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Finding the Right Alternative Will Be a Challenge

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By Lowell L. Kalapa

Although the Economic Revitalization Task Force appears to have usurped one of the alternatives for funding the debt service of the convention center, it by no means rules out the possibility that lawmakers may still tap the TAT for the repayment of the debt on the convention center.

Whether or not the Task Force deliberately ignored the need to finance the convention center debt or overlooked that issue is ripe for conjecture. However, the debt obligation will not go away and lawmakers must grapple with the problem during the next legislative session.

The preferable path is to tie the repayment of the convention center debt to a dedicated source that has some relationship to the users of the convention center. Inasmuch as the designated use of the center is for mainland conventioneers, it would seem only appropriate that the repayment be tied to a fee or tax paid by visitors. This was the idea underlying the adoption of the TAT or hotel room tax back in 1986.

However, in the meantime, the proceeds of the original 5% tax were given to the counties and the counties have resisted any effort to take back even a part of that amount for the convention center financing. Thus, it would appear that the only way that the state can get its hands on the TAT receipts for earmarking purposes is to find some way to replace the lost funds to the counties.

Part of the resistance from the counties has been predicated upon the suspicion that the state will take all of the TAT receipts back and not just that amount needed for the convention center debt. If that is the case, then a measure that makes the convention center debt service a “first charge” against TAT receipts would ensure only that amount of money that is needed for the debt service could be retained by the state. The rest of the funds could then be allocated to the counties. As the debt is paid off, the amount going to the counties would grow.

Another alternative is to replace the counties’ lost revenues with other sources of income such as traffic fines or for that matter a portion of the public service company tax which is paid in lieu of the general excise tax and the real property tax. This idea was floated last year but failed to garner approval.

Another idea that was raised was to share a portion of the general excise tax receiptssince it is estimated that visitors pay almost 22% of the general excise taxes collected in the state. This would be a fairer way of insuring that all businesses which benefit from visitor expenditures also contribute toward paying for those services provided to visitors. Since lodging is only a part of the visitor expenditure dollar, it would seem unfair that only the TAT be dedicated to visitor related expenditures.

Thus, a portion of the general excise tax collections could be designated for sharing with the counties. Whether that portion is based on a set percentage of the collections or it is measured by what the TAT collections would have produced had the current formula remained in place would be a matter of legislative prerogative. However, there is no doubt that general excise tax revenues will grow faster than TAT revenues as the base for hotel rental is far smaller than the base for all other visitor expenditures.

While finding a solution to the debt financing of the state convention center will be a challenge, the issue has been clouded by the Economic Revitalization Task Force’s recommendation to increase the TAT rate for the purpose of expanded visitor promotion. Obviously there were other special interests at work in the Task Force’s working sessions that seemingly overlooked the debt service problem.

Hopefully lawmakers will be able to sort out the issues and set some priorities for the use of the TAT before getting themselves into yet another corner from which they will find it difficult to extricate themselves.

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