Room tax hike worries motel owners

Written by Bill Rautenstrauch, The Observer March 17, 2010 02:49 pm

TRAVELERS COULD BYPASS La Grande motels if the City of La Grande’s proposal to raise its transient room tax by 2 percent is adopted, believes Karl Swanson of the Royal Motor Inn. PHIL BULLOCK /The Observer
TRAVELERS COULD BYPASS La Grande motels if the City of La Grande’s proposal to raise its transient room tax by 2 percent is adopted, believes Karl Swanson of the Royal Motor Inn. PHIL BULLOCK /The Observer
With the City of La Grande contemplating a hike in the transient room tax, there’s a ripple of discontent running through the local lodging industry.

Public discussion on the proposal is coming up, but for now, some of La Grande’s motel owners aren’t happy with the idea of bumping the tax by 2 percent.

“I’m trying to keep the same rates I had three years ago,” said Sushil Kamar, owner of the Quail Run Motor Inn at the east end of Adams Avenue. “Believe it or not, if I raise my rates by one dollar, my guests will stop coming.”

Currently, the city charges a 5 percent room tax. On top of that, Union County charges 3 percent and the state of Oregon 1 percent.

A 2 percent increase in the city tax brings the total to 11 percent. Conventional wisdom says travelers will tolerate a TRT of 10 percent, but above that, they start to balk.

That’s got Karl Swanson of the Royal Motor Inn on Adams Avenue worried.

“I think when people come, they’ll take (the increase) the first time, but the next time they’ll go to Pendleton or Baker City,” he said. “We’re not just competing with each other here in La Grande, we’re competing with surrounding areas.”

In a time when the City of La Grande is looking for ways to make up a $500,000 annual general fund shortfall, a 2 percent hike in TRTs will add about $90,000 to the coffers.

La Grande City Manager Robert Strope said cities are bound by state law to dedicate 50.7 percent of TRT revenues to tourism-related activities. Also, 70 percent of money from transient t room tax increases must go for tourism.

Following a study this year, the city decided TRT dollars can legitimately be used for parks maintenance. Under the plan to raise the tax, TRT funds would be reallocated, with some money going to the parks department.

According to Strope, the added money would free up cash for the other general fund uses. It would also preserve funding for entities like Union County Tourism and the Blue Mountain Conference Center, and events like La Grande’s annual Crossing the Blues festival.

“The increase will help us continue the current tourism programs, but we can’t get there without it,” he said.

But Swanson for one thinks the tax hike will yield only small benefit for the city, compared to the negative impact it might have on local businesses.

“It’s not going to help the city that much and it’s not going to help us at all,” he said.

Swanson said he doesn’t plan to raise his room rates, even if the city does bump up the tax. The tax hike is something he’ll absorb as the cost of doing business.

“I guess I’ll just have to eat the 2 percent,” he said.

That’s something tougher to swallow in hard times.

Swanson said the Royal Motor Inn had a good year in 2007, when Horizon Wind Energy was building the Elkhorn Valley Wind Farm and many construction workers were in town.

That year, the motel grossed about $300,000. Then came the recession. Swanson said that in 2008, receipts fell to $230,000.

Kamar at the Quail Run said he believes the move will hurt not only motels but the overall economy.

“We get guests from all over, from Mexico, from Salt Lake City, from Seattle,” he said. “This is the best place to take a break, but as soon as people find out the tax is going up, they’re not going to stop here.”

Like Swanson, Kamar believes lodging facilities in Baker City and Pendleton will pick up customers who might otherwise have chosen La Grande.

That will have a ripple effect, he said.

“The second impact will be restaurants,” he said.

It is true that lodging facilities in competing cities would have a price advantage if the city goes through with the TRT increase.

Baker County charges a 7 percent TRT, and Baker City, the largest population center in that county, has no TRT of its own.

The City of Pendleton charges 8 percent, and adds a tourism assessment fee of $1.50 for motel rooms and 50 cents for RV spaces. There is no county-level TRT.

Kamar at the Quail Run said he doesn’t plan to raise his room rates if the proposed tax hike goes through. He might, however, consider another option.

“If these things keep happening, maybe I’ll put my motel up for sale and go into some other business,” he said.

The city has made no firm decisions yet. There will be a panel discussion on the issue during a summit hosted by Union County Tourism April 20.

The summit, covering a variety of tourism-related issues, takes place at 6 p.m. at the Northeast Oregon Transit Center, 2404 Adams Ave.

Union County Tourism Executive Director Janet Dodson said the panel discussion on TRTs is a good opportunity for both sides to express their views.

Chamber of Commerce Executive Director Judy Hector said the chamber executive board hasn’t yet formulated a position on the proposed tax hike. She said it is an item on the agenda for a meeting Thursday.