O’Brien Surprise: Commissioner Agrees To Higher Tourism Tax, But With Beach Twist

The Flagler County Commission was expected today to vote for a tax increase in the county’s tourism sales tax, which is applied to hotel, motel and short-term rental bills. The sales surtax would increase from 4 to 5 percent. The commission stopped short of doing so because of a surprise proposal from Commissioner Donald O’Brien.

O’Brien supports the tax increase, as do the four other members of the commission. They’re in support because the county administration is portraying the tax increase as a way to pay for beach restoration following Hurricane Matthew.  But O’Brien does not support the way the money would be split between the three funds that the tourism tax feeds. He wants more of the money to go to the stated purpose—beach restoration—and less money, at least in the first year, to go to the county’s promotions fund.

In actual dollars, he wants $1.5 million to go to beach restoration the first year, and $1 million for promotions, thus reversing the proposal put forth by the county administration, which had $1 million going to the beach fund and $1.5 million going to promotions (an increase of $200,000), even though it’s the administration that’s been beating the drums for more beach dollars, and passing the hat in Tallahassee.

O’Brien’s proposal appeared headed for approval, with a clear majority in support—O’Brien, Charlie Ericksen and Dave Sullivan, with Commissioner Greg Hansen a likely supporter as well as he seconded the motion.

But Commission Chairman Nate McLaughlin just as quickly intervened and asked O’Brien to withdraw the motion so the matter could be discussed at a workshop first, on March 20. McLaughlin said he was not necessarily opposed to the proposal, but he saw it as a 20 percent reduction in the county’s promotions fund, and wanted time to “absorb” the implications. O’Brien was not equating his proposal with a reduction in the promotions fund, which has over $1 million in reserve, and can therefore absorb the reduced revenue for one year without affecting its budget.

But other commissioners agreed to the workshop, and O’Brien withdrew his motion on condition that no other motion would be put forth.

Then McLaughlin asked that the workshop not involve just the county commission, but the whole Tourist Development Council, which is made up mostly of private-sector tourism representatives, several of whom benefit directly from the fund whose revenue O’Brien wants to reduce slightly for a year: it was a clever maneuver by McLaughlin, if his intention was to apply pressure on the commission against the change, using a council that he chairs and that, aside from the exception of a member or two, Dunn and County Administrator Craig Coffey control. The pair have also circumvented the council on recent occasions by not bringing tourism-related budgetary matters to the council for recommendations first, as required by ordinance, and without raising McLaughlin’s concern to be inclusive of the council.

It would be the second joint workshop in three weeks. The two panels last met on Feb. 20 to discuss the proposed tax increase. The tourism panel voted to recommend the increase at a meeting that afternoon.

Dunn was not pleased.

“Well,” he wrote tourism council members, informing them of the March 20 workshop, “today did not go well.”

He did not elaborate, nor explain the O’Brien proposal in the email. He said he’d be scheduling one-on-one meetings with each of the council’s members “to explain the current situation.” Such one-on-one meetings, legal within the scope of the open-meetings law since they don’t involve more than one member of the panel in question, are often used by administrators and directors to influence their members ahead of open meetings.

The 4 percent tourism sales tax currently generates about $2 million a year. The money is split into three funds: a little over a fifth goes to capital projects that enhance local tourism. Two-thirds goes toward promotions. That’s the part Dunn controls, using it to advertise the county and to pay organizations large sums to hold sports events or conferences in the county on the assumption that the events would then bring visitors and fill up hotel rooms. And just over a tenth of the revenue goes to beach restoration.

That tenth is too little to pay for a significant amount of beach repairs in the wake of the hurricane. So all commissioners and the TDC agreed to raise that portion. They also agreed to add a penny to the tax to help raise the total amount of revenue.

But the new split Dunn proposed eliminated the share of revenue that goes to capital projects in the first year. It gave promotions—his fund–60 percent of the revenue. And it gave the beach fund 40 percent, at least in the first year. That would have yielded $1.5 million for promotions and $1 million for the beach fund. It’s a big jump for the beach fund, but also a sizable and permanent increase for the promotions fund, which would go from its current $1.3 million in revenue to $1.5 million.

In the second year of Dunn’s proposal, the capital projects fund would get 10 percent of the revenue and the beach fund would drop to 30 percent, while promotions stays at 60 percent. And in the third year and thereafter, capital projects and the beach fund would get 20 percent each (or $500,000 each), and promotions would maintain its $1.5 million revenue, coming out, in the end, well ahead, even though the county has not been hurting for more promotion.

Both Dunn and Coffey tried to downplay the increase in revenue to the promotions budget, at times making inaccurate statements.

“It’s critical that we maintain our promotion of the county, county tourism, and current funding level of our department in order to bring visitors in and capture their significant spending that contributes,” Dunn said. “In order to accomplish this we must at minimum maintain our current funding level.”

But the proposal isn’t maintaining the funding level: it’s increasing it now and in every subsequent year, giving the promotions budget plenty of room to grow to absorb that increase, even if it were to not do so in the first or second year.

Ericksen raised a concern about where the revenue would go, should the tax be increased: “If you approve this you’re automatically giving the TDC a half a million dollars more in next year’s budget for other activities,” he said. (Addressing Ericksen, Coffey blamed inaccurate reporting for Ericksen’s figures, without specifying where those inaccuracies came from: “There’s been some written stuff online or whatever that kind of tries to say those kinds of things, but the facts are a little different,” the administrator said. Asked in an interview to specify where he’d seen the inaccuracies, he couldn’t say.)

Ericksen was overstating the figure by well more than half: it would give the tourism budget about $200,000 for other activities. Dunn corrected him. “Last year we deposited a little over $1.3 million. Under this plan, we would see $1.5 million,” he said, then added: “Certainly raising the tax to the fifth penny, all three funds are going to see additional revenue.”

Actually, not in the first year, since the capital improvement fund would be zeroed out, and would get only $250,000 the second year, still less than the $450,000 it’s getting now. In subsequent year, it would barely increase from its current level, to $500,000.

Only then O’Brien made his motion, which applies only to the first year of the new tax revenue. O’Brien had thought of the idea at a joint workshop with the TDC last month but withheld it to mull it over. “I think it’s a prudent thing to do given the fact that we would still be on track to collect the money we need to collect for promotions and advertising,” O’Brien said, citing the $1.285 million in the promotions reserves, which could be used to absorb the lower revenue just that first year. “We might be working that down a little bit, but for 12 months I don’t believe it will have a major impact.”

The commission agreed to meet in workshop on March 20 at 1 p.m.

Regardless of the eventual split of revenue, the money in the beach fund will be used to leverage state dollars, either as straight match money or to borrow against it to enable such matches. The county needs about $7 million in match dollars, Coffey said, to leverage up to $37 million in state dollars. The $7 million would be generated from the TDC’s beach fund and from the county’s local-option sales tax revenue.

“It’s critical that we have this because we pledge that to the repayment of the loan,” Commissioner Greg Hansen said.