Dueling math: Bend sued over room-tax revenue shift

(Update: City defends formula, industry group says they got it wrong)

The Oregon Restaurant & Lodging Association filed a lawsuit Tuesday against the city of Bend, accusing it of diverting city room tax revenues away from tourism promotion and reducing the allocation for tourism promotion below what is required by law.

The city responded publicly (a rarity on a pending lawsuit) that it’s new room tax distribution formula follows state law — and the industry group quickly countered that the city’s figures are wrong

The five-page lawsuit was filed in Deschutes County Circuit Court by the group and two Bend hotels: Wall Street Suites LLC ad BHG Bend LLC, which bought the Holiday Inn Express on Grandview Drive for $9.5 million a year ago.

ORLA said in a news release it is challenging the validity and implementation of a recent Bend city ordinance that amends the percentage of room tax revenue the city spends on the promotion of tourism and improperly diverts restricted room tax revenues to road maintenance.

“Cities must follow the restrictions in place for disbursement of the lodging tax revenues they collect,” said ORLA President & CEO Jason Brandt. “Unfortunately, Ordinance NS-2291 results in Bend being out of compliance with state law. The vast majority of tourism revenues in Bend can already be spent on general fund purposes so we hope our lawsuit results in acknowledgment from the courts that this recent act is in violation of Oregon law and must be undone.”

The lawsuit asks that a court declare the ordinance violates state law and to enjoin the city from enforcing it.

The association claims Bend City Ordinance NS-2291 violates state law (Oregon Revised Statue 320.350) in one or more of the following ways:

a) 9% of the City’s 10.4% city room tax rate has a set of restrictions for appropriate use of those funds. Within the 9% city room tax rate, the city is statutorily required to spend 30 percent on tourism promotion and tourism related facilities.
b) The remaining 1.4% city room tax rate is subject to a statutorily required 70% investment in tourism promotion and tourism related facilities.

The lawsuit claims that earlier this year, the city adopted a code amendment that provides 31.2 percent of total room tax revenues will be used for tourism promotion and the remaining 68.8 percent of the revenues can be used for non-tourism promotion purposes.

The formulas involved are fairly complex, to be sure — a raft of figures more in the realm of tax accountants than the general public or political debate.

Brandt put it another way to NewsChannel 21. He said the city’s room 10.4 percent room tax generates about $10 million a year and “the city has the full right to use 65 percent however they want to.”

But he said 4.18 percent of that revenue, or $400,000, has been taken from the restricted revenues that must be used for tourism promotion and instead given to road maintenance needs.

“I would like to believe it was a mistake that was made that was not intentional,” Brandt said, adding that the association had warned the city a year ago that it would have to go to court if the proposed changes were enacted.

In a response sent to NewsChannel 21, Assistant City Attorney Ian Leitheiser said:

” The City of Bend offers the following response to questions about the Oregon Restaurant and Lodging Association’s lawsuit against the City.

” State law requires that different increments of local lodging tax revenues be allocated to tourism promotion or tourism facilities in certain percentages. State law also restricts cities from decreasing the percentage of total local lodging tax allocated to tourism below a certain amount. In the city’s case, that total percentage is 30%.

In May 2017, the city took action to reduce the total allocation of local lodging tax revenue from 35.4% to 31.2%, in compliance with state law. The change was intended to create some additional General Fund flexibility for critical services, such as street maintenance, (but also) was balanced with the requirements of state law, and included input from members of Bend’s lodging and tourism industries.

“Additional background and information about the rate increments can be found on this City Council meeting agenda, at agenda item 7:

http://bend.granicus.com/GeneratedAgendaViewer.php?view_id=9&clip_id=398 ( The “background” section of the Issue Summary may be helpful.)”

NewsChannel 21 shared the city’s response with ORLA’s Brandt, who in turn had this reply:

“You’ll want the City of Bend to tell you where in state law it says that their threshold is 30%.

“That’s incorrect.

“Thirty percent is the right allocation from the previous 9% lodging tax rate. But state law requires that 70% of the additional 1.4% lodging tax increase approved by voters in 2013 BE ADDED to the original 30% they reference.”

So unless the two sides are able to work things out, a judge may get to decide whose math is right.

Here’s the rest of the ORLA news release, and a link to the lawsuit:

“Lodging operators should be recognized as financial partners of local governments,” said Brandt. “As tourism becomes more successful, so does the tax revenue provided to local governments to invest in the projects important to local residents.”

A report from Longwoods International shows for every $1 invested in tourism promotion, $237 is generated in economic impact and $11 in tax revenue to the benefit of Oregon residents, the association noted.

ORLA said it “is engaged on a state and local level, helping local municipalities realize that shifts in tourism promotion investments can do more harm than good.” Brandt argues there is a direct correlation between tourism promotion and a community’s own tax revenue.

“Tourism promotion dollars are crucial to keeping Oregon’s visitor destinations top of mind,” he said. “Local communities stand to lose significant tax dollars for their general funds if tourists choose to travel elsewhere.”

In 2003, the Oregon Legislature passed HB 2267, mandating 70% of new or increased local lodging taxes be directed to tourism promotion or tourism related facilities. At that time, the city made the commitment to fund tourism promotion with 30% of the initial 9% tax rate in Bend.

In 2013, the city’s residents approved Measure 9-94, which increased the City’s room tax rate from 9% to 10.4%. That 1.4% increase in tax rate is subject to the restrictions established in HB 2267. This past May, the city passed an ordinance, in violation of the law, changing the allocation of tourism dollars, the lawsuit claims.

“The city claims their new allocation of lodging tax dollars still follows state law. This is incorrect,” said Brandt. “There is an error in the total investment they are required to make in tourism promotions and/or facilities.”

In its news release, the association stated, “The hospitality industry sees transportation investments as a crucial contributor to Oregon’s continued economic success. ORLA looks forward to working with Bend and other communities to help identify appropriate revenue streams to fund transportation investments, including the unrestricted portion of lodging taxes.”