City of Duluth nets tourism tax windfall

• Duluth tourism tax revenue, 2005-11

Duluth tourism tax revenue, 2005-11

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Spending in Duluth’s hospitality industry hit an all-time high in 2011.

Last year, the city received nearly $8.2 million in local tourism taxes collected by hotels, motels, restaurants and bars.

Tourism tax revenue rose more than $400,000 from 2010, climbing 5.3 percent.

“They’re very good numbers,” said Dave Montgomery, chief administrative officer for the city of Duluth. “I think it really points to some of the economic recovery we’re seeing that’s better and faster than we anticipated. Duluth is attracting people, and they’re feeling more comfortable about staying in hotels and going out to restaurants.”

In light of freeway construction and continued economic uncertainties, the city built a conservative budget in 2011, predicting local tourism activity would decline slightly.

When actual tourist spending increased instead, the city found itself with $748,800 more than what it had forecast for tax collections in 2011.

Some of that money will go to pay off more than $129,000 in overdue utility bills run up by previous management at the Great Lakes Aquarium, but most of the remainder will go into a reserve fund. The reserve will be available to use for capital improvements to local tourist attractions, to cover unanticipated costs and possibly to pay for new projects.

The city is limited in how it can use the money, as all tourist tax proceeds are earmarked to support local tourism. Montgomery said the city has no immediate plans to spend the money.

“It gives us some flexibility to look and see where our needs are or where people may have some good, creative ideas,” he said.

In Montgomery’s eyes, Duluth’s tourism industry weathered the recent economic downturn surprisingly well.

“We have many people who come here as a primary choice. But I think Duluth is also a second-choice destination for a lot of people who maybe can’t afford a big trip to some place like Orlando,” he said. “Duluth is a quick and easy getaway.”

Duluth’s tourism tax rate is set to decline slightly later this year, as the city retires some of the debt associated with the Duluth Entertainment Convention Center and the Great Lakes Aquarium.

Both a 0.5 percent hotel/motel tax and a 0.5 percent food and beverage tax should sunset around August, said Adele Hartwick, the city’s chief financial officer. After those reductions, Duluth’s tourism tax on hotels and motels will dip to 6 percent, and its tourism tax on food and drink will sink to 1.75 percent.

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