Pay to stay? | The state's tourism industry sounds off on a raft of proposals to raise Maine's lodging tax

The question shot through the air like an arrow piercing a path to its target. A lone gentleman standing before what's called the Legislature's "prosperity" committee stumbled for his words.

"Would you curtail your travel plans if there were an increase in the state's lodging tax?" asked Sen. Elizabeth Schneider (D-Orono), a member of the Legislature's Business, Research and Economic Development Committee.

The hearing room went silent and the man appeared flabbergasted. A handful of others had testified before him mostly against a proposed increase of Maine's lodging tax from the current seven percent to 10%. Armed with facts, figures and anecdotes, they stated that primarily Mainers and not out-of-staters would be paying the additional price when taking camping or snowmobiling trips, or going to business conferences in cities throughout the state. They hadn't been asked how they would personally be impacted by an increase, so why him?

The gentleman, Jack Day, vice president of commercial lending for Norway Savings Bank, was an opponent of any proposed increase and gave some of the same arguments before he again was asked the question. He admitted that any increase in the lodging tax would probably not impact his travel plans.

Still, the question rapidly reverberated through the state's tourism industry. Already there was discord between the industry and the Legislature after lawmakers two years ago froze a five-year-old formula to fund tourism marketing with a percentage of what was then an increase in the meals-and-lodging tax. Now the discussion was getting personal.

But realistically, it already was personal. In recent months, everyone from innkeepers to conference planners throughout Maine has been nervous about whether rising gas prices, which have led to increases in the cost of food and other products, would crimp travelers' vacation plans. And then, on top of that, would any increase in the state's lodging tax stifle people's desire for a Maine vacation?

Afterwards, Day said he was caught off guard. He said that after thinking about it, he probably would have to eliminate something from his vacation to pay for any increased lodging tax, maybe a night out to dinner, a movie or a game of golf. "If your taxes go up, you just can't go to your boss and say 'My taxes have gone up I need more money,'" Day said. "It doesn't work that way. If I've only budgeted $500 for vacation, there's only so much I'm going to be able to do."

Any proposal to raise the lodging tax hasn't been met with much support from the tourism industry. "It would seem like an inopportune time to raise [the lodging tax] 47% and make it the highest in New England," said Greg Dugal, executive director of the Maine Innkeepers Association. "The more we do things like this the less desirable we become."

And making Maine less desirable in the eyes of tourists is a tough proposition these days, as travelers have more tools at their disposal to decide when and where to take their vacations. "We're at the end of the line," said Vaughn Stinson, director of the Maine Tourism Association. "People have to make a much more concerted effort to come to Maine than they have before. That's the fact of life."

What's become the focal point of any lodging tax increase debate is that the intended audience — out of state visitors — may not be the ones shouldering the burden of the tax. The people impacted most may be Mainers, who would face increased rates on such things as in-state business conferences, weekend getaways and even campsites.

A blueprint for tourism funding
For most of the legislative session, it was anyone's guess where the state's lodging tax would eventually end up. Eight percent? Ten percent? Almost 30 bills were introduced that featured some change to the lodging and/or meals tax figure. (Currently the state charges a flat seven-percent tax on meals and lodging. The two, however, have had separate rates in the past.) Some proposals raised the taxes, some lowered them from the current seven-percent figure and one decreased the percentage to its past level of five percent, which is equal to the sales tax. In the waning days of the current legislative session — which ends June 20 — an eight percent lodging tax appeared to be the target, according to Sen. Joe Perry (D-Bangor).

"Almost every session there's a variety of bills," said Peter Daigle, general manager of Lafayette Hotels in Bangor. "It just seems like an easy tax to target."

But the tourism industry wants the bull's-eye removed. Instead, what it wants from the state is a serious, concrete plan to consistently fund tourism promotion, plus investment in the areas that draw visitors to the state in the first place. If tourists want to see a quaint fishing village, it shouldn't look dilapidated.

The industry also wants consistency in the tax structure, for both lodging and meals, so that there aren't any surprises that can drastically affect reservations or send dramatic ripple effects to tourism partners such as suppliers or retailers. "It's like a business having a business plan," according to Jan Barrett, innkeeper of the Ware Street Inn in Lewiston. "You follow it and it succeeds. Not only is it going to help the tourism industry in the state, it is going to help the economy in general."

But all good business plans require funding, and all good products demand marketing. Marketing, of courses, takes money. The question facing lawmakers and tourism-driven businesses is whether tourism promotions should be paid for through a share of the state's meals-and-lodging tax, solely through the lodging tax or through the general fund. The industry says leave the meals-and-lodging tax alone, unless an increase comes with a promise that an agreed upon percentage of revenues will be invested in tourism marketing.

"You're going to have to deal with the industry before you raise the meals-and-lodging tax," Stinson said. "And then [if the tax is raised] where's the money going to go?"

Like Stinson, Dugal of the innkeepers association believes any lodging tax increase should be spent on tourism marketing because the investment produces results. A national analysis by the American Hotel & Lodging Educational Foundation, a nonprofit research firm in New York City, found that every two-percent increase in lodging taxes causes a 2.4% reduction in room sales and associated visitor spending.

Tourism contributes at least $530 million in direct and indirect tax revenue, according to Stinson, and although that number fluctuates due to economic conditions, it is still considered a cash cow to budget planners in Augusta. When budget talks turn to increasing spending or revenue shortfalls, the lodging tax is brought up as the possible remedy.

But in 1995, the last time the meals-and-lodging tax went up, along with it came a formula to fund tourism promotion. The plan said that for every seven percent collected in the tax, five percent of the total revenue would be spent on tourism promotion. In other words, for every $100 in tax revenue, the marketing fund would get five dollars.

"Everyone agreed to it," said Bob Smith, general manager of Sebasco Harbor Resort in Small Point. "It was the right thing to do. It was a way to grow the industry and to grow the tax fund."

Two years ago, the formula and the amount actually spent on marketing were frozen at $7.5 million annually, or to the level it was during the last year of Gov. Angus King's tenure, which was 2002. Travel to Maine, too, went down each year after the Sept. 11, 2001, terrorist attacks until 2005, when there was an uptick in business. (Last year's figures haven't yet been released.)

Tourism industry representatives have been bitter about the marketing funding freeze, fighting aggressively over two years to get it restored. At the end of May, the fight was won and promotions funding was increased to $8.1 million for the year starting July 1 and $8.9 million for the following year. Stinson said he would like to see the marketing budget increased to $12.9 million, a figure that he considers more reasonable but still "consistently behind" the $22 million average that other states spend. Maine, though, needs to uphold its Vacationland image, according to people like Stinson. "My number one concern right now is, being the number one industry in the state, how do we maintain that?" he said.

The in-state argument
Peter Daigle of Lafayette Hotels doesn't believe in increasing the lodging tax to fill a budget gap, which is what many of these proposals intended. It only would add to the cost of doing business in Maine. "The brush that we're getting painted with is that we're some sort of host for the people of New Jersey," he said. "That's not the case at all."

The Lafayette Hotel chain includes the Black Bear Inn in Orono and the Senator Inn in Augusta, and both draw thousands of conference attendees from around the state who are affiliated with programs at the University of Maine or state government. Daigle said Maine "is not like Las Vegas by any means," because many of the hotel guests come for an overnight stay and daylong conference and then go home.

At the Samoset Resort in Rockland, the majority of hotel guests are conference attendees, according to General Manager Connie Russell. "Sixty percent of those are from Maine associations who are definitely on a budget," he said.

What irks Carl Pelletier, owner of Northern Door Inn in Fort Kent, is that the lodging tax, is a selective one and not like the sales tax, which everyone pays. Since January 1, approximately two-thirds of Pelletier's business has come from Mainers, and he estimates that the annual percentage is close to 75%. "At some point, people are going to close their wallets," he said. "There's only a finite amount of money to go around."

And then what other industry would the state tax? "People should be perking up their ears and wondering what's next," Pelletier said. "Optometrists? Jewelry stores?"

For his part, Daigle believes the Legislature wouldn't even consider pulling out a new tax on the state's other big businesses, such as L.L.Bean, The Jackson Laboratory or Idexx Laboratories. "That would be disastrous economic policy," he said.

A minority of innkeepers and tourist-destination managers are in favor of increasing the lodging tax to 10%. Jan Barrett, innkeeper at the Ware Street Inn, says she would support boosting the tax to 10% if the state were to spend the extra revenue on preserving the tourism destinations and cultural events that draw people to the state. She said the research she's read suggests that if a lodging tax were to go over 10% it would deter business, but that 10% or below wouldn't be enough to stop a vacation or daytrip.

Barrett backed a plan outlined by the Brookings Institution and commissioned by the Yarmouth advocacy group GrowSmart Maine, which said the state is not taxing non-locals enough through the lodging tax. The Brookings report also believes the tax is paid by the 70% of non-Mainers who visit the state, and suggests that Maine issue a $190 million revenue bond that would be paid back over 10 years by the increased lodging tax. That money would be used to maintain and invest in the state's "quality places," such as parks, fishing villages and cultural events.

"We need to keep Maine in Maine," Barrett said. "We need to keep areas that are drawing people to Maine."

GrowSmart President Alan Caron agrees with the 70% figure, and told the Legislature's prosperity committee he could not support a lodging tax increase if it meant more of a tax burden on Mainers. But, he added, the state has a chance to invest in what brings visitors to Maine. A lodging tax increase, he said, is the way to go because non-locals would pay it.
"We have a special product," Caron told the committee. "We're better than New Hampshire. We're better than Vermont. There aren't many lighthouses on the coast of New Hampshire. Brookings says we're leaving millions of dollars on the table that tourists are willing to pay."

The Legislature's prosperity committee in late May rejected this lodging-tax bill after opponents convinced the majority of members that Mainers would be financially hurt by the increase. But some members suggested seeing if there were other sources of state revenues to invest in the quality places. That task is underway this summer.

For her part, Barrett is miffed. "Going up three cents on the dollar isn't going to hurt anybody coming into the state," she said. "Nobody ever asks me, when checking in, what the lodging tax is."

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