City plans to continue 50/50 split on bed tax

Legislation continuing Marietta’s 50/50 split of the city hotel and motel tax with the Marietta-Washington County Convention and Visitors Bureau will be introduced during next week’s city council meeting, according to a council finance committee session Wednesday.

“We need to renew this ordinance to continue making monthly payments of the bed tax to the CVB,” said committee chairman Tom Vukovic, D-4th Ward.

According to city auditor Sherri Hess, the 6 percent tax on hotel and motel room sales garnered $447,969 each for the CVB and city in 2013.

Last month Jeri Knowlton, the CVB’s executive director, reported the bureau had budgeted for $480,865 from the bed tax, but the actual revenue fell short of that estimate.

The estimate for the bureau’s 2014 budget is $462,360.

The hotel and motel tax has been a windfall for the city and CVB over the last few years due largely to room reservations by an influx of shale oil and gas industry workers. And for the last two years the CVB has entered into a memorandum of understanding that any bed tax monies above the amount it has budgeted for the tax would be returned to the city.

That agreement resulted in approximately $3,000 returned to the city in 2012, but because the tax did not meet the CVB’s targeted amount in 2013, the city received no returned funding that year.

“We don’t have a memorandum of understanding now, but if the bed tax revenues start looking good later this year the city may consider another agreement,” said Vukovic.

In other business Wednesday, the finance committee members asked for some guidance on issuing bonds and bond anticipation notes (BANs) from the city’s bond counsel, Chris Franzman with Squire, Sanders and Dempsey, and Andy Brossart with Fifth Third Securities.

“We’ve been pretty aggressive in issuing short-term notes in past years due to the lower interest rates,” said Councilman Michael Mullen, I-at large. “But we also have to think about 20 years down the road when issuing long-term bonds for larger projects.”

Brossart said the cities must have some debt, but should not be dedicating all of their revenue to paying off debts.

He said some communities set a 50/50 limit on incurring debt when preparing their annual budgets.

“I believe we’re at that point now with our capital improvement fund,” Vukovic said. “That fund is supported by annual income tax revenues of around $450,000. If half of that goes to paying off bonding, that leaves us about $225,000 a year.”

He added that the city has been requested to purchase a new fire truck that could cost around $500,000, and the capital fund is used to purchase such equipment.

“How do we get the money for that?” Vukovic asked.

Franzman said the city does not have to issue bond notes for such expenses, adding that some communities enter into a lease-purchase agreement to obtain higher-priced equipment like trucks and other rolling stock.

“You don’t want to bond a $200,000 or $500,000 piece of equipment,” he said.

Franzman said most of the municipalities that are his clients will issue short-term bond anticipation notes during the construction phase of high-priced projects, then issue a long-term bond to pay off the project once the construction is completed.

He said that process allows cities to take advantage of lower short-term interest rates to cover costs during construction, and added that long-term bonding should be used for projects in the $6 million to $7 million range or higher.