Bill to change local tourism distribution formula entered in Raleigh

RALEIGH — After years of complaints from some residents that too much of local tourism-generated tax dollars goes toward marketing Asheville, legislators have introduced a bill that would change that funding formula — and add a new fund that could benefit community-oriented projects.

As it stands, by law the Buncombe County Tourism Development Authority must spend 75% of the occupancy tax revenues on marketing and promotion, while the other 25% goes to the Tourism Product Development Fund, which funds projects and venues that can result in visitors staying in the area longer. The state set up the TDA with these restrictions in 1983.

Under Senate Bill 914, introduced May 31, that formula would change to two-thirds of the funds going toward marketing, while the other third would be split evenly between the existing Tourism Product Development Fund and a newly created "Legacy Investment From Tourism Fund."

If passed in both houses, the bill would go into effect July 1.

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The bill says the money in the Legacy Fund would be earmarked to "provide financial assistance for tourism-related projects that are designed to increase patronage of lodging facilities, meeting facilities, and convention facilities by attracting tourists, business travelers or both and benefit the community at large in Buncombe County."

$36M in play

A lot of money is in play here. By the end of this fiscal year, June 30, the occupancy tax is expected to reach $36 million. By the end of the next fiscal year, June 2023, the TDA is projected to bring in $41 million through the occupancy tax, a 6% fee that is collected by hotels, bed and breakfast inns and vacation rentals in Buncombe County per night.

The bill's sponsors include two Republicans, state Sen. Chuck Edwards of Hendersonville, who represents parts of Buncombe, Henderson and Transylvania counties; and state Sen. Warren Daniel, who represents Avery, Burke and Caldwell counties. Democratic Sen. Julie Mayfield, who represents Buncombe County, is also a sponsor.

In an emailed statement, Edwards said the bill "will allow about $7 million more to be diverted from tourism marketing to invest in Buncombe County projects that will benefit the community at large."

"For years, the hotel and tourist industry has shown a keen and unselfish interest in investing more of the tax proceeds generated by their industry to benefit Buncombe County residents," Edwards said. "Unfortunately, due to long-standing tensions and philosophical differences among legislative leaders, bills of this nature have not been heard for several years. However, with my tenure in the North Carolina Senate soon coming to a close, I think I have found a pathway to overcome this obstacle."

In the May 17 congressional primary, Edwards secured the Republican nomination, beating incumbent U.S. Rep. Madison Cawthorn. Edwards faces Democratic candidate Jasmine Beach-Ferrara, a Buncombe County Board of Commissioners member, in the November general election.

Mayfield said the new bill also strikes a requirement that Tourism Product Development Fund projects must show they'll add "significant" additional room nights, just requiring "additional" room nights. Previously funded projects have ranged from a zip line to improvements to the YMI Cultural Center.

Mayfield is enthusiastic about the new Legacy Fund, which she said "is more about community benefits."

"So, you’ll see its language has as one of its criteria those projects are judged against specifically is community benefit," Mayfield said. "And the uses of the money are more expansive.”

The expectation likely will be that local government projects "might come more through that fund more than the other fund, although I don’t really know that," she added, noting the fund is "not exclusively for local governments."

“Anybody can go through either fund,” Mayfield said. “It’s just that some projects might be more driven by community benefit, rather than tourism.”

The city of Asheville has a couple of requests in this year for TPDF monies, including grant applications for improvements to the Asheville Municipal Golf Course and the WNC Nature Center. 

New committees required

The bill also calls for the TDA to create a "Product Development Committee" to review and evaluate proposals from applicants for tourism capital projects," that can include "proposals for non-capital expenditures related to capital investments of past and future capital projects funded through the Tourism Product Development Fund."

No proceeds could be used for operational expenses. The committee would make recommendations to the TDA regarding the use of Tourism Product Development Fund monies. For-profit entities are not eligible for TPDF grants.

Disbursing funds from the TPDF would require a three-fourths vote of the TDA's voting members. The funds can go toward debt service for projects, although no loan guarantee can exceed the amount committed for the project. Also, projects must be located in Buncombe County unless the Buncombe County Board of Commissioners gives special approval.

Further, applicants have to provide a feasibility study to the Product Development Committee "demonstrating the project's economic value to the area and the number of estimated new room nights the project will generate."

How the Legacy Investment From Tourism Fund will work

The bill would also require the TDA to create a Legacy Investment From Tourism Committee to evaluate proposals from applicants for tourism-related projects, "including proposals for capital and noncapital expenditures and project administration, design, restoration, maintenance, and rehabilitation as well as enhancement of natural resources and expansion of necessary infrastructure."

The committee will make recommendations to the TDA about use of these funds. Again, for-profit entities won't be eligible for them, and the funds cannot be used for operational expenses.

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Also, a three-fourths vote of the TDA board is required to disburse the funds, which can go out as outright grants or to guarantee loans and debt service, as long as the loan doesn't exceed the grant amount.

As with TPDF's grants, the Legacy Fund projects must be located in Buncombe County,  unless the commissioners grant an exception.

"Applicants must provide information as to how the project balances visitor and resident needs as part of the application process for a Legacy Investment From Tourism Fund project," the bill states.

Also, a project in the Legacy Fund "must be expected to increase patronage of lodging facilities, meeting facilities, and convention facilities by attracting tourists, business travelers, or both and benefit the community at large in Buncombe County."

Bill would go into effect quickly

Mayfield declined to gauge the bill's chance for passage in the Senate, although she noted Edwards is optimistic. If passed there, it would have to go through the House of Representatives.

“But the general rule is if the delegation supports it, it should go through,” Mayfield said, referring to local elected officials. “And the House doesn’t have any problems passing occupancy tax bills. It’s only the Senate, so if we can get it through here we feel pretty good about it passing the House.”

The expectation is that this year's General Assembly short session should wrap up by July 1, Mayfield said.

TDA weighs in

TDA spokeswoman Kathi Petersen said in an emailed statement the authority supports the potential change and has prepared two budget scenarios for the upcoming fiscal year to handle either outcome.

"Local hotel leaders have advocated for this change since long before the pandemic," Petersen said. "If passed, it will allow for more investment in community projects while reducing promotion of Asheville and Buncombe County to visitors."

Andrew Celwyn, a TDA board member for four years, has pushed hard for the allocation change and been critical of the amount the TDA spends on marketing. He noted that the "door for changes to the occupancy tax doesn't open very often," so he's glad to see the bill officially entered and the allocation system facing changes.

But he's also heard from a lot of community members who view the marketing expenditures as short-term funding, when they want more longer-term funding on infrastructure and housing.

"That’s been out of kilter for 25 years now, and it’s really time to restore the balance,” Celwyn said. “I don’t think this bill goes nearly far enough to strike that balance.”

But, Celwyn noted, state law limits the allocation split of any TDA in North Carolina to a maximum of the two-thirds/one-third model. Celwyn would like to see a system that would allow the funds to address housing, a key issue for workers of all kinds here, but especially those in tourism.

He noted the Asheville area has the highest percentages of Airbnb vacation rentals in the state.

"Moving forward, if housing prices are not part of the equation, unfortunately that under-investment will catch up with us and hurt us in the long run," Celwyn said.

Regarding the new tourism Legacy Fund, Celwyn said it's "always a good thing when money comes into our community for projects that can help those who are being left behind."

"But I don't know if it's enough to make up for what our community is sacrificing in the mix," Celwyn said.