receive funding. The City Council has final authority in approving a request for lodging tax funds; however, the City Council cannot override a "no" from LTAC. The City Council can choose not to fund an entity that LTAC recommend be provided funding. The City Council can also change the amount of the funding, provided it provides the LTAC 30-days' notice of its intent to modify the amount. TPA Fee Statutory Authority Tourism Promotion Areas (TPA) are authorized under RCW 35.101. There is no corresponding City TMC for TPAs. Outside King County individual cities, towns, and counties can form their own TPAs. For most municipalities in King County, a TPA must include at least two municipalities (this requirement does not apply to the City of Federal Way). In 2014 the Cities of Tukwila, Des Moines, and SeaTac executed an interlocal agreement ("TPA ILA)" to form a TPA to cover the combined boundaries of the three cities. Through the TPA ILA the cities agreed that the City of SeaTac would serve as the legislative authority for the combined city area. The City of SeaTac is responsible for overseeing the TPA on behalf of the three cities. Any city can terminate its relationship under the TPA ILA Agreement by providing one-year notice to the other city partners. In 2014, after receiving a petition from hoteliers, the City of SeaTac formally adopted a resolution setting out a TPA fee in the three -city area. The total fee was $2 per night per eligible hotel stay in a hotel or motel with at least 90 rooms5. The $2 rate was the maximum permitted under the current State law. State law was recently amended to allow the rate to go up to $5 per night, provided 60% of the businesses that would pay the increase petition for the increase and it is approved by the legislative authority. Allowable Uses' RCW 35.101.130 states that the Legislative Authority, "...shall have sole discretion as to how the revenue derived from this charge is to be used to promote tourism promotion that increases the number of tourists to the area." `Tourism Promotion' is defined as, "...activities and expenditures designed to increase tourism and convention businesses, including but not limited to advertising, publicizing, or otherwise distributing information for the purpose of attracting tourists, and operating tourism designation marketing organizations." 5 The TPA fee is a flat fee, while the lodging tax is a percentage. This allows the TPA to collect higher revenue than the lodging tax when rates are low. For example, a room at a hotel going for $100 a night would only provide $1 in lodging tax funds, while the TPA gets the full $2. 6 RCW 35.101 was amended by the last legislative session. These changes go into effect on July 1, 2020. Staff is discussing the RCW as it will be amended in July. httos://tukwilawa.sharepoint.com/sites/mayorsoffice/cc/Council Agenda Items/Mayor's office/PED, August 3(Tourism Funding, Tourism Promotion and Lodging Tax/MEMO, Lodging Tax Policy, PED, 2020.06.01, Updated July 27.docU kdata2k12kG'ty Gnrnrn n, .C- mm,,. tmAn,;us.nne.,,,,oe,0016 der 17 INFORMATIONAL MEMO Page 4 Unlike the lodging tax RCW, the TPA RCW provides a definition of tourist'. A `tourist' means a person who travels for business or pleasure on a trip: (a) Away from the person's place of residence or business and stays overnight in paid accommodations; (b) To a place at least fifty miles away one way by driving distance from the person's place of residence or business for the day or stays overnight. However, island communities without land access are exempt from the mileage requirement under this subsection (5) (b); or (c) To another country or state outside of the person's place of residence or business. Status of Funds Following provisions in the Interlocal Agreement, all TPA funds remitted for the TPA go directly to SSRTA. In 2019, SSRTA received $3.96 million in TPA funds. Assuming that the TPA funds are generated proportional to the number of hotel rooms in each of the three TPA cities, Tukwila's portion of the TPA funds generated for SSRTA was just over $1.13 million, or 29%. In early 2020, SSRTA budgeted ending 2019 (unaudited) with an ending fund balance of $4.45 million. This includes both TPA funds it received, lodging tax funds received from the three cities, and misc. revenue. Historical Use of Funds As outlined above, 100% of the funds remitted for the TPA go directly to SSRTA. The City of Tukwila does not receive the funds. SSRTA uses these funds for tourism promotion activities and administration costs. Seattle Southside Regional Tourism Authority SSRTA is the City's primary destination marketing organization$. SSRTA mission is to help promote the Seattle Southside region (cities of Des Moines, Tukwila, and SeaTac) for tourism. In 2019, SSRTA had total operating expenditures of $4.297 million (See below). SSRTA is the successor to Seattle Southside Visitor Service (SSVS), which until 2015 was run as a division of Tukwila's Economic Development Office. The Cities of Des Moines and SeaTac were serviced by SSVS via interlocal agreements with the City of Tukwila. At one time the City of Kent was also served by SSVS but left in 2014. In 2012 the Cities of Tukwila, SeaTac, and Des Moines began to have conversations about forming a TPA, with the goal of providing additional funds for tourism promotion activities. These conversations were the result of requests by area hoteliers for the cities to consider creating a TPA. As discussed above, the cities entered an interlocal agreement in 2014 for the creation of a TPA. A TPA fee began to officially be collected in the spring of 2015. Through the TPA ILA, the cities of Tukwila, SeaTac, and Des Moines also provided a recommended amount of lodging tax funds each city would provide to SSRTA annually. The lodging tax contribution is a "recommended amount" and no City is contractually obligated to ' This definition goes into effect on July 1, 2020. httos:l/tukwilawa.sharepoint.com/sites/mayorsoffice/cc/Council Agenda Items/Mayor's office/PED, August 3/Tourism Funding, Tourism Promotion and Lodging Tax/MEMO, Lodging Tax Policy, PED, 2020.06.01, Updated July 27.doc4 kdata2k12kr'fi, Gnrnrn,,,�r mm,,. tmAn,;us.nne.,,,,oe,0016 a,,,. 18 INFORMATIONAL MEMO Page 5 provide the amount listed in the TPA ILA. The table below shows the suggested lodging tax contributions to SSRTA from the three TPA cities. httos:l/tukwilawa.sharepoint.com/sites/mayorsoffice/cc/Council Agenda Items/Mayor's office/PED, August 3/Tourism Funding, Tourism Promotion and Lodging Tax/MEMO, Lodging Tax Policy, PED, 2020.06.01, Updated July 27.docU kdat,2k"`G'ty Gnrnrn n, .C- mm,,. tmAn,;us A4pr ARPe O016 der 19 INFORMATIONAL MEMO Page 6 Year SeaTac9 Tukwila Des Moines10 2014 $835,000 $712,000 100% of lodging tax funds. 2015 $460,000 $405,000 2016 $383,333 $337,500 2017 $306,666 $270,000 2018 and beyond $230,000 $202,500 The TPA creation provided addition funds available for tourism promotion activities in the Seattle Southside region. The table below shows the total expenditures for SSVS and SSRTA since 2010. In 2016 the total expenditures for tourism promotion by SSRTA increased over 180% from the prior year. Year Total Expenditures (SSVS and SSRTA) % Change in SSVS and SSRTA Expenditures from previous year. Total Lodging Revenue in the Cities of Des Moines, Tukwila, and SeaTac. % Change in lodging revenue from previous year. 2010 $1,321,879 N/A $190,337,838 N/A 2011 $1,525,988 15.44% $201,068,568 5.64% 2012 $1,470,058 (3.67%) $217,520,038 8.18% 2013 $1,428,043 2.86% $230,190,887 5.83% 2014 $1,462,123 2.39% $259,819,652 12.87% 2015" $1,504,207 2.88% $292,605,392 12.62% 2016 $4,248,883 182.47% $302,062,920 3.23% 2017 $4,533,770 6.70% $318,864,960 5.56% 2018 $4,634,628 2.22% $330,574,999 3.67% 2019 $4,297,657 (7.27%) Data not yet available. N/A In March, SSRTA began projecting a significant revenue reduction of TPA fees because of the COVID-19 pandemic (see below). 9 The City of SeaTac has chosen to provide more funds to SSRTA than what was outlined in the TPA ILA. 10 The City of Des Moines no longer provides 100% of its lodging tax funds collected to SSRTA. " SSRTA did not take over the functions of SSVS until the end January 1, 2016. The expenditures provided for 2011 are Tukwila's expenditures for SSVS. httos://tukwilawa.sharepoint.com/sites/mayorsoffice/cc/Council Agenda Items/Mayor's office/PED, August 3(Tourism Funding, Tourism Promotion and Lodging Tax/MEMO, Lodging Tax Policy, PED, 2020.06.01, Updated July 27.docU kdata2k12kG'ty Gnrnrn n, .C- mm,,. tmAn�us.nne.,,,,oe,0016 der 20 INFORMATIONAL MEMO Page 7 Seattle 5outhside Regional Tourism Authority (RTA] Financial Pro Forma 2020-2022 2019 2019 2020 20ZO 2021 2022 Approved Approved Projection Projection projecticn Budget Year-end Actuals Budget (unaudited) Revenues 1 TPA Special Assessments 5 3,674,82S $ 3,963,260 $ 3,900,000 S 1,252,474 $ 3,170,608 S 3,368,771 2 LTC -Tukwila 202,500 202,SD0 202,S00 202,500 202,500 202,500 3 LTC-SeaTac 830,000 830,000 930,000 830,000 830,000 830,D0o 4 LTC -Des Moines 111,000 52,497 55,500 15,000 10,000 25,000 5 Interest Revenue 48,500 71,829 65,000 22,500 6,000 7,5D0 6 Misr, Other Revenue 2,500 10,422 2,SOD 5,500 5,500 S,SDO 7 Advertising 7S,000 40,480 50,000 7,500 7,500 7,500 Total Revenues $ 4,944,325 $ 5,170,989 $ 5,105,500 $ 2,335,474 $ 4,232,108 $ 4,446,771 Expenditures 8 Salaries& Benefits $ 1,622,209 S 1,451,758 $ 1,630,500 $ 1,459,652 $ 1,465,000 $ 1,567,550 9 Supplies 31,000 14,197 15,000 10,000 13,Soo 14,DDO 10 Small Equipment 20,000 5,755 20,000 11,000 7,000 7,D0o 11 Professional Services/Ads/Prc m otio ns 2,200,000 2,013,177 2,323,000 2,098,250 2,100,000 2,200,000 12 Communications/Postage 81,000 36,088 41,000 30,000 33,000 36,D00 13 Travel 115,000 47,357 80,000 13,000 47,500 60,00o 14 Operating Leases 120,000 87,512 120,000 110,636 119,000 120,000 15 Insurance 12,000 10,611 12,000 11,00o 12,000 13,000 16 Maintenance 6,000 3,654 6,000 3,800 3,900 4,D00 17 Mfscellaneous/Printing 861,000 S89,609 7S1,000 530,000 600,000 675,D00 18 Capital -Digital Images 39,000 11,000 39,000 11,000 15,000 20,000 Total Operating Expenditures 5,107,209 4,270,718 5,037,590 4,288,338 4,415,90-0 4,716,550 19 Capital Outlay 100,000 26,938 68,000 20,000 25,000 23,000 Total Expenditures and Capital Outlay 5,207,209 4,297,657 5,105,500 4,308,338 4,440,900 4,739,550 20 Excess of Revenues over (under) expenditures (262,984) 873,333 - (1,972,864) (209,792) (292,779) Beginning Fund Balance $ 2,153,571 $ 3,582,569 $ 3,94Z,503 $ 4,455,902 $ 2,483,037 $ Z,Z74,246 Ending Fund Balance $ 1,890,687 $ 4,455,902 S 3,942,503 $ 2,483,037 $ 2,Z74,246 $ 1,981,467 Contingency Reserve (2 months) $ 968,042 $ 716,419 $ 939,751 5 714,966 $ 736,131 $ 786,249 Economic Downtum/Recession Reserve (11% of SA) $ 404,231 $ 435,959 $ 429,000 $ 137,772 $ 349,767 S 370,565 Capital Asset Replacement Reserve $ 110,000 S 110,076 $ 183,465 S 193,465 $ 183,465 S 183,465 Unassigned Balance $ 508,414 $ 3,193,449 $ 2,490,286 $ 1,446,934 $ 1,DD5,893 S 641,189 DISCUSSION Staff would like to start having discussions with the City Council and the hospitality community regarding some policy issues with tourism funding for the City of Tukwila. Staff has identified several issues, which are discussed below. Staff envisions that additional issues/questions could come as we move through this process. The goal is to get direction from the City Council on 2020 expenditure plans and the development of the 2021/2022 City budget. 1. Need for Strategic Focus for Lodging Tax and TPA Funds. In 2019, the City started to prepare a Six Year Financial Model for lodging tax (See Attached). While non -binding, the Financial Model is the City's first effort to strategically examine how lodging tax could be used to advance overall strategic initiatives. Given the changes due to the COVID-19 pandemic, staff seeks Council's direction on whether any of the potential projects in the Financial Model are no longer of interest or if other projects should be added. httos:l/tukwilawa.sharepoint.com/sites/mayorsoffice/cc/Council Agenda Items/Mayor's office/PED, August 3/Tourism Funding, Tourism Promotion and Lodging Tax/MEMO, Lodging Tax Policy, PED, 2020.06.01, Updated July 27.dccU kdata2k1mr'fi, Gnrn., An, .C-Arnr,,,n tmAn,;unf6A4prnARP,,nnt6 der 21 INFORMATIONAL MEMO Page 8 2. Lack of Marketing Efforts for Tukwila in the Greater Seattle Area. In 2017, the City of Tukwila engaged Bill Baker, a renowned destination brand consultant to guide the City in the development of a City brand12. Mr. Baker's work also included a significant discussion and survey on how people view the City within the Seattle region. This work included telephone surveys, online surveys, and focus groups. There was considerable discussion on the name the City should use to market itself. Name suggestions included, Southcenter, Tukwila, and Seattle Southside. Through Mr. Baker's work the City determined that the "Tukwila" name had strong brand identification within the Seattle area. Mr. Baker's work completed work including the development of a brand strategy, brand blueprint, and brand style guide. The City Council formally adopted Mr. Baker's brand recommendations in 2018. Since 2018 staff has been working on efforts to market Tukwila within the Greater Seattle area, generally within 50 miles of the City. These efforts have primarily included sponsoring events, such as the Rave Green Run and Food Truck Rodeo at Westfield Southcenter. As part of the COVID-19 response, the City quickly launched social media channels to help promote businesses open and to help highlight resources available to businesses. The City should consider other opportunities to promote itself, specifically the City should consider the development of a website focused on visitors and business attraction; limited ad buys; and ongoing public relations outreach. 3. Tourism Promotion versus Destination DeveloDment Historically the City has provided lodging tax funds for initiatives and activities that are focused more on tourism promotion and have not provided lodging tax funds for destination development. Examples of tourism promotion activities include funding for marketing and sales. Destination development includes capital projects and developing/sponsoring festivals and events to be held in the City. In 2019, the City began to take steps to begin to develop the destination by awarding funds complete a master plan for Tukwila Pond and to install art along Baker Blvd. Other possible examples of destination development including the creation of a Riverwalk along the Green River and installation of wayfinding signage. The City also launched the Tukwila International Food Truck Rally last year in partnership with Westfield Southcenter. Given the differences between the allowable uses between lodging tax funds and TPA funds, the City may want to consider creating distinction between how the funds can be used with regards to tourism promotion and destination development. Tourism promotional activities, such as what SSRTA is providing, generally are for tourism promotion and marketing activities. Given that well over $3.5 million of funds are being provided for tourism promotion to SSRTA via the TPA funds, the City should consider how lodging tax funds can be used for destination development. As a reminder, lodging tax funds can be used for capital projects and the City can also bond against the future lodging tax funds. " This "brand" is for tourism and economic development use only and is not a City brand. httos://tukwilawa.sharepoint.com/sites/mayorsoffice/cc/Council Agenda Items/Mayor's office/PED, August 3(Tourism Funding, Tourism Promotion and Lodging Tax/MEMO, Lodging Tax Policy, PED, 2020.06.01, Updated July 27.docU kdata2k12kr'fi, Gnrnrn,,,�r mm,,. tmAn,;us.nne., ARPe 0016 dAA 22 INFORMATIONAL MEMO Page 9 4. Lack of other organizations doing tourism promotion and tourism development activities, such as downtown associations and neighborhood groups. One of the biggest tourism limitations in the City of Tukwila is the lack of our organizations that are directly or indirectly involved in tourism promotion and destination development in the region. Take for example Pioneer Square, which has Visit Seattle, the Downtown Association, Seattle Chamber, and the Pioneer Square Association all engaged in some tourists related activities. Having a variety of organizations working on tourism development issues would strengthen the City's overall tourism appeal. For example, the Pioneer Square Association works on developing art in the Pioneer Square District (destination development), which Visit Seattle uses as content for its tourism promotion activities. When other organizations do destination development and tourism promotion they directly and indirectly market the City. For example, Destination Des Moines promotes Des Moines via videos and events as does Discover Burien. The City of Tukwila lacks these types of organizations; thus the City has tried to fill the void. 5. Leveraging Lodginq Tax Funds to Obtain Grants. Another option the City should consider is using lodging tax funds as match to obtain federal and state grants for infrastructure projects that support tourism. 6. The Need for More Varied Use of Lodging Tax Funds. Many cities award a large number of smaller lodging tax grant applications for activities occurring in their cities. For example, the City of Renton, which historically collects less lodging tax funds than Tukwila, regularly has upwards of 20 applications per year for lodging tax funds. These applications are often for small amounts to support small events, festivals, and activities. Smaller activities help to develop a destination and help to create a distinct and unique visitor experience. Economic Development staff has been working to attract other groups to the City and to help existing groups explore securing lodging tax funds for eligible activities. 7. Using Lodging Tax Funds for Business Attraction The City's Economic Division is funded primarily from the City's general funds. Starting in 2019, some labor costs in Economic Development were funded by lodging tax funds. Some cities use lodging tax funds to help marketing the City for business attraction. Given that many guests in Tukwila hotels are business travelers there is a strong argument that increased economic activity from business attraction woudl bring more overnight guests (business travelers) to the City. Note, staff has not engaged legal on the question of whether lodging tax funds could be used for business attraction. Additionally, the City could also provide funds to the Chamber of Commerce in order to help it with its mission of supporting area businesses and attracting businesses to the City. 8. Lack of Metrics to Track Success The City lacks metrics to follow to track success of the lodging tax program and TPA. FINANCIAL IMPACT httos://tukwilawa.sharepoint.com/sites/mayorsoffice/cc/Council Agenda Items/Mayor's office/PED, August 3/Tourism Funding, Tourism Promotion and Lodging Tax/MEMO, Lodging Tax Policy, PED, 2020.06.01, Updated July 27.docU kdat,2k!2kG'tyGnrnrn n, .C- mm,,. tmAn,;us.nne., ARPe O016 der 23 INFORMATIONAL MEMO Page 10 None. RECOMMENDATION This is for discussion only. Staff would like to have ongoing discussions with the Committee and create recommendations to take the full Council for policies on the use of lodging tax and TPA funds. ATTACHMENTS • Memo dated September 23, 2016, "Permitted Uses of Lodging Tax Funds." Lodging Tax Six Year Financial Model, updated July 14, 202() • Tourism Funding at a Glance- httos:l/tukwilawa.sharepoint.com/sites/mayorsoffice/cc/Council Agenda Items/Mayor's office/PED, August 3/Tourism Funding, Tourism Promotion and Lodging Tax/MEMO, Lodging Tax Policy, PED, 2020.06.01, Updated July 27.docU kdat,2k!2kG'tyGnrnrn n, .C- mm,,. tmAn,;us A4pr ARPe O016 der 24 City of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Finance and Safety Committee FROM: Brandon J. Miles, Business Relations Manager CC: Mayor Ekberg DATE: September 23, 2016 SUBJECT: Permitted Uses of Lodging Tax Funds. ISSUE The City charges a 1 % special excise tax on the sale of or charge made for overnight lodging stays. State law limits how these funds can be used. This memo outlines the limits on the use of lodging tax and discusses permitted and prohibited use of the funds'. BACKGROUND Revised Code of Washington (RCW) 67.28.1815 limits the use of lodging tax funds as follows: [A]II revenue from taxes imposed under this chapter shall be credited to a special fund in the treasury of the municipality imposing such tax and used solely for the purpose of paying all or any part of the cost of tourism2 promotion 3, acquisition of tourism -related facilities, or operation of tourism -related facilities. RCW 67.28.1816 goes into further detail about permitted expenditures of lodging tax funds, specifying: Lodging tax revenues under this chapter may be used, directly by any municipality or indirectly through a convention and visitors bureau or destination marketing organization for. - (a) Tourism marketing; ' RCW 67.28 places strict limits on the type of entities eligible to receive lodging tax funds. Additionally, approving expenditures of lodging tax funds is a two-step process, requiring review by the City's Lodging Tax Advisory Committee and City Council. State Law gives considerable authority to the City's Lodging Tax Advisory Committee in reviewing and approving funding requests. For more information on entities eligible to receive funding and the process for awarding funds, see the memo dated September 22, 2016, entitled, "Lodging Tax Approval Process." 2 RCW 67.28.080 defines "Tourism" as "economic activity resulting from tourists, which may include sales of overnight lodging, meals, tours, gifts, or souvenirs." 3 RCW 67.28.080 (6) defines "Tourism promotion" as "...activities, operations, and expenditures designed to increase tourism, including but not limited to advertising, publicizing, or otherwise distributing information for the purpose of attracting and welcoming tourists; developing strategies to expand tourism; operating tourism promotion agencies; and funding the marketing of or the operation of special events and festivals designed to attract tourists." 4 RCW 67.28.080 (1) provides the following definition of "Acquisition" ..."includes, but is not limited to, siting, acquisition, design, construction, refurbishing, expansion, repair, and improvement, including paying or securing the payment of all or any portion of general obligation bonds, leases, revenue bonds, or other obligations issued or incurred for such purpose or purposes under this chapter." 25 INFORMATIONAL MEMO Page 2 (b) The marketing and operations of special events and festivals designed to attract tourists; (c) Supporting the operations and capital expenditures of tourism -related facilities5 owned or operated by a municipality or a public facilities district created under chapters 35.57 and 36.100 RCW; or (d) Supporting the operations of tourism -related facilities owned or operated by nonprofit organizations described under 26 U. S. C. Sec. 501(c)(3) and 26 U. S. C. Sec. 501(c)(6) of the internal revenue code of 1986, as amended. DISCUSSION Several Councilmembers have inquired about permissible uses of lodging tax funds. Based upon the limitations outlined above, staff would like to provide some guidance on the future use of lodging tax funds. A simple question that can be asked to help determine if lodging tax funds can be used is "Is the activity, operation or expenditure designed to increase tourism or welcome tourists to the City?" If the answer is yes, then lodging tax might be able to be used after further analysis of the specific funding request. Tourism could include people who travel and stay overnight in the City (overnight visitors) or those who travel to the Tukwila for the day (day visitors). Economic activity from Tukwila residents would not be considered tourism. The following lists examples of activities, operations and expenditures that would likely be eligible for lodging tax funding. This is not intended to be an exhaustive list. • Marketing and advertising intended to bring overnight visitors to the City. • Marketing and advertising intended to bring day visitors to the City. • Installation of new "way finding" signs for tourists and installation of City identification signs. • Sponsoring, operating, and marketing of special events or festivals, either by the City or third parties, if designed to bring tourists to the City. • Installation of banners on street poles or across city streets if either welcoming tourists to the City or promoting upcoming events. • Capital improvements, such as park improvements or trail improvements, designed to be used primarily by tourists. • Maintenance of parks primarily used by tourists, such as Fort Dent Park or the Green River trail. 5 RCW 67.28.080 (7) defines "Tourism -related facility" as, "...real or tangible personal property with a usable life of three or more years, or constructed with volunteer labor that is: (a)(i) Owned by a public entity; (ii) owned by a nonprofit organization described under section 501(c)(3) of the federal internal revenue code of 1986, as amended; or (iii) owned by a nonprofit organization described under section 501(c)(6) of the federal internal revenue code of 1986, as amended, a business organization, destination marketing organization, main street organization, lodging association, or chamber of commerce and (b) used to support tourism, performing arts, or to accommodate tourist activities." 26 C:\Users\Brandon-m\AppData\Local\Microsoft\Windows\INetCache\Content.Outlook\LWDZNIVO\Memo 2 Eligable Activites.dou INFORMATIONAL MEMO Page 3 • Supporting marketing and operations of government entities (City of Tukwila and SSRTA) or nonprofit organizations, when activities performed are designed to attract tourists to the City or welcome tourists to the City. The following lists examples of activities, operations and expenditures that would likely NOT be eligible for lodging tax funding. This list is not intended to be exhaustive. • Funding basic general governmental operations of the City6 • Marketing and advertising directed at residents. • Way finding signs in residential areas intended for residents. • Sponsoring of special events or festivals intended for residents. • Capital improvements, such as park improvements, intended for residents (such as at parks used primarily by residents). • Maintenance of parks primarily used by residents, such as Hazelnut Park. • Capital expenditures for tourism related facilities owned or operated by a non-profit. Reportinq Requirements RCW 67.28.1816 requires that entities receiving lodging tax fund report metrics back to the municipality. Per State Law, the following is required to be submitted to the City in the project close out for a specific funding request: 1. Actual number of people traveling for business or pleasure on a trip. 2. Number of people traveling for business and pleasure and staying in paid accommodations in the City. 3. Visitors who traveled more than 50 miles or more from their place of residence of businesses for the day or staying overnight. 4. Visitors who traveled from another county or state. It is important to note that the City's Lodging Tax Advisory Committee is granted significant authority by RCW 67.28.1816 when reviewing lodging tax requests. The City Council cannot reverse a decision of the Committee if the Committee chooses not to approve a specific funding application. Traditionally, the Committee has considered the metrics outlined above very strongly when considering funding requests. RECOMMENDATION Information and discussion only. Forward to the October 10, 2016 Committee of the Whole meeting for discussion by the full Council. ATTACHMENTS • None. 6 The City is permitted to charge special funds, like the lodging fund, for costs incurred by the general fund to support the special funds. C:\Users\Brandon-m\AppData\Local\Microsoft\Windows\INetCache\Content.Outlook\LWDZNIVO\Memo 2 Eligable Activites.docx 27 m DRAFT, DISCUSSION ONLY Lodging Tax Six Year Financial Plan Forecasted Actuals Year 2019 2020 Budget 2020, Updated 2021 2022 2023 2024 Revenue Orginal Estimated Amount $ 800,000 $ 800,000 $ 840,000 $ 882,000 $ 926,100 $ 972,405 Lodging Tax Collection (Revised, 5/7/20) $ 819,095 $ 800,000 Expenses Marketing, Sales, Major Sponsorships Contracted DMO Services $ 202,500 $ 202,500 SSRTA Emergency Funding $ 75,000 Major Sponsorships Funding Request $ 150,000 $ 150,000 Seattle Seawolvs Seattle Southside Chamber of Commerce $ - Virtual Sports $ 30,000 Small Event Development and Support $ 10,000 $ 15,000 Digital Development and Website (Experience Tukwila) $ - $ 88,375 SavingLocalKC.com $ 154,170 Destination Development Wayfinding Plan Development and Installation $ - $ 50,000 Southcenter Art Investements $ 600 $ 39,400 Tukwila Pond $ - $ 125,000 World Cup Planning and Activiation $ - $ - Adminstration/Operations Salary $ 58,040 $ 56,586 Benefits $ 18,124 $ 18,411 City Overhead Charge $ 18,741 $ 19,416 Adminstration Expenses $ 21,385 $ 30,000 $ 116,290 Total Expenditures: $ 479,390 $ 1,053,858 Starting Year Balance: $ 1,617,625 $ 1,957,330 Ending Fund Balance: $ 1,957,330 $ 1,703,472 Totals 1 $ 400,000 $ 450,000 $ 600,000 $ 700,000 $ 800,000 $ 4,569,095 $ 202,500 $ 202,500 $ 202,500 $ $ 75,000 $ 50,000 $ 150,000 $ 150,000 $ $ 10,000 $ 50,000 $ 5,000 $ 15,000 $ 15,000 $ $ 88,375 $ 50,000 $ 50,000 $ $ 154,170 $ 100,000 $ 150,000 $ 100,000 $ $ 39,400 $ 75,000 $ 75,000 $ $ 125,000 $ 200,000 $ 200,000 $ $ 40,000 $ 40,000 $ $ 53,870 $ 58,284 $ 60,032 $ $ 18,411 $ 18,963 $ 19,532 $ $ 19,416 $ 19,998 $ 20,598 $ $ 30,000 $ 30,000 $ 30,000 $ $ 1,021,142 $ 1,009,745 $ 962,663 $ $ 1,957,330 $ 1,336,188 $ 776,443 $ $ 1,336,188 $ 776,443 $ 413,780 $ 202,500 $ 202,500 $ 1,417,500 150,000 $ 150,000 $ 950,000 15,000 $ 15,000 $ 90,000 50,000 $ 50,000 $ 376,750 100,000 $ 100,000 $ 600,000 75,000 $ 75,000 $ 379,400 200,000 $ 200,000 $ 1,050,000 50,000 $ 50,000 $ 180,000 61,833 $ 63,688 $ 412,333 20,118 $ 20,722 $ 134,281 21,216 $ 21,853 $ 141,239 30,000 $ 30,000 $ 201,385 975,668 $ 978,763 $ 5,932,888 413,780 $ 138,112 138,112 $ (40,650) Notes Salary for Bus Manager is split 50/50 between general fund and lodging tax. Salary savings reflects credit to lodging tax for 14 furlough days for 2020. Revenue Increase (2021-2024) 0.05 Salary is assumed to rise 3% per year. 0.03 Benefits are assuemd to rise 3% per year. 0.03 Indirect Cost Allocation is assumed to increase 3% per year. 0.03 This document does not bind the City to provide funds nor does it authorize any funding. All use of lodging tax funds must be approved by LTAC and the City Council through an application process. Overhead charge is charged to all special accounts and recoups the cost of the general fund to support the lodging tax fund. This include facilities, IT services, legal, and accounting. Cells in yellow show pending applications. IV Cells in green show approved applications. Cells in red are budgeted items that have not been encumbered. 7/14/2020 BJ M 30 Tukwila Tourism Funding at a Glance Tukwila's tourism is funded by two separate revenue sources — the City's lodging tax and the Tourism Promotion Area (TPA) fee. Jointly, these funds promote our many attractions and help welcome tourists to the City. Lodging Tax vs. TPA Fee LODGING Statutory Authority: Tukwila Municipal Code 3.40 Interlocal Agreement (ILA) between Tukwila, SeaTac, and Des Moines How charges are calculated: Total funds collected from Tukwila properties in 2019: Where do the funds go? Does the City Council control the funds? 1% of eligible stay in all city hotels, motels, and Airbnb's Ex. $100 room rate=$1 charge $819,000 The City's 101 fund for tourism -related expenditures Yes (Subject to the City's Lodging Tax Advisory Committee approval) $2 per night per room of eligible stays only in motels and hotels with 90 or more rooms Ex: $100 room rate=$2 charge $1,149,000 (estimate) The Seattle Southside Regional Tourism Authority (SSRTA) which promotes tourism in Tukwila, Seatac, and Des Moines No (Modification of Interlocal Agreement (ILA) required) Can the tax and fee be repealed? Yes. The standard process for modifying Yes. The City can opt out of the Interlocal the Tukwila Municipal Code applies Agreement (ILA) with one year's notice How Funds Can Be Used Promotion and marketing to bring tourists that live greater than 50 miles away? Promotion and marketing to bring tourists that live within 50 miles of the City? Marketing special events? Operations and expenditures related to facilities owned or operated by a municipality or public facilities district? Supporting the operations of tourism -related facilities owned or operated by a nonprofit organization? Examples of how we use the funds: Yes Yes Yes 1Z Yes Yes SavingLocalKC, Experience Tukwila, Starfire Sports, Museum of Flight, Seattle Southside Regional Tourism Authority, Seattle Seawolves, Tukwila International Food Truck Rally Yes No (Effective July 1, 2020) Yes (provided the funds are used to bring in tourist from greater than 50 miles) one No Support the Seattle Southside Regional Tourism Authority (SSRTA) which promotes tourism in Tukwila, SeaTac, and Des Moines 31 Tukwila Tourism Funding at a Glance Tukwila's Relationship with the Tourism Promotion Area (TPA) and Regional Tourism Authority (RTA) IT t.ity nas agreement Tourism for lodging tax funds, Promotion $202,500 for 2020 Area City of TOFWukwila $39,632 Des Moines Per ILA, TPA funds go directly to SSRTA, $3,963M for 2019 City of City of SeaTac is responsible for overseeing the Tourism promotion area through ILA Lodging Tax Funds (Actuals) Source for 2019 $830,000 SeaTac $202,500 Tukwila $52,497 Des Moines Estimated TPA Fee TukwilaWA.gov 32