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Chattanooga: Tourism revenue routed to different destinations

By: Brian Lazenby
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By: Matt Wilson
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Bob Doak

Every penny of Chattanooga’s 4 percent tax on hotel rooms goes toward paying off debt on and upkeep for the city’s 21st Century Waterfront.

That’s where the money has to go, officials said.

“We don’t really have the option of using it for anything else,” said Richard Beeland, spokesman for Mayor Ron Littlefield. “That’s what it was set up for.”

The City Council passed the tax in 2002 for the specific reason of contributing $56 million to the waterfront project.

Hamilton County also has a 4 percent tax on hotels, which gets split up for several uses, officials said.

Some goes toward paying off debts on facilities such as Engel Stadium and Memorial Auditorium, but the largest portion goes to the Chattanooga Area Convention and Visitors Bureau, county Finance Administrator Louis Wright said. Of the $4.1 million the county collected in 2007, about $3.5 million went to the bureau, he said.

That contribution makes up the largest part of the visitors bureau’s $4.7 million budget for 2008, a budget that will grow to nearly $5.2 million in 2009, according to budget documents.

The city and county’s lodging taxes, when combined with a 2.25 percent local sales tax and a 7 percent state sales tax, add up to a 17.25 percent tax on hotel stays in Chattanooga, one of the highest in the state.

The overall rate is identical to Knoxville’s rate, slightly lower than Nashville’s 17.28 percent and well above Memphis’ 15.95 percent, according to the Tennessee Hotel and Lodging Association.

Local hotel taxes are common in cities and counties throughout the nation, but critics such as Grover Norquist, president of the Washington, D.C.-based Americans for Tax Reform, have argued that such taxes deter tourists from taking trips.

Bob Doak, president of the Chattanooga Area Convention and Visitors Bureau, disputes that, saying he does not believe Chattanooga’s tax rate has caused any tourism business to be lost.

The visitors bureau divides its budget for several uses, but a big chunk of the money — $2.3 million in 2008 — goes toward promoting Chattanooga as a tourist destination through advertisements and marketing efforts such as meeting planners and trade shows.

“We’ve got to get our message out,” Mr. Doak said.

He said rising gas prices may change the way the bureau promotes tourism in Chattanooga, with more focus on luring tourists from closer locales. While gasoline nearing $4 per gallon is “not anything we like to see,” it could mean more tourism from the areas within about 2 1/2 hours from the city, Mr. Doak said.

About 80 percent of the visitors to Chattanooga over the past several years have come from the Atlanta, Knoxville, Nashville, Birmingham, Ala., and Huntsville, Ala., markets, Mr. Doak said. He said the bureau will continue reaching out to those markets to attract tourists looking to take shorter trips.

The bureau spends almost $1.6 million on employee pay and benefits, and the next highest expense is for “support expenses,” he said. Mr. Doak said $230,000 used for support expenses in 2008 — a figure that will grow to $379,000 in 2009, he said — goes toward the city’s convention center, Finley Stadium and the sports committee.

Over the next few years, as debts are paid off, the visitors bureau will see more of the tax money, Mr. Wright said.

“That debt payment drops to about $426,000 next year,” he said.

By fiscal 2010, the debt will be paid off, he said.

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