Toledo-area hotel operators may challenge arena planWritten by Scott McKimmy | | email@example.com
A proposal to raise Lucas County’s hotel-motel tax as a major source of funding for the $80 million arena project has drawn criticism from opponents who say the increase will deal a blow to the local economy.
The action plan, submitted by Gateway Consultants Group, Pizzuti Solutions and Garfield Traub Development, calls for a 2-percent hike, which, combined with the state sales tax, would total 16.75 percent, tied for fourth-highest in the nation.
Cincinnati imposes a total tax of 17.5 percent, followed by Houston at 17 percent, Kansas City at 16.99 percent and Columbus at 16.75 percent. The national average is 9.8 percent, about 60 percent of which represents sales tax, according to a 2004 report by the Conrad N. Hilton College at the University of Houston.
Crunching the numbers has left at least two local hoteliers with reservations about the plan.
“I can safely say that the vast majority of the hotel owners and operators and general managers in Lucas County are going to oppose this,” said Ken MacClaren, owner of the Clarion Hotel and Comfort Inn, and part owner of the Wingate Inn in Sylvania.
MacClaren described the plan as “unfair,” citing the 5-percent total difference that already exists between Lucas and Wood counties. He said while Downtown hotels may benefit from the hike, outlying hotels, especially those in south and southwest locations, would take a shot to the ribs.
He suggested a .25 percent increase in the sales tax would generate more revenue and, like the hotel-motel tax, it could be implemented without voter approval.
“It’s going to be all local people; they’ll be no hotel rooms derived from this arena,” he said. “So if this thing is for the betterment of Lucas County, then why shouldn’t Lucas County pay for it? Why should out-of-town guests pay for it? Why, because they don’t get to vote.”
Tightening the belt
However, a tax on hotel rooms has proven feasible in other areas, according to Pete Gerken, Lucas County commissioner, who noted the community’s reaction to hotel-motel taxes as “benign.” The last increase funded the SeaGate Convention Centre, which he pointed to as a successful arrangement.
“We’re trying to work with them; we don’t want ‘us versus them,’ ” Gerken said. “We think there’s a way that everybody can win on this if there’s more activity in the county and more people coming in eventually. Are there going to be short-term winners and long-term winners? Probably.”
The board of commissioners opted for the hotel-motel tax increase knowing Wood County would have a “substantially lower rate.” Yet the plan won out in part on the concept that guests choose hotels for their locations and base prices — not the tax rate. The alternative of a countywide sales tax increase probably would “lose more than you gain,” and any property tax increase could upset home and business owners, Gerken said.
“Certainly we understand local property owners have expressed to us concern about rising property tax cost, cost of gasoline,” Gerken said. “So I knew early on that a tax that would float across all yards of Lucas County is probably not going to be worth the investment of an arena Downtown.”
A one-two punch
Karen Magnone, regional manager for the Sleep Inn and Comfort Inn in Oregon, said current tax rates already compare unfavorably to larger metropolitan areas. An increase could “knock us out” of the opportunity to host more conventions and other events in the future.
Since the opening of the SeaGate Convention Centre, outlying hotels have received no residual benefits other than the Jehovah’s Witnesses, who annually hold weekend conventions during the summer. Toledo’s population, she said, fails to justify the high tax.
“We do have one of the highest tax rates that I know of, and we’re such a little city,” Magnone said. “People expect to pay high tax rates for bigger cities, but not for littler cities. And honestly, taxing us hoteliers, especially if we’re not in Downtown Toledo, we don’t really get the benefits that you would think.”
She said corporate guests would bear the brunt. Many have expressed to Magnone their dislike of the high hotel-motel tax rate. The slow economy has prevented her hotels from raising room rates, and ongoing construction of the I-280 overpass has hampered business.
“If nobody notices, the economy in Toledo is down because our interstate is closed. It’s like, how many punches are they going to give us?” she said.
Get in the ring
Yet, James Donnelly, SeaGate Centre’s president and CEO, indicated patience may pay off for hotel owners. The proposed arena would seat 10,000 people as opposed to the convention center’s capacity of 7,000. Toledo could draw more guests to events such as the Jehovah’s Witness convention and create overspill to neighboring hotels.
“It’s like a ring; you throw in a pebble, and it goes out and around so everybody benefits,” Donnelly said. “Hoteliers may not see the direct benefit, but they’ll see the displaced benefit of more people staying in their properties because they can’t get into the hotels that are adjacent to the convention center.”
Because event planners book facilities as long as three to five years in advance, the transition from the convention center to the arena could occur smoothly. Donnelly said the marketing strategy includes a membership organization of hoteliers and other business owners who all get an economic boost when SeaGate lands, for instance, a convention or trade show.
He also said hotels can set their own rates and command higher prices as demand rises. As soon as plans for the new arena solidify, SeaGate will begin efforts to attract new clients to replace those who move to the arena.
“We uncover a piece of business; we bring the piece of business to the community, and our hotel partners with us sell and market to the groups,” he said.
Nearby hotels, such as the Wyndham and the Radisson, should be the first to experience a rise in occupancy, an objective known in the industry as “putting heads in beds.”
The Radisson served as a host of the 2006 AAA All-Star game at Fifth Third Field in July, according to General Manager Michael Sapara, and realized a return for the investment. During the string of Jehovah’s Witness conventions, the hotel sells out every Friday and Saturday night for six to eight weeks. Nevertheless, he approaches the hotel-motel tax increase with mixed emotions.
“One side of me says, ‘You hate to see that tax go up because that gives people another reason not to come to Toledo,’ ” Sapara said. “But at the same time, we are the chief beneficiary of any of the business that comes to SeaGate Centre or any venues close to us here.”
He called the proposal a “real gamble,” but said he believes it is one worth risking. The county can only hope to “bring in new bodies” with new dollars by increasing the hotel-motel tax to support the arena, he said. If occupancy rates in the Downtown area fail to rise as expected, “then that’s an issue.”
“You’re giving away that 2 percent, and there’s really no return on that 2-percent investment as far as hotels are concerned,” Sapara said. “But if in fact this arena does bring in arena football and the hockey that it’s purporting, then it could pay off big dividends.”
Standing eight count
Despite the optimistic outlook held by some, Maggie Thurber, Lucas County commissioner, said she has “serious concerns about all but one item” of the sources of funds identified by the consultant’s report. The preliminary determination is yes, more people will come and spend more money because of the arena, she said, but her question remains, “How much?”
She emphasized her position as a realistic approach, not an effort to “derail” the arena project. The plan also depends on selling naming rights, premium seats, concessions and advertising to meet operating costs. The board of commissioners asked the consultants to demonstrate the revenues the county can rely on, and the report concluded more research would be needed.
The situation mirrors that of the SeaGate Centre, which Thurber said hasn’t been able to meet operating expenses on a consistent basis.
“I realize they’re bringing money into the community, but if they can’t break even as a convention center right now — and they constantly ask the commissioners for money for expenditures — how do I not have concern that an arena is not going to break even and constantly come back to us for money for operating costs?” she asked.
“So if it doesn’t meet expectations, we can have a plan or change the payment structure to find revenue sources that are not so ‘iffy’ and do not have long-term effects. Let’s mitigate those risks as much as possible.”