New Asheville hotel rules recommended: Less tourist marketing, food and beverage tax

ASHEVILLE - The local hotel tax, which now draws $25 million annually, should go less toward tourism marketing and more toward projects with larger community benefits, according to a nonprofit research group enlisted by the city to recommend new hotel and tourism rules.

Members of the Urban Land Institute made that recommendation during a Jan. 30 public meeting at Harrah's Cherokee Center - Asheville. ULI also recommended the implementation of a food and beverage tax, restriction of new hotels to a specified district and that hotel developers be required to enter into a community benefits agreement to provide certain services or amenities in exchange for permission to build.

The city is trying to determine what rules to implement in September at the end of a yearlong ban on new hotels enacted after widespread resident complaints over stresses from the booming tourism industry. ULI's recommendations follow a period of research including Jan. 9 meetings with the public and a selected stakeholder group.

Hotel tax fight

Use of the hotel tax has been a contentious topic, pitting the city against the Buncombe County Tourism Development Authority, a state-created board with control of the tax. Over the years, the TDA has altered spending, putting more toward public projects. But the body whose majority of members are hoteliers, has opposed reducing the marketing allotment of the tax, which is 75%.

ULI panelist Charlie Johnson, a Chicago-based hospitality and real estate consultant, suggested it should be cut to 66%, a number prescribed statewide, according to proponents of the change.

"When you look at the split you’ve now gotten to a level of collections of $25 million. That’s a lot of resources," Johnson said. "At this juncture, I think there is a point in time where that split can be changed, because the resources for tourism have gotten to a point."

Any change would require the support of state legislators, who have in the past listened to concerns of hoteliers over those of the city. On a Dec. 11 trip to Asheville, Gov. Roy Cooper responded to a question about shifting some hotel tax revenue away from marketing, saying there should be "room for flexibility."

TDA officials declined to comment on the recommendation, with spokeswoman Kathi Petersen saying it was not the role off the public authority "to advocate for or create policy, but to carry out policy.

"The BCTDA is bound by law to administer the tax – it is not the agent for changing legislation."

On Jan. 29, the TDA voted to increase marketing by $1 million in order to keep occupancy rates up when 800 new hotel rooms are built this year. Those hotels were approved before the moratorium.

'It should be 50-50'

Peter Landis, a member of the Downtown Asheville Residential Neighbors, who attended the Jan. 30 public meeting, said he had wanted more sweeping recommendations with a bigger change recommended for the hotel tax use.

"Forget the 66-33. It should be 50-50," he said.

Landis said he agreed new hotels should be restricted to a designated district, saying it "is screwy" that "you can plant them anywhere downtown."

The recommendations were highlights of a final written report expected in March. The City Council could then decide which if any parts of the recommendations to focus on in the half year before the construction moratorium ends, Asheville Planning and Urban Design Director Todd Okolichany said. Longer-term ideas could also be pursued.

ULI presenters said they thought the city was right to enact the moratorium, but that there was no one correct answer in finding the right balance of hotels in a city and that there was no "silver bullet" or best practice in terms of how to manage tourism and hotels. Here are some of their key recommendations:

Shift hotel tax revenue use from 75% marketing to 66%

Look at a food and beverage tax. Consider taxing only purchases that reach a certain amount, such as $10.

Create a district where all new hotels would have to be built, such as the one in Charleston, South Carolina.

Have hotel developers enter into a community benefits agreement in which they pay for certain public amenities or services.

Create a local historic district downtown that would mandate design standards. (Current standards are voluntary.)

Strengthen enforcement of restrictions on Airbnbs and other short term vacation rentals.

Require even smaller hotels to do traffic analyses to be considered during the approval process.

Require the construction of meeting/conference space in hotels

Have hotels help fund transit such as a circulator bus.

Move forward with a Business Improvement District. (The city's effort at the special downtown tax zone stalled in 2014. Revenues would have gone for public safety, cleanliness and aesthetics.)

Amy Barrett who worked as a Charleston urban planner during that city's hotel moratorium said Asheville has an unusually high level of civic engagement that would help it successfully deal with problems that have arisen.

"We really do mean it that the values that Asheville is known for are really a strength. And frankly, it's not very common," said Barrett.

Hotel impacts

Here's some of the hotel impacts presented by city staff and the Urban Land Institute at the Jan. 30 meeting.

Rooms and occupancy

Since 2015, 1,344 hotel rooms have opened in Asheville out of approximately 2,761 total rooms that have been approved, representing an annual growth of approximately 4%.

In the last 10 years, Asheville’s population has grown by about 11% while hotels have increased by approximately 25%.

Since 2015, Asheville hotel occupancy has peaked at more than 85% and consistently surpassed the national average, which had a high of 75%.

But Asheville was below the national occupancy average in January and February, dipping almost to 45%. The national rate bottomed out at 53%.

Wages and economic impact

In Buncombe, the Accommodations and Food Services job sector is the lowest paying sector ($20,688), but is higher than the state average by 16%.

When separating Food Services from hospitality, Accommodations wages are about 30% higher.

Visitors have a large positive economic impact on the city, especially on local businesses.

Buncombe County ranks in the top four jurisdictions in the state for collections the hotel room tax, estimated at $25.1 million in FY 2019, an increase of 137% from FY 2015.

Water use, traffic