H Tax Future

In a previous post, the hopelessness of traffic in Lexington was addressed.  Another article gave an update on the Town’s Hospitality Tax and the projects it was designed to fund.  But, what happens when the eight year deadline hits in 2023?  Will the work be done?  Will there be enough money?  Too much?

As for revenues to the town, at the time it was enacted, the tax was projected to net more than $2.1 million annually or about $175,000 per month.  In reality, total H-tax collections through January 10, 2019 is $8,449,028.14 or over $211,225 per month – almost 21% above projections.  If this rate of return is maintained, the Hospitality Tax will generate over $20 million for Lexington in it’s eight year life span.  However, the monies can be spent only for the specific projects designated at the time the tax was approved.

The possibility that the tax could generate more revenue than needed is real.  Although higher construction costs are (always) likely – especially when government spending is involved – the potential for even more tax money is also real.  There has been a phenomenal 9% growth in restaurants in the three and a half years since the tax went into effect.  Should that number increase even by a percentage or two along with the rise in population (customers), the Town of Lexington could find itself in the black once all is done four and a half years from now.

restaurant-financial-stress-test-money-knife-fork-e1523970417815What then, if Lexington collects the funds necessary to complete the three designated projects BEFORE 2023?  Lake and Main asked this of every member of the Town Council two weeks ago.  The question was:  “From the numbers, it appears (the H Tax) is running about 21% ahead of projected revenues.  Should the Town get enough $ to complete the designated projects BEFORE the 2023 tax expiration, might you revoke the tax early?:”

Council members Kathy Maness and Steve Baker did not respond, nor did Mayor Steve MacDougall.  It is unfortunate that two members of the Town Council and the Mayor chose not to respond to the inquiry about revoking the tax.  It is a valid and reasonable question whether it comes from a public website or a citizen.

The remaining members of Council, Todd Carnes, Hazel Livingston, Todd Lyle and Ron Williams all said they favored ending the tax if/when adequate funds were received prior to the 2023 deadline. They also agreed that the money should be spent only for the projects designated when the tax was implemented.

downloadMr. Carnes elaborated: “Unfortunately, with the dramatic rise in construction costs over the last several years, I can’t imagine that scenario happening.  However, it it did, I would support an end to the current H Tax as it would have served its original purpose in bringing real solutions to three of Lexington’s most dysfunction and congested areas.”

What would happen to a (theoretical) surplus in H Tax revenues?  It would be impossible to rebate it to the public because there is no way to know who paid what.  There are also legal restrictions on what a “hospitality tax” can fund.  Those restrictions, however, allow for some spending for other purposes (see below).  Beautification and cosmetic projects don’t qualify and, given that Lake Murray is the primary (only?) tourist attraction in Lexington, it would seem that no monies could be spent there.  That’s because SCANA/Dominion own much of the lake and the Corps of Engineers has considerable authority over it and associated waterways.

And what if, because of the aforementioned “construction cost increases,” the Town falls short of the funds needed to complete the original three projects?

Were that the case, an independent audit of the projects’ costs and H Tax revenues would be in order before any extension of the tax was implemented.  Every dime of the H Tax money, whether spent on the three intersections or left over, must be accounted for publicly.  Also appropriate would be records of all Council discussions, be they in public or executive session, to ensure citizens are aware of the intent of Town leaders when it comes to tax revenue that is so restrictive and controversial.

The Hospitality Tax did not require a referendum or voter mandate.  It was decided upon solely by a Town Council vote.  Although the right and proper choice, it’s execution, particularly if the boundaries of its intent are considered, there must be public involvement.

See also: H Tax Update and Traffic: Face It, We’re Screwed

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South Carolina state law stipulates:

 The revenue generated by the hospitality tax must be used exclusively for the following purposes:
(1)    tourism-related buildings including, but not limited to, civic centers, coliseums, and aquariums;
(2)    tourism-related cultural, recreational, or historic facilities;
(3)    beach access and renourishment;
(4)    highways, roads, streets, and bridges providing access to tourist destinations;
(5)    advertisements and promotions related to tourism development; or
(6)    water and sewer infrastructure to serve tourism-related demand; or
(7)    control and repair of flooding and drainage at tourism-related lands or areas.”

The funds received by a county or municipality which has a high concentration of tourism activity may be used to provide additional county and municipal services including, but not limited to, law enforcement, traffic control, public facilities, and highway and street maintenance, as well as the continual promotion of tourism. The funds must not be used as an additional source of revenue to provide services normally provided by the county or municipality but to promote tourism and enlarge its economic benefits through advertising, promotion, and providing those facilities and services which enhance the ability of the county or municipality to attract and provide for tourists. (emphasis added)

‘Tourism-related expenditures’ include:
(i)     advertising and promotion of tourism so as to develop and increase tourist attendance through the generation of publicity;
(ii)    promotion of the arts and cultural events;
(iii)   construction, maintenance, and operation of facilities for civic and cultural activities including construction and maintenance of access and other nearby roads and utilities for the facilities;
(iv)   the criminal justice system, law enforcement, fire protection, solid waste collection, and health facilities when required to serve tourists and tourist facilities. This is based on the estimated percentage of costs directly attributed to tourists;
(v)    public facilities such as restrooms, dressing rooms, parks, and parking lots;
(vi)   tourist shuttle transportation;
(vii)  control and repair of waterfront erosion, including beach renourishment;
(viii) operating visitor information centers;
(ix)   control and repair of flooding and drainage at tourism-related lands or areas.”

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