Is tourism, as managed by the City Council of Virginia Beach, a reliable economic engine?

A number of council members and others claim that tourism is an economic engine that provides a net benefit to the city in terms of employment and tax revenue. There are others who disagree with that claim and hold that tourism, as managed by the city Council on Virginia Beach, is in fact not a reliable economic engine.

The basic question is: Does the tax revenue collected from tourism spending at the oceanfront exceed city council expenditures to support tourism activities at the oceanfront?

To answer that important question, let’s review several issues. The Commissioner of the Revenue Reports show tax revenue collected at the oceanfront for meal, lodging and amusement taxes and shows specific numbers for those taxes. For example, for any one year in recent reporting the meal tax would be about $7.5 million, lodging tax about the same at $7.6 million and amusement tax usually is less than $1.0 million. Total tax revenue from meal, lodging and amusement for a year is about $16.1 million.

The city’s Resource Management report specifies percentages of those citywide tax revenues from meal, lodging and admission to be allocated to a special Trustee account for oceanfront activities. Currently, council takes 36.4% of all citywide meal tax, 75% of all hotel lodging tax and 100% of all amusement tax. The tax revenue from those funds is moved to the specially dedicated Trustee fund to be spent on oceanfront projects.

Examples: citywide meal tax of $49 million @ 36.4% is $17.8  million. Hotel lodging tax of $20 million @ 75% is $15 million and amusement tax of $7 million @ 100% is $7 million for a total of $39.8 million for the dedicated fund. (Note that this is more than twice the amount earned at the oceanfront.)

Another special fund, called the Tourism Growth Investment Fund (TGIF), was established by council in 1993 and currently spends about $18 million per year. Over the years, at an average of $14 million per year, council has spent about $250 million on tourism activities through TGIF.

By adding that $18 million spent through TGIF to the $39.8 million in the Trustee fund council spent $57.8 million of our tax revenue on oceanfront projects.

In this example: Tax earned at the oceanfront is $16.1 million and subtract that amount from the $57.8 million in expenditures (of our tax revenue). That leaves a net loss of $41.7 million.

And council recently established a new fund called TIP to be used to support the convention center hotel and continues to negotiate a deal to build an even more expensive entertainment venue at the old Dome Site. At the city council meeting on Tuesday, March 13^th council approved a motion to declare another special zone at the oceanfront called the “Tourism Zone.” Council can now embark on special projects using even more citizens tax revenue to support projects in the new “Tourism Zone” at the oceanfront.

Our city council, in a recent report in the newspaper, referred to paid overnight accommodations in hotels, cottages, camp grounds and condos as a major source of tax revenue. There are, obviously, significant differences among the costs and the tax revenue to the city from each of those categories. Taxpayers need to know the tax revenue dollar amount for each category not just an overall combination.

In addition to these tax revenues, our city council is paying $15.2 million per year to buy the convention center (Just like you are paying to buy your home.) and will pay a total of $307 million for the center.

In terms of the economic future of Virginia Beach, citizens should be fully briefed on the apparent discrepancy between tax revenue and expenditures at the oceanfront. Council should specify the tax revenue received from hotels, camp grounds, condos, and tell us of any other plans that will result in the expenditure of even more citizens tax dollars.

The burden is on our city council to prove to the citizens of Virginia Beach that tourism is an economic engine that provides a net benefit to the city in terms of employment and tax revenue.

Can we rely on tourism as an economic engine for the future?

To review an earlier report on the net return of tourism in Virginia Beach, click on the link below.

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