Good morning,
Government’s long-running need to look under the couch cushions for money continues.
The latest fad involves the proposed local lodging tax. At first glance, it seems like a slam dunk, since nonresidents often pay the bill. It leads to many complaints from those who wonder how a “tax-free” state could impose such a thing.
The room tax, as well as rental car fees, have long been used by metro areas to build stadiums that make billionaire professional sports team owners even richer.
New Castle County wants a piece of that pie, even though there are no deep-pocketed sports franchises that bring in big bucks during the season.
Proceeds from the tax would only put a small dent a county budget deficit that is burdened by labor contracts that guarantee raises of five percent a year for a decade for new workers. Added on more recently were yearly raises for all workers.
Piling on are local governments that have pressed for similar legislation.
One of the arguments by proponents has been that Wilmington – which got permission for a two percent lodging tax increase during one of its many fiscal crises – has done okay.
The fact of the matter is that the city did not have a new hotel opening for two decades and actually saw the loss of a boutique property as conditions on Market Street deteriorated. Luckily, a turnaround is underway.
Wilmington has seen two hotels open more recently with another on the way. Still, the current tax discouraged owners from making renovations on their properties until market conditions forced the issue. Margins typically run only about five percent.
The lodging and hospitality industry provides entry-level positions that are badly needed in Wilmington and other areas. The jobs can provide a path forward for those in need of a break in life, while also adding to the total of higher skill maintenance and management positions.
One argument that does not have much validity in my view is the fact that Delaware lodging taxes are a bit lower than in neighboring areas. The comparison adds in local taxes. The state tax lodging tax by itself is 8 percent, one of the highest in the nation.
It is entirely possible that an added room tax could end up being a lose-lose proposition if it leads to the county having more run-down hotels, as well as fewer business conferences and visitor traffic.
Tonight, the Newark City Council will hold an “emergency” meeting on endorsing the room tax, The last-minute meeting notice was brought on by the clock ticking on the final days of the legislative session.
The council deserves credit for holding the meeting, but it remains to be seen if we will see any real debate. The proper action would be an economic impact report that allows sound decisions.
(In the interest of full disclosure, members of the lodging industry has been supporters of Delaware Business Now’s work. Those relationships have offered an insight into a key industry that others within the political establishment may not be getting).
Enjoy your Monday. The newsletter returns tomorrow. – Doug Rainey, publisher.
