By Scott Olson, The IBJ
solson@ibj.com
Indianapolis hospitality taxes have been increased over the years to help the city build its booming convention business. But industry experts say raising them again to balance the Capital Improvement Board's books could have the opposite impact.
The cash-strapped CIB receives the bulk of the revenue generated each year by Marion County's taxes on restaurant bills, hotel rooms and rental cars. But the agency, which manages the city's sports facilities and the Indiana Convention Center, is facing a $37 million annual operating deficit anyway, and CIB President Bob Grand said raising hospitality taxes is one possibly solution.
"Everything is on the table except [raising homeowners'] property taxes," he said. "I have not speculated on the likelihood of any specific solution but am committed to get a solution."
Food and beverage taxes have been easy targets for municipalities looking for extra money. Indianapolis is one of 24 cities and counties in the state that already have food and beverage taxes, for example, and a handful more are considering asking state lawmakers for permission to levy the tax or extend an existing one.
None of the proposals, however, scares industry veteran John Livengood as much as a hike in Indianapolis hospitality taxes.
"That's the one that haunts me; that's the one that keeps me up at night," said Livengood, executive director of the Restaurant & Hospitality Association of Indiana. "It just boggles my mind. I don't get it."
Livengood and his members already believe the taxes in Marion County are too high. Legislators in 2005 approved doubling the food and beverage tax to 2 percent to help fund construction of Lucas Oil Stadium. Including a 1-percent increase in the sales tax, the current combined rate is 9 percent.
The county also levies a 6-percent tax on auto rentals, and guests of local hotels now pay a 16-percent innkeeper's tax-after a 3-percent increase to support the expansion of the Indiana Convention Center. The rate is among the highest in the country.
Indeed, hotel taxes in Indianapolis are higher than they are in tourist meccas like Florida and Nevada, which use hospitality taxes instead of income taxes to pay general operating expenses. Hotel taxes in Miami are a state-high of 13 percent, according to the Washington, D.C.-based American Economics Group Inc. Las Vegas' 9-percent tax is lower than the 13.5 percent in the rest of the state. Both states undoubtedly attract more visitors, though.
Meeting planners who often consider taxes when seeking convention sites could be dissuaded by Indianapolis' costs, argued Livengood, who hopes the CIB will seek alternatives such as a ticket tax. And not just tourists are affected. Anyone who dines out would pay more, and if residents stop eating out, local restaurants suffer.
So far, raising hospitality taxes has had the intended effect-boosting revenue. In fiscal 2008, the Marion County food and beverage tax generated $36.3 million, the innkeeper's tax $36.2 million and car rental fees $4.6 million. The money is used to help fund the Indianapolis Convention & Visitors Association, as well as to pay bonds on Lucas Oil Stadium, the convention center and Conseco Fieldhouse.
All surrounding counties, except Morgan, passed a food and beverage tax in 2005 to help fund construction of the stadium. Fifty percent of that money goes to stadium costs and the other half is kept by the counties.
Raising Marion County's food and beverage tax by 1 percent would generate an estimated $18 million a year in additional revenue. Hiking the innkeepers tax by the same amount would contribute about $2 million.
The CIB earlier this month approved nearly $6 million in budget cuts to help close its deficit. The organization revealed in January that it expects to incur an additional $15 million in operating expenses for Conseco Fieldhouse next year because of a provision that allows the Indiana Pacers to renegotiate its lease after 10 years in the building.
The CIB's shortfall also includes a $20 million deficit for the stadium, $5 million on other CIB operations and $3 million in additional funds for the expanded convention center.
And now the city's convention bureau wants a larger cut of the hospitality taxes, further complicating matters. As IBJ reports in its print edition this weekend, the ICVA is in discussions with the CIB and state lawmakers about the possibility of increasing its share to help market the city and its convention center to visitors.
Statewide, at least five additional counties also are considering a food and beverage tax in some form.
Lake County already has received approval from lawmakers, and officials have held a hearing to gauge support for a tax to fund improvements to the county bus system.
Monroe County wants to expand its convention center in downtown Bloomington, Vigo County said it needs more revenue to support its county highway department and St. Joseph County is looking to offset losses from state property tax reforms. Those proposals either have not yet been introduced to legislators or did not get serious consideration.
Two bills that are still pending, however, would allow Allen and Vanderburgh counties to extend their current hospitality taxes. Allen would use the money to pay for the expansion of its Memorial Coliseum. Vanderburgh wants to build a downtown arena.
Hospitality taxes tend to be an easy target to raise money because they affect a large amount of people who aren't likely to complain about a few cents extra on their restaurant and hotel bills, said Sotiris Avgoustis, chair of IUPUI's tourism, conventions and event management department. But, he cautioned, escalating taxes can have damaging consequences.
"We are at the point now that if we continue to increase the taxes, we will find ourselves in trouble when portraying our city as competitive," he said. "The negative effect will be much worse than the benefits."
Marion County passed the first food and beverage tax in the state in the 1980s to help fund construction of the RCA Dome in hopes of luring the Colts to Indianapolis. That 1-percent tax still exists today, which established a precedent for other counties to follow.
"Local officials say it's the only option they have, but it isn't," Livengood said. "It's just that it's been done before."