Proposed change in bed-tax funding distribution divides government, chamber officials

The tourism industry is pushing to change state accommodations tax law to guarantee more money for marketing to potential visitors and less for local governments and arts and cultural organizations.

Instead of the current 30 percent, marketers such as chambers of commerce would get 50 percent of money sent back to local governments for distribution. Local chamber officials, charged with bringing visitors to the area, have long said they are underfunded compared to competitors in other states.

The proposal also would reduce the money counties and municipalities currently get for tourism-related expenses and grants, although it would lift restrictions on how that money can be spent.Local governments currently use the money to help pay for public services, such as law enforcement, that support their tourism-based economies; they also give money to groups whose activities are aimed at tourists, such as fireworks displays, festivals, theater, and eco-tourism programs.

Chamber officials cheer the proposal, saying it would provide a bigger and more reliable funding stream for drawing visitors.

"The whole industry is very solidly behind this proposal," said Susan Thomas, vice president of the Hilton Head Island-Blufton Chamber of Commerce's Visitor & Convention Bureau.

Local government officials decry it, saying they'd lose control over locally generated tax dollars and that organizations that attract visitors would be jeopardized.

The proposal is among dozens of recommendations before the S.C. Taxation Realignment Commission, which lawmakers created in 2009 to make recommendations to reform the state's tax structure. Representatives of the state's tourism industry and the S.C. Department of Revenue's Tourism Expenditure Review Committee crafted the proposal.


Under the current system, for example, Hilton Head Island generated about $3.7 million in accommodations tax (or "bed tax") revenues last year. The town received about $3.5 million after the state took cuts for administrative fees, its 11 regional tourism groups and the like, according to Willis Shay, chairman of the town's Accommodations Tax Advisory Committee.

By statute, about $200,000 -- 5 percent of the amount that comes back to the town plus $25,000 -- goes straight into the town's operating budget.

About $1.07 million -- 30 percent of the amount that comes back to the town -- went to the Hilton Head Island-Bluffton Chamber of Commerce.

The town then doled out about $2.3 million -- 65 percent of the amount that comes back to the town -- in grants. The grants included about $900,000 to itself for public safety and about $320,000 to supplement the chamber's statutory allocation.

The new proposal would provide half the money that comes back to the town to the chamber. Based on last year's collections, the chamber's statutory allocation would therefore increase by almost $600,000, to about $1.65 million, Shay estimated.

Among other changes, the proposal also would:

The town also collects a 3-percent local accommodations tax, which it uses for beach renourishment projects, police and fire protection and disaster management funding.


Even though the chambers' statutory allocations would increase, chamber officials say the proposal might only slightly increase how much public money they receive for marketing.

That's because the chambers have also sought money from other sources. Last year, for example, the Hilton Head-Bluffton chamber received $300,000 from a town fund stocked by its local accommodations tax.

Both the Hilton Head-Bluffton and Beaufort chambers lobbied unsuccessfully last session for a bill that would've allowed Beaufort County municipalities to impose a sales tax of as much as 1 percent to raise more money for tourism marketing and tourism-related capital projects.

The latest proposal would primarily benefit tourism marketers by allowing them to better plan advertising campaigns, a task that is difficult when little the their funding is assured, Thomas said.

Carlotta Ungaro, president and CEO of the Beaufort Regional Chamber of Commerce, said the proposal would help tourism marketers compete with colleagues in other states.

Even if the legislature approves the proposal, organizations such as hers would likely continue to seek more funding if possible, Ungaro said.


Several current and prospective elected officials expressed concerns about the proposal.

Hilton Head Town Councilman John Safay called it "atrocious."

"We on the local level have got to get a hold of our legislative delegation and ask them to intercede on our behalf," Safay said. "It's bad enough we are struggling through a bad economy, but now we have to struggle through inept proposals" coming before state government.

Beaufort County Councilman Jerry Stewart said he worries about the state dedicating more money to marketing at the expense of local governments.

"My initial reaction is the A-tax allocated to us by the state should be up to the discretion of local government in terms of how they distribute it," he said. "I think we know best for the needs of our area."

Andy Patrick of Hilton Head, who is running unopposed as the Republican Party's nominee for the S.C. House District 123 seat, said he has doubts, too.

"My greatest concern is the local nonprofit organizations that benefit from those A-tax dollars," Patrick said, adding he has not studied the proposal. "I agree that in principle we need more money to compete with other destination locations from a marketing standpoint, but we may need to find another way of doing that."

Patrick said that might mean increasing the state's accommodations tax.

Members of the Municipal Association of South Carolina met Friday to discuss the proposal and are concerned about it, executive director Miriam Hair said.

She questioned the wisdom of diverting money from local government officials to marketers. Local officials know what programs -- from marketing to public safety to beach renourishment -- are most likely to boost tourism in their communities, she said.

"Are more dollars truly needed for marketing?" she asked. "Or are those dollars best used someplace else?"


The proposal represents "a big change," said Shay, the chairman of Hilton Head's bed tax committee. Lawmakers intended the tax to benefit arts and cultural amenities when it took effect in 1984, he said.

Funding for those things is important, he said, because it allows visitors to do more than "buy ice cream and beer and T-shirts."

After reviewing the proposal, he said it offers no evidence that pumping more money into marketing will bring more visitors.

"It's nearly impossible if not impossible to measure how effective the advertising is," he said.

Shay also worries about the effect the shift would have on nonprofit organizations, such as the Arts Center of Coastal Carolina and the Coastal Discovery Museum, which he said operate on thin margins and rely on public support.

Michael Marks, the museum's president and CEO, was dismayed when he learned of the proposal Thursday.

He said organizations like his might contact state lawmakers to ask them to intervene.

"Why didn't you just call me and tell me my house was burning," he asked.