Agenda 05-06-25; 8-a - Minutes - Laserfiche WebLink

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31 1 b. Occupancy Tax Uses Discussion 2 The Board discussed the potential usages of Occupancy Tax proceeds for future year budgeting. 3 4 BACKGROUND: The County has collected Occupancy Tax for several decades through State 5 authorization of Session 1991-392 (Attachment 1). This three percent (3%) levy on all room and 6 lodging rentals is collected by the County and used to fund the Visitors Bureau division of the 7 Economic Development Department, the Arts Commission division of the County Manager's 8 Office, and some related Outside Agencies. This authorization provides broad flexibility to the 9 County to utilize Occupancy Tax. However, the law applicable to Orange County predates the 10 current State guidelines for Occupancy Tax statutes (Attachment 2). The current guidelines 11 recommend that new authorizations restrict two-thirds (2/3) of Occupancy Tax proceeds to be 12 used to promote tourism and travel, and one-third (1/3) to be used for tourism-related 13 expenditures. The information below relies on this higher standard in its analysis, as the County's 14 authorization is subject to change by the North Carolina General Assembly. 15 16 In reviewing the prior year actual expenditures and current year budget for the Visitors Bureau 17 Fund, the County easily exceeds the two-thirds (2/3) standard for Occupancy Tax. The Visitors 18 Bureau also maintains a long-term contract with the Town of Chapel Hill that the Town provides a 19 set amount of its Occupancy Tax funds to the County to support the County's Visitors Bureau. The 20 funds have been used to increase advertising for summer events in Chapel Hill in FY 2025. In the 21 table immediately below, the expenses in the Visitors Bureau Division exceed both the revenue 22 generated by the Town contract and two-thirds (2/3) Occupancy Tax guideline by $234,740 in FY 23 2024, and is budgeted to exceed the guidelines by $801,423 in FY 2025. BudgetRevenue and Expenses FY 2024 Actuals FY 2025 Revised Town of Chapel Hill Contribution $ 457,439 $ 531,855 2/3rd of Occupancy Tax $ 1,482,399 $ 1,526,871 Guideline Revenues $ 1,939,838 $ 2,058,726 Visitors Bureau Division Expenses $ 2,174,578 $ 2,860,149 Expenses Above Guidelines $ 234,740 $ 801,423 24 25 During the FY 2024-25 Budget adoption process, there was a proposed Commissioner 26 amendment to redirect $69,000 of fund balance from the Visitors Bureau to fund General Fund 27 expenses. That amendment failed by a vote of 3-4, with the majority of the Board preferring to 28 revisit the issue in greater detail prior to the Board's FY 2025-26 Budget process. 29 30 The following chart provides a summary on the recent revenues and expenditures in the Visitors 31 Bureau Fund. Occupancy Tax has been very volatile in the last 10 years, due to the pandemic 32 and the inflation that followed. There are a few items to identify in reviewing these trends. First, 33 the revenues in the fund bounced back from the pandemic faster than anticipated, resulting in an 34 accumulation of fund balance in FY 2022, FY 2023, and FY 2024. The intent of the FY 2025 35 budget is to spend down a significant portion of that accumulated fund balance. The department 36 has needed to come back to the Board through budget amendments to recognize additional 37 revenues during the last four (4) years and identify spending plans. The majority of the fund's 38 expenditures fund the staff of the Visitors Bureau, the fixed costs of the visitor center, and the 39 programmatic costs of the Visitors Bureau: advertising, market research, and publications. As 40 Occupancy Tax revenues have rapidly decreased and then increased, the majority of the change 41 in expenditures has occurred in the programmatic costs. Those were cut to as little as $260,000 42 during the pandemic and have grown to as much as $1.8 Million during the FY 2025 budget. The