HomeMy WebLinkAboutMEMO LTAC JEFFERSON COUNTY
BOARD OF COUNTY COMMISSIONERS
REGULAR AGENDA REQUEST
TO: Board of County Commissioners
FROM: Greg Brotherton,Commissioner District No.3
DATE: June 10,2024
SUBJECT: MEMO: LTAC Recommendations
STATEMENT OF ISSUE:
BoCC should consider direction to LTAC regarding base budget recommendations, and zero-based
budgeting exercise.
ANALYSIS:
Please refer to the attached memo for analysis about legal review of base budget recommendations form
LTAC, and rationale behind re-addressing LTAC priorities.
FISCAL IMPACT:
None
RECOMMENDATION:
Read and discuss memo. Consider recommendations for LTAC.
REVIEWED BY:
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Mark McCauley, County Administrator Date
TO: Jefferson County Board of County Commissioners
FROM: Greg Brotherton —Chair, Lodging Tax Advisory Committee (LTAC)
DATE: June 6, 2024
RE: Recommendation to reject LTAC recommended budget and direct a Zero-Based
Budget exercise to evaluate use of lodging tax
The LTAC's proposed budget will soon be before the Board of County Commissioners (BoCC). For
the reasons discussed below, I recommend that the BoCC reject the recommendations for a
budget and instead direct the LTAC to explore the best uses for the Jefferson County lodging tax
revenue and evaluate and make recommendations about possible allocation of lodging tax
revenue under Chapter 3.25 JCC.
Background
Jefferson County gets 4% special sales tax revenue from short term lodging stays. (Heads in beds
for less than 30 days.) RCW 67.28.180 controls how the county may use these funds and directs
them to spend it on "tourism promotion, acquisition of tourism-related facilities, or operation of
tourism-related facilities." RCW 67.28.1815-1816. Chapter 3.25 JCC is consistent with these
requirements but also must be considered. Details of the requirements in Chapter 3.25 JCC are
discussed in detail below.
Jefferson County traditionally has relied on a Request for Proposal (RFP) process for qualifying
non-profits to apply for these funds for the state approved uses. Several keystone applicants
stood out and have been funded reliably year in and year out. Examples include the Jefferson
Historical Society, the four Visitor Information Centers (VICs), and the Tourism Coordinating
Council (TCC), which is Jefferson County's destination marketing organization.
During the flux of the COVID-19 pandemic, many revenue streams had wild variances, with a
huge increase in lodging tax revenue in 2023 during the first year after the pandemic, based,
perhaps, on revenge tourism built on short term economic stimulus during the pandemic.
Distributed funds ranged from $445,000 allocated in 2017, to $608,761 granted in 2021, to
$968,357 in 2023. In 2024, the regression began and there was only $749,904 awarded, despite
a record $1,159,011 in requests.
The LTAC struggled with the cutback budgeting required during the 2024 RFP process. They
ultimately used a decremental approach and funded the normal keystones at roughly 80% of
2023 funding levels. No one was satisfied with this approach. New qualifying applicants were
frustrated by the lack of opportunity and the keystone institutions were challenged to provide
the same level of service with fewer funds. But,this approach leveled the impact of the decrease
and was politically palatable.
For 2025,the LTAC recommended budgeted items for 2025 for the keystone institutions to create
a known baseline for those keystone institutions for more predictable budgets and also to create
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a more realistic pool of available funds for the new or event-based applicants in the RFP process.
This recommendation will be in front of the BoCC after legal review.
A fundamental challenge to our lodging tax revenue is housing both short and long term. Outside
of Port Townsend, there are only two accommodations with 40 or more rooms, Fort Flagler
campground, and Kalaloch Lodge on the West End. One of the reasons why the THING festival is
not returning is because the county does not have enough rooms for a festival. The lack of
infrastructure for rooms and workers fundamentally limits how much the county can increase
lodging tax revenue.Also,the dearth of affordable workforce housing'has restaurants and stores
challenged to stay open appropriately for the tourist season. Even if there were more short-term
rooms,the county lacks housing for the necessary workforce, and larger amenities that bring not
just tourists, but also that workforce.
Legal Requirements
Revenues received from lodging taxes are restricted to the following uses:
• Tourism marketing;
• Marketing and operations of special events and festivals designed to attract tourists;
• Operations and capital expenditures of tourism-related facilities owned or operated by a
municipality or public facilities district; and,
• Operations of tourism-related facilities owned or operated by nonprofit organizations.
RCW 67.28.1816(2)(b)(ii) says that the legislative body "may choose only recipients from the list
of candidates and recommended amounts provided by the local lodging tax advisory committee."
According to MRSC, "[t]he legislative body is not required to fund the full list of recommended
recipients and may choose to make awards to only some or even none of the recommended
recipients, but the legislative body may not award funds to any recipient that was not
recommended by LTAC." MRSC, Lodging Tax (Hotel-Motel Tax), https://mrsc.org/explore-
topics/finance/revenues/lodging-tax, Accessed June 2, 2024.
However, an informal opinion from the Attorney General's Office in 2016 states that a
municipality reviewing the list of candidates and recommended amounts from the lodging tax
advisory committee is free under RCW 67.28.1816(2)(b)(ii) to award an amount that is different
from the amount recommended by the advisory committee, but only if the municipality first
seeks further input from the advisory committee by following the procedural requirements of
RCW 67.28.1817(2). Informal Attorney General Opinion (August 17, 2016),
https://mrsc.org/getmedia/0562599b-d073-4b55-8817-daa1b9cf39a3/w3ag081616.pdf,
1"'Affordable workforce housing' means housing for a single person,family,or unrelated persons living together
whose income is at or below 80 percent of the median income,adjusted for household size,for the county where
the housing is located." RCW 67.28.180(3)(h)(i).
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Accessed June 2, 2024. Any proposal to impose a new lodging tax, raise the rate of an existing
tax, repeal an exemption from the lodging tax, or change the use of the tax proceeds, must be
submitted to the lodging tax advisory committee for review and comment at least 45 days before
final action will be taken on the proposal by the legislative body. RCW 67.28.1817(2).
Chapter 3.25 JCC, along with the lodging tax sections of Chapter 67.28 RCW, control what lodging
tax revenue can be used for. JCC 3.25.030 says:
(1) The use of the lodging tax shall only be authorized for those activities and
facilities which clearly demonstrate the following:
(a) Pay all or a portion of the cost of tourism promotion;
(b) Acquire tourism-related facilities owned or operated by a municipality or a
public facilities district created under Chapters 35.57 and 36.100 RCW; and/or
(c) Operate tourism-related facilities.
(2) The intent for the use of this tax is to generate or support the generation of
additional overnight visitor stays and bolster the tourism economy in Jefferson
County. These monies are not appropriate for the sponsorship of a specific event,
even though said event may encourage the use of overnight accommodations.
(Underlining added.) "Tourism promotion" is defined in JCC 3.25.010(5) 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.
"Tourism-related facilities" are defined in JCC 3.25.010(6) 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.
JCC 3.25.040 limits the distribution of lodging tax revenues:
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The Jefferson County lodging tax advisory committee shall recommend to the
board of county commissioners and the board of county commissioners shall
adopt a budget for the expenditure of lodging tax not to exceed the following
percentages of categorical distribution:
(1) Not more than 50 percent for the operation of tourist-related facilities,
including but not limited to Jefferson County Historical Society, Tourism
Coordinating Council and Olympic Peninsula Gateway Visitor Center.
(2) Not more than 25 percent for the acquisition and development of
tourism-related facilities owned or operated by a municipality or a public
facilities district created under Chapters 35.57 and 36.100 RCW, including
but not limited to the McCurdy Pavilion and Olympic Peninsula Gateway
Visitor Center.
(3) Not less than 25 percent for tourism promotion.
Options
The OPTMP had three strategic directives: Improve destination marketing, develop tourist
infrastructure, and more public-private partnerships to identify and act on a shared vision for
tomorrow:
1. Enhance targeted marketing efforts to increase awareness of spring, fall and
winter travel seasons.
2. Develop diversified year-round tourism product and visitor experiences to
engage a wider variety of consumer lifestyles.
3. Increase government, community and industry alignment around sustainable
tourism development.
The three goals are discussed in detail on pdf pages 32-46 of the OPTMP. It will be hard to make
iterative decisions that really swing the impact of our lodging tax funds toward these three
strategies. Avoiding conflict, as Bordeaux argues, is how most cutback budgeting ends up
happening, without much benefit. (Bourdeaux, n.d.) If we guide LTAC through an exercise of
discarding all assumptions about how these lodging tax Funds are to be spent, we can address
the OPTMP and Jefferson County goals with a blank slate.
The new Olympic Peninsula Tourism Master Plan 2024-2029 (OPTMP)2 had twelve engagement
takeaways. I will focus on three here and expand on them. Next, I will walk through some of the
'Olympic Peninsula Tourism Master Plan 2024-2029(Feb 25, 2024), https://olympicpeninsula.org/wp-
content/uploads/2024/03/Olympic-Pen i nsu la-Tou rism-Master-Plan-2024-Feb-25-2024.pdf.
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other options about uses of the lodging tax revenue by using 3 of the twelve takeaways3 in the
OPTMP. These options are not intended to be mutually exclusive.
1. Consider folding TCC into Clallam County's Olympic Peninsula Tourism Commission
(OPTC).
Takeaway 5: "Make one destination brand." Both Jefferson County and Clallam county each have
their own Destination Marketing Organizations. Consistent with this Takeaway, I would propose
that we consider folding TCC into Clallam County's Olympic Peninsula Tourism Commission
(OPTC).
2. Use the ongoing Public Facilities District (PFD) process to make the Tri-Area an appealing
place with things to do for our residents and tourists alike.
Takeaway 6: "Locals Support Tourism Big Time." Another focus of the OPTMP is making locals
tourists in their own backyard to help stretch the shoulder seasons of Fall and Winter. A parallel
effort is ongoing to determine the potential of creating a Public Facilities District (PFD) to build
an aquatic facility. While that conversation is ongoing, creating central management for VICs that
are built for today's tourists seems to be a critical need. The Independent Financial Feasibility
Review that Susan Musselman prepared for the Department of Commerce indicated the need for
ongoing administrative revenue to maintain and operate a PFD. This revenue could be used for
placemaking in the Port Hadlock UGA with community input. As the first development in
anticipation of the sewer coming online is a Dollar General, it is incumbent on the county to do
what we can to make the Tri-Area an appealing place with things to do for our residents and
tourists alike.
3. Figure out a way to use lodging tax revenue to help create affordable workforce housing
by providing these funds to a Housing Authority or non-profit to create affordable
workforce housing near transit service.
Takeaway 9: "Infrastructure & Amenity Upgrades. "Developing infrastructure and amenities is
listed as Takeaway 9 and repeated throughout—especially in concert with the need for public
and private partnerships. Creating a PFD would create a community driven authority to develop
our public spaces for our residents and for our tourists, using existing funds.
4. Use Lodging Tax Revenue to help create affordable workforce housing.
Another option with lodging tax revenue is to use it to help create affordable workforce housing.
Jefferson County can provide these funds to a Housing Authority or non-profit to create
affordable workforce housing near transit service. RCW 67.28.180(3) makes clear that affordable
workforce housing is a legitimate use for lodging tax revenue, even though RCW 67.28.180(3)
applies only to counties that have a population of one million five hundred thousand or more.
Again, RCW 67.28.180(3)(h)(i) defines affordable workforce housing as "housing for a single
3 The twelve takeaways are listed and discussed in the OPTMP in pdf pages 28-31.
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person, family, or unrelated persons living together whose income is at or below 80 percent of
the median income, adjusted for household size, for the county where the housing is located."
But lodging tax revenue would be subject to the limitations in JCC 3.25.040 for using lodging tax
revenue for operation (50 percent) or acquisition and development (25 percent) of a "tourism-
related facility." For funding acquisition of a "tourism-related facility," the "tourism-related
facilities must be owned or operated by a municipality or a public facilities district created under
Chapters 35.57 and 36.100 RCW."
According to MRSC, the State Auditor's Office believes that all users of lodging tax funds,
including municipalities, are considered applicants and must follow the relevant application
procedures. So, if the county wants to use the funds directly,they should submit applications for
their own projects to the legislative body or LTAC. See MRSC, Lodging Tax (Hotel-Motel Tax),
https://mrsc.org/explore-topics/finance/revenues/lodging-tax, Accessed June 2, 2024.
To avoid any concerns regarding gifting of public funds, the county awarding the funds should
enter into a contract with any recipient organization,which spell out the tourism-related services
to be provided in exchange for the funding, as well as the required reports that must be filed by
the recipient quantifying the services in terms of the number of tourists generated as a result of
the funding. MRSC, Lodging Tax (Hotel-Motel Tax), https://mrsc.org/explore-
topics/finance/revenues/lodging-tax, Accessed June 2, 2024.
Conclusion and Recommendation
This is a challenging conversation. These new options for using lodging tax revenue are difficult
to reconcile with our conventions for distributing funds. Our budgeting process is fairly
incremental and it is often easy to keep doing what we've been doing, automatically. If we want
to be leaders in Jefferson County, sometimes that means breaking existing systems down to see
if that is the best course.According to Behn it is challenging to get out of decremental budgeting.
"Someone must define the overarching issue, focus public attention upon it, and build political
support behind it." (Behn, 1985). As lodging tax revenue continues to have a soft floor and a hard
ceiling, Jefferson County should use this difficult choice as an opportunity to plan the best uses
for these funds from the ground up.
I recommend that the BoCC reject the recommendations for a budget (which I asked for, and
helped LTAC to walk through), and instead direct the LTAC to explore the best uses for the
Jefferson County lodging tax revenue and evaluate and make recommendations about possible
adjustments to the allocation of lodging tax revenue under Chapter 3.25 JCC.
References
Behn, R. D. (1985). Cutback budgeting.Journal of Policy Analysis and Management, 4(2), 155-
177. https://doi.org/10.2307/3324622.
Bourdeaux, D. C. (n.d.). Loss Aversion, Time Discounting and Strategic Choices in Cutting
Budgets. https://cslf.gsu.edu/files/2016/05/Bourdeaux 2016-Public-Finance-Conference-
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Paper.pdf
Olympic Peninsula Tourism Master Plan 2024-2029 (Feb 25, 2024).
https://olympicpeninsula.org/wp-content/uploads/2024/03/Olympic-Peninsula-Tourism-
Master-Plan-2024-Feb-25-2024.pdf.
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