Hotel tax gamble

June 10, 1994

The Schmoke administration wants to raise the city's hotel occupancy tax to 9 percent from 7 percent to finance its share of the $151 million Baltimore Convention Center expansion. As can be expected, the hospitality industry is up in arms against the proposal, predicting dire consequences for tourism growth if it passes.

A hotel tax increase is not likely to be as fatal as the hospitality industry fears. A room tax, after all, is only one among a number of things that determines a city's attractiveness to convention visitors and tourists. But since a higher tax would mean less pricing flexibility for the hotel operators, their concern is understandable.

Hospitality industry representatives raise a couple of valid questions that merit closer study.

If a higher hotel tax is such a harmless fund-raising tool, they ask, why is New York City drastically lowering its 22 percent tax? And why is Prince George's County in the process of rolling back its levy from 10 to 5 percent?

The brief answer would be that both New York City and Prince George's County concluded that their high tax rates had priced their locations out of the highly competitive hospitality market. The more exhaustive answer, of course, would take into consideration a number of other factors as well. But the hotel tax rate, along with room prices, are important factors for convention planners to scrutinize in selecting sites for their meetings.

The Schmoke administration thinks that raising the hotel room tax offers the least painful way for the city to take care of debt service on Convention Center bonds. The mayor also points out that the higher rate would not become effective until 1996, when the new facility opens with heavy bookings.

We are concerned, however, that the hotel tax bill before the City Council is written in such an inflexible way that it locks Baltimore into a high rate even if experience should show that business suffers as a result. At the very minimum, more flexible wording should be used so that Baltimore will not kill the goose that lays the golden egg.

The new, expanded Convention Center promises to bring heavy convention business to the city. It is prudent to remember, however, that some of this is only repeat business that was lost in previous years when Baltimore's convention facilities proved to be too small for larger exhibitors and gatherings.

The city's hotels will benefit enormously from the bigger Convention Center. It would not even be surprising to see some new major operators deciding to build here. At the same time, the city's current hotels are a mixed bag of facilities which vary widely in attractiveness as well as profitability. Like any fragile commodity, they may not survive heavy handling.

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