Loudoun County faces shortfall in revenue from taxes on hotel rooms

January 22

By most measures, Loudoun County is booming. Housing sales, property values and building permits are up. Unemployment is relatively low, at about 4.4 percent, and Loudoun recently topped the U.S. Census Bureau’s list of the wealthiest county in the nation. But one key economic indicator is down, and the corresponding shortfall in tax revenue has county officials trying to figure out how to cover the cost of some economic development programs.

Revenue from the transient occupancy tax, which comes primarily from a levy on hotel and motel rooms, has declined in the past year. About 43 percent of the hotel tax revenue is restricted under Virginia law and can be used only on programs that promote travel and tourism in the county. What remains is divided between the county’s general fund and a Northern Virginia transportation fund.

According to a county staff report, hotel tax revenue during the past fiscal year fell about $162,000 below the budgeted amount, $3.13 million. Despite the shortfall, the county projected $3.28 million in restricted hotel tax revenue in the current fiscal year, and now faces another shortfall of about $325,000. As a result, the Board of Supervisors is faced with the choice of cutting back on programs that receive transient occupancy tax funding or using money from the general fund in its place.

Under an agreement with the county, the Loudoun Convention and Visitors Association, also known as Visit Loudoun, receives 75 percent of the restricted hotel tax revenue. This year’s budget calls for Visit Loudoun to receive $2.5 million of the restricted funds.

The remaining revenue pays for economic development programs intended to boost travel and tourism. It also covers the county’s contribution to the Washington Airports Task Force and tourism programs such as the Journey Through Hallowed Ground, sports tournaments and Epicurience Virginia, which debuted last year as an annual event to promote Loudoun’s wineries and restaurants.

Other than the payment to Visit Loudoun, the largest expenditure from the hotel tax fund is $500,000 for Loudoun’s annual marketing agreement with the Washington Redskins.

The shortfall in transient tax revenue poses a dilemma for the all-Republican members of the Board of Supervisors, most of whom were elected in 2011 after campaigning to reduce property taxes. Since then, the board has made a point of eliminating programs deemed not to be “core government services,” such as the Drug Court and Master Gardener program.

Shifting programs from hotel tax funding to the general fund would also shift the tax burden associated with those programs from hotel customers, who mostly come from outside the county, to Loudoun property owners.

At its Jan. 2 meeting, supervisors directed staff members to submit the proposed budget for next year using a formula that matches transient occupancy tax revenue with expenditures, without reducing the hotel tax reserve. The staff report indicated that limiting expenditures to the amount of projected hotel tax revenue might not provide enough money to fund some economic development activities, the annual payment to the Washington Airports Task Force and the county’s contribution to programs such as Epicurience Virginia and sports tournaments.

Supervisor Matthew F. Letourneau (R-Dulles) said he would have “no problem whatsoever” using the general fund for the $50,000 Washington Airports Task Force payment. Supervisor Ralph M. Buona (R-Ashburn) agreed and asked that economic development programs be at the bottom of the list of potential reductions. The marketing agreement with the Redskins was not among the list of items proposed for reduction or shifting to the general fund.

Jackie Gosses, chairman of the Visit Loudoun board of directors, attributed the decline in hotel tax revenue to “one word: sequestration.” She said people who stay in the county while conducting business with the federal government account for a large share of the hospitality industry’s business. Meetings and training are also important sources of hotel business.

The federal government shutdown last year made things even worse, Gosses said.

“It goes to confidence, everybody’s feeling about where things are going,” she said. “And [with the] government shutdown, everyone pulls back again.”

Gosses said she hopes the county will maintain the funding for Visit Loudoun at 75 percent of hotel tax revenue.

“To make some drastic cuts before we know if the economy is going to recover or not, and how soon, and to have to curtail some of our really important programs that put heads in beds in the county, we just don’t think that’s a wise way to go,” she said. “We’d rather take the hit in something we feel we can recover from short-term.”

She said Visit Loudoun was prepared for targeted reductions to programs such has Epicurience Virginia and sports tournaments.

“It was a good first year” for Epicurience Virginia, Gosses said, adding that to market an event’s inaugural year is difficult.

“Now we’ve got one successful year under our belts, and we feel that we’ll definitely get heavy sponsorship next year,” she said.

Supervisors Chairman Scott K. York (R-At Large) said that the decline in hotel tax revenue “was not due to anything . . . that Visit Loudoun is doing [wrong].”

“This is . . . simply a deal that is happening with the federal government through sequestration and et cetera,” he said. “In order for us to increase the pot . . . I certainly want to make sure, first and foremost, that Visit Loudoun can do the programming that they’re doing to bring the heads to the beds.”

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