Editor’s note: we have received a few more comments on Hyde County’s proposal to enact a new Tourism Development Authority (TDA) especially for Ocracoke. This authority would raise the occupancy tax rate another 2 percent for a total of 5 percent on all short-term lodging rentals. From the proceeds, the TDA board would hire a full-time executive director to handle marketing on Ocracoke. The county commissioners are looking to enact this concept at their March 2 board meeting so that the tax rate can be raised this year and work can begin. Below are three new comments on this subject.

From Al and Linda  Scarborough
Reasons for supporting an increase of 2 percent in the occupancy tax

The right for any county or municipality in North Carolina to levy any tax can only be authorized by an act of the legislature.  Basically, there are only two taxes which are available to all counties in NC– sales and property.  Others, such as food and beverage taxes, land transfer taxes and occupancy taxes, must be authorized by acts of the legislature.  House Bill 882 was ratified in 2006 giving Hyde County the ability to increase the current occupancy tax.

Why not have a food and beverage tax and/or a land transfer tax rather than increase the Occupancy tax? The General Assembly has not approved these in years due to the strong restaurant and real estate lobbies.

What about the sales tax?  Hyde can raise it .25 percent (one fourth of one cent).  This could raise around $100,000 a year and not necessarily benefit Ocracoke.

The current occupancy tax of 3 percent is the lowest of any coastal county in N.C. (Indeed, I suspect it may be the lowest of any occupancy tax on the East Coast).

Hyde is one of the 10 poorest counties in North Carolina  Dare is one of the 10 richest counties. One thing the rich counties have in common is access to higher occupancy taxes–some have a food and beverage tax, and some have a land transfer tax.  Dare has all of these revenue streams.

If we had been collecting the additional 2 percent tax when it was first authorized by the state in 2006, Ocracoke would have benefited by over $2 million (revenue from the additional 2 percent is estimated to be in excess of $250,000 every year). That is the fire hall and the ball field.

Don’t be fooled.  Businesses only collect sales taxes and lodgings only collect the occupancy tax. They do not pay the tax.

While two thirds of the 2 percent additional tax (approx. $160,000 after the administration fee) must be used to “promote tourism,” one third (approx. $80,000) can be used for “tourism related expenditures.”  Ninety percent of the original 3 percent tax can be used for any purpose for “the direct benefit of the island.”  What this means is Ocracoke would have access to approximately $500,000 every year to benefit the island at no cost to over 800 island residents and taxpayers This is $500,000 controlled by Ocracoke.

Given that Ocracoke’s tax will not exceed adjacent counties, it is a poor argument to suggest that people will choose to not stay on Ocracoke.  I doubt that anyone vacations on Ocracoke because of the lowest rate, and I feel confident that Ocracoke has a lot more to offer than low occupancy tax rates.
How could the expenditure of $160,000 on promoting tourism benefit all businesses and specifically the lodging industry?   What has done the most to fill up motels and cottages during what was once a slow week?

Thanks to the dedication and forward thinking of Gary Mitchell and David Tweedie the first weekend of June (Ocrafolk Festival) is now a virtual sellout for beds on Ocracoke.  What if we had a paid promoter? How long can we expect people to volunteer their time and energy to organize events  that  fill the motel rooms and restaurant seats  Yes, the increase in occupancy tax can have a direct effect on motel occupancy during the “off season” if  only we quit relying on volunteers.

There is great potential in the Pirate Festival, Fig Festival, Oyster Roast, Blackbeard play, running events, fishing tournaments, women’s arm wrestling, and what creative ideas might be centered around the new ball field? It just needs someone with time to devote to these events.

No one stands to benefit more than the lodging industry.  Just one more three-day weekend with 100 percent occupancy will more than offset any perceived loss due to an increase in the occupancy tax.

Tourism is the economic engine for Ocracoke.  As good hosts, we should be obligated to provide 24/7 emergency services, public restrooms, trash disposal, fire and law enforcement protection, access to the waterfront and courteous and helpful assistance.  Unfortunately, Hyde County’s limited resources do not address many of the needs.

Money from the current occupancy tax has supported Hyde EMS, OVFD, Ocracoke Child Care, the Community Center, WOVV, Friends of the Library, the Ocracoke Community Park, OPS Museum and various events that attract visitors (Fourth of July, Ocrafolk Festival, Blackbeard’s Pirate Jamboree, the British Cemetery Ceremony.) Having the additional 2 percent would allow more support for these and other needs as what is now spent for marketing would come from it.

Look at the big picture.  Let visitors know what the occupancy tax helps to provide.

From Fred Westervelt:

Thursday’s meeting on this topic, spearheaded by Kris Noble’s (aided by Sarah Johnson) informative presentation focusing on occupancy tax, was spirited, broad-based and quite lengthy for such on the island. I was disappointed that the crowd was not larger, and that no commissioners attended.  Perhaps this speaks relevant volumes: it’s not really convenient to get here.

Tourism at its simplest involves attracting visitors, facilitating their journey, providing them a safe and enjoyable stay and encouraging them to return. If there is a deficiency in this four-point approach it is in travel access. We all agree that is the most frequently addressed choke point, but that is for another time.

 

As life on our sandbar has morphed into the 21st century the needed services and their costs have increased, Seldom is the ambiance of Ocracoke faulted, leaving aside the restrictions to beach access, fishing and Nature’s occasional unfriendliness.  Rather, it seems it is the earning power of our facilities and services that are perceived as falling short of overall Hyde County needs and wants, even though after all the allocations of occupancy tax monies our thoughtful Occupancy Tax board has managed to squirrel away nearly 3/4 of a million dollars in reserve funds for the inevitable rainy day.

 

The purpose of this (new) proposal is to create a costly Hyde County-based Office of Marketing, or some such, to direct tourism and its advertising. At present Ocracoke’s relevant activities are volunteer based (see OCBA, criticized  because of personnel turnover (read elections, the American way).  Individual businesses market according to their perceptions and budgets. Perhaps they simply need advice from the pros as well, which would seem less imperious, and less costly.

 

To be brief, I believe we should look more broadly for added funding, rather than hit the lodgers further. I know, the occupancy tax is 5 percent or more elsewhere, but we are not elsewhere. Meals and beverage come to mind (think Dare County) and spreads out the burden logically to a larger clientele. Is our Sales and Use Tax properly structured?  A glance at mainland farming might be lucrative. Perhaps there are state funding sources worthy of study. Surely a major push in support of the seemingly overwhelmed DOT might bolster tourist numbers with benefit. All this requires broad public involvement,  thought and input. With due credit, “If we do not hang together, we shall hang separately.”

 

The moment of truth fast approaches. Think on this, talk it up, let your government know how you feel. In the words of my favorite bumper sticker, “Preserve Ocracoke.”

 

From Finley Austin:

Based on my many years in business and public policy I would submit there is a third option that should be on the table:

 

Option 3 – use a portion of the Occupancy Tax reserve (don’t raise taxes) to hire a consultant to perform and manage many of the suggestions under Option 1 (create a Tourism Development Authority).  Pay them enough of a base to attract bidders, but to keep out-of-pocket expenditure to a minimum offer as incentive a predetermined fraction of or percentage of increased OT revenues in 2016.

I’d have to look carefully at the numbers to determine how much and whether to bench mark it against previous year or an average.  This could also be scaled (e.g., 5 percent for the first $10,000, 1 percent for the next…).  If it works, the OCBA can renew the contract or negotiate a new one.  If it doesn’t work the contractor can be dropped and someone or something else tried.

 

As to Option 2: They can always start a new government entity (such as this TDA). The reverse can prove difficult.  If they go this route then there should be clear metrics that must be met, or the new entity should be dissolved.  And there should be a sunset so even if metrics are met, “Do we still need this?” should be asked every few years.  And it should require proactive reauthorization.

 

Additionally, in my business experience, this level of primarily descriptive analysis, while useful, would not support raising taxes or forming a new entity.  Before undertaking such big steps, contracting would be utilized if the manpower and/or expertise was not available to do needed activities (e.g., improve the website, etc.). Even then, it should be clear what is expected to be derived.

 

For a new entity to be considered, they would need to provide a detailed business plan (including budget, metrics and expected return on investment (ROI) with modeling of the numbers) for the new entity.  Moreover, from a public policy perspective, a pilot and sunset would seem to offer a prudent course allowing for easy correction, if needed, and if Option 2 is seriously considered.

 

In any case, if they want to raise the tax they should spell-out clearly the upsides (quantitative and qualitative) to be derived, as well as the potential downside risks (if it negatively impacts visitor numbers what is the break-even point for OT revenues?  With higher taxes fewer visitors may still support greater OT revenues, but then what does that spell for other businesses?)  This can be modeled to allow scenario comparisons.

From Tom Cain:

Bravo Finley! As an unabashed free marketeer, I love your option 3! The profit motive beats government every time. If it doesn’t work, a contract can end. Government never does.

Editor’s note: The Ocracoke Observer shares these comments made by George Chamberlin, owner of the lodging Captain’s Landing, last night (Thursday) at the Occupancy Tax Board meeting where Kris Noble, Hyde County planning and development director, presented a plan for a new Tourism Development Authority.

Economics 101, or,

Tourism, Occupancy Tax and the Bible on Ocracoke

Let me state that I am not a professor of economics nor am I an expert on the Bible.  But, after helping to build and operate an inn on Ocracoke going back to 1998 and being exposed to the good people of Ocracoke and its churches since the 1980s, and after listening carefully to the families that have been here since the 1700s, permit me to state a few facts as I see them with the goal of helping Ocracoke and Hyde County to take a proper path towards the future.

To begin, my basic premise is that any tax that targets one segment of tourism is unfair, discriminatory and should be illegal.  The fairest tax [if that is at all possible] would be a sales and use tax.  You pay a tax on a product if you decide to buy it; otherwise, you don’t pay it.  There are very few places where a tax is JUST levied on gift shops or JUST restaurants.  But some people have no problem placing a tax on JUST the lodging industry. What the heck, it’s not your money!

The reasoning in itself is unfair:

The Innkeeper doesn’t pay it- they just collect it.

It is done in other markets, why not here?

It is just a small amount therefore it won’t make any difference.

The tax will be used for JUST tourism so it benefits the industry.

OR,

The tax MAY be used for “the community as a whole” so it benefits all.

The answers to each of the above quick comments could be a full University subject on how to operate an Inn and I do wish to emphasize the point to those NOT in the business of providing lodging that they should consider each point seriously.

Let me explain:

The innkeeper does pay it.  When a room is sold it is sold as a package with tax included.  The buyer nor the innkeeper cannot sell the room without including the tax, it is illegal.  The buyer cannot purchase a room without considering the total cost, it is not logical.  And, in a tourist environment, stays are usually for multiple days and the total amounts of room and TAX is usually substantial and, therefore, must be considered by the buyer as part of their family vacation budget.  The innkeeper needs to consider the total cost to correctly price a room while still considering overhead costs and the market environment.  The innkeeper must also consider the market they are in in order to correctly price a room.  Therefore they must also know:

What is the “break-even cost” of a room?  Consider that EACH Innkeeper must take into account such things as:

How much does it cost to clean and maintain any given room?

What overhead costs, direct and indirect, must be considered.

If seasonal, as in Ocracoke, what is the correct price for that season?

What are the other Innkeepers offering for prices and amenities?

Bottom line:  Every penny counts!

Occupancy Tax rates are higher in other areas so why not raise the rates here?

Some lodging owners are dealing with very slim profit margins and are truly “the little guys.”

This is where the Bible comes in.  Rather than comparing Ocracoke lodging with completely different markets consider the saying from the bible about “caring for the least of us” before being assured a place in heaven.

So, ask yourself the following:

Are you comparing the family owned or oriented Ocracoke lodging to any major chain such as the Hiltons, Holiday Inns, Sheratons, Hampton Inns, and Marriott’s?

They are ALL chains with hotels that have 30, 50 or even 100 or more rooms and backed by a NATIONAL CHAIN that can drastically reduce costs.  Almost all are NOT SEASONAL!  Almost all are in markets where customers expect to pay an amount consistent with that chain and, in some cases the taxes really are lower than in Ocracoke.  In summary, you cannot compare our market equally or fairly with others.

An Occupancy Tax is just a small amount and won’t make any difference.

Well, it does.  It has to be considered as part of the total price of a room cost as mentioned previously.  To many travelers, every dime counts; especially when multiple nights are considered and are usually not the same “cost is no option” visitor that you might see on other vacation spots such as Hilton Head Island.

If you think the occupancy tax doesn’t mean much, why not consider that ALL segments of the businesses in Ocracoke and Hyde County pay a “tourist tax”??

Do we really think that the shops or restaurants would be eager to pay such an additional tax?  Why not just ask the state to raise the sales-and-use tax?  One of the probable reasons to not do that?  It would hurt tourism.

This new tax amount would ONLY be used for tourism.

Sorry to remind those of you that haven’t been around very long, but that was the ORIGINAL premise of the current occupancy tax.  It was later morphed into a tax that could be “used for any purpose” and now, when it is being used for some good in the community but is also being considered for such things as “$37,500 for a thirty minute fireworks display” and other questionable aims, the experts have now come to the conclusion “we need more money to develop tourism.”

The current tax is used in the community so it benefits all.

I suspect, if you poll the lodging owners on Ocracoke, you will find they are resigned to the current occupancy tax and at its current rate.  I think you will also find that they agree that funds collected by this tax have done some good in the community.  I certainly think so.  But we can do a better job.

So let’s ask a few questions about the present and the future:

For the Occupancy Tax Board:

Don’t we have a reserve fund?  Why do we need it? How much is it and have we asked Hyde County for the amount be reduced so as to put more dollars to work?

Can we do a better job of allocating the money collected to serve the community for REAL NEEDS and put aside a specific amount “just for tourism?”

For the County:

Can’t we take the “road less traveled” and do the more difficult task of finding other sources of revenue to promote tourism other than just sticking it to the Inn keepers and those guests that chose to stay on Ocracoke for multiple days?  Remember, the tourists that stay multiple days spend money in shops, restaurants, go fishing and pay to go on tours.

One of the considerations for the future includes a “passenger only” ferry.  If implemented, those tourists will spend money in shops and restaurants, possibly visit the beach and may even go fishing.  How many do you think will spend more than just a day on Ocracoke?  Very, very few.

So, why not consider a tax on the “day trippers” as they are called that clog the roads, use the facilities and look for bathrooms?  Or are we expected to require more “occupancy tax” money to fill the void?

In summary, if more funds are needed to bring more tourism to Ocracoke, to “expand the seasons”, to bring in more tourism dollars and to provide for such truly needed items in the village as an X-ray machine, a building or facility for a morgue (yes, I said a morgue) a professional building, superior public rest room facilities and more, we need to expand our thinking before jumping off a cliff that puts the lodging owners in a bind and lets everyone else walk off thinking what a good job they did by providing more short sighted tax money for unworthy needs.  We need the State to partner with us so as to help us expand our thinking and take a more comprehensive look at how to secure the long term future for Ocracoke and Hyde County.

George Chamberlin
Ocracoke
February, 2015