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Tax fight could cost $4 million
Commissioner threatened to repeal tax over expenses
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Published: May 18, 2008
The dispute between Visit Winston-Salem and Forsyth County Commissioner Ted Kaplan, who has threatened to repeal the hotel-occupancy tax, could tie up more than $4 million if it plays out.
It all comes down to an argument over whether the tourism-related agency is top heavy on administrative expenses, an issue for which there is no clear answer.
One thing for sure is that Kaplan has stirred up a hornet's nest since becoming the commissioners' representative to the Forsyth County Tourism Development Authority in January. The authority oversees Visit Winston-Salem, which is the marketing arm of the city.
On Thursday, Kaplan proposed that the authority be limited to spending no more than 10 percent of hotel-occupancy-tax revenue on administrative expenses for Visit Winston-Salem.
He said that if the authority didn't cut its expenses to 10 percent in 28 days -- an action that would require hefty staff cuts -- he had a majority of the county commissioners ready to vote with him to repeal the hotel-occupancy tax that provides the agency's money.
The 1997 state law covering the Forsyth occupancy tax lists a 10 percent cap for administrative expenses for the authority. But it does not specify salaries and benefits as part of those expenses, which it does spell out for the administrative expenses regarding the municipalities that also receive occupancy-tax revenue.
"If the legislators had intended for salaries and benefits to be included in the administrative expenses for the TDA, they didn't indicate it," Walter Pitt Jr., the attorney for the authority, said Friday.
The authority is projected to receive $2.58 million in hotel-occupancy-tax revenue in fiscal year 2008-09, which begins July 1. Its total proposed budget is $2.74 million. Nearly $1.27 million of that is dedicated to "personal services." A public hearing on the authority's budget will be held at 2 p.m. Tuesday at Hawthorne Inn.
Kaplan's proposal regarding the authority, his third in the past three weeks, would probably require major job cuts at Visit Winston-Salem, which has 15 full-time and 10 part-time employees. Kaplan previously proposed dedicating one-sixth of the authority's occupancy-tax revenue to the Arts Council of Winston-Salem and Forsyth County. He later proposed also rewriting the local occupancy-tax act to provide more money for grants.
Because most members of Visit Winston-Salem's staff are involved in sales and marketing, the authority said, it uses a formula for determining what portion of their salary and benefits is considered as administrative and what is considered as sales and marketing.
For example, Bob McCoy, the administrator of the authority and president of Visit Winston-Salem, makes $121,290 in salary and benefits, according to the commissioners' office.
Hobie Cawood, the chairman of the authority, said he could not break down McCoy's salary to say how much is spent on administrative tasks and how much on sales and marketing.
He said that the formula shows overall administrative costs for the authority at 7 percent of its expenses.
He also said that Visit Winston-Salem's staff has played a significant role in the occupancy-tax revenue, which has increased at an average 8 percent over the past 10 years.
"We've known about that 10 percent rule since 1983," Cawood said. The initial Forsyth occupancy tax was passed in that year by the General Assembly.
"We've not overpaid for our administrative costs, according to our finance director (Paul Fulton), who is the finance director for the county," Cawood said. "Ted may have opened up a can of worms because his request is going to be more far-reaching than he and his chairwoman believe."
Vincent Chelena, the executive director of the N.C. Tourism Industry Association, said, "to my knowledge, the TDA does not exceed the 10 percent administrative costs to expend the funds."
"This law directly addresses the administrative cost of the two governing bodies, the county and the TDA,'' he said. "The intent was to limit these governing bodies from robbing precious marketing dollars from the sales and marketing effort.
"The sales and marketing staff at Visit Winston-Salem are not considered by our industry to be administrative or part of the governing process," Chelena said.
Kaplan said he is aware of the formula.
"The authority believes it can justify their expenses because of the formula," Kaplan said. "Whether we buy the formula, or whether the numbers are fishy, is up to each commissioner to decide."
If Kaplan follows through with his threat to try to repeal the occupancy tax, it could have a widespread effect. The tax is projected to produce $4.3 million in revenue in fiscal 2008-09, money shared by the authority and the municipalities in the county.
For example, more than $400,000 each goes to Forsyth County and the city of Winston-Salem "for economic-development and cultural and recreational purposes" such as the Greater Winston-Salem Chamber of Commerce and Winston-Salem Business Inc. Other municipalities in the county receive a smaller amount.
In an e-mail obtained by the Winston-Salem Journal through a public-records request, Mayor Allen Joines told Kaplan on Monday that he would bring his proposals before city officials.
"But one of the items, limiting administrative costs to 20 percent, is a bit troubling," Joines wrote. The second of Kaplan's three proposals would have limited the authority's total expenses -- salaries, rent, office expenses and leases -- to 20 percent of its occupancy-tax revenues.
"I agree that TDA may be a bit top heavy," Joines wrote. "But as I mentioned to you the other day, there has to be strong recruiting and client-service staff in place if we are going to be able to continue to recruit new conventions and get return business from meetings that come here."
The clock is ticking on Kaplan's proposal for repealing the occupancy tax.
According to the local act, the repeal or reduction of an occupancy tax can be done at any time by the commissioners. But it does not take effect "until the end of the fiscal year in which the resolution was adopted."
That means that if the commissioners repeal the occupancy tax after June 30, it would not take effect until July 1, 2009.
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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