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Your City - Your Business: Tourism tax allocations determine Duluth's future

Recently, recipients of Duluth's specially designated tourism tax revenues appeared before the Duluth City Council Finance Committee providing testimony on how the funds are used. The presentations were at the invitation of the city's chief admin...

Recently, recipients of Duluth's specially designated tourism tax revenues appeared before the Duluth City Council Finance Committee providing testimony on how the funds are used. The presentations were at the invitation of the city's chief administrative officer and followed a summary of the history of the various taxes, revenues and distributions.
Duluth's original visitor-paid-for tax dates back to 1966 with the initial 3 percent hotel tax. The City Charter states that the first 5 percent of said revenues be mandated to the General Operating Fund for administering the collection. Of the balance, 65 percent goes to construction of the arena-auditorium (now the DECC), and 35 percent for advertising and publicity.
A series of additional visitor surcharges have since been added with varying strings attached. Some of those strings are more tightly wrapped than others, which often leads to spirited philosophical discussions regarding their use. When all is said and done, the proceeds from this overburdened $4 million pool of funds end up being distributed in about a dozen different areas. Local visitor-paid-for taxes are not unique to Duluth. In fact, wherever these taxes are wisely instituted, the revenues form the promotional building blocks of burgeoning tourism destinations around the globe.
Duluth is one of America's greatest tourism success stories, and the summer of 2001 is no exception. While the rest of the nation is forecasting a 5 percent or more decline in visitor spending, Duluth's tourism tax revenues are up 4 percent through the July analysis, which includes actual business through June. July figures will be available soon, and the rest of the year should be very strong. June hotel business was up over 12 percent with only 1 percent to 2 percent of that amount driven by room rate increases. Duluth is on track for its 14th consecutive year of record revenues and visitation.
How can we account for all of the success?
Lake Superior's natural beauty has allowed us to successfully develop and market the Duluth brand, luring 3.5 million visitors each year. Also, the high ratio of local ownership in the hospitality industry has administered the pulse of supply and demand, politics and priorities, profit and responsibility. A collaboration of private investment and public support saw a diamond in the rough when most turned their backs on the Zenith City during the 1980s. But with a tourism infrastructure now capable of supporting a $400 million-a-year industry, the challenges and stakes are clearly higher than ever.
Duluth's location (at the end of the road), its seasonal northern climate, a sluggish national economy and a scarce local tax base are just some of the hurdles that continue despite breathtaking scenery and an unparalleled quality of life. A weakening local corporate base means that the little business travel enjoyed by Duluth has all but gone away. There's an unhealthy reliance upon leisure and convention travel in Duluth's hospitality industry, where family getaways are the name of the game.
How will Duluth tourism continue its momentum? The answer is the same way it develops its momentum.
By creatively and aggressively promoting itself. Nothing happens until we sell it. From the doubling of our lodging and restaurant capacities, to the two convention center expansions, infrastructure enhancements and the development of world-class attractions and events, nothing develops successfully until demand is first built in. Build it and they will come? That only happens in the movies. Duluth has benefited from many wonderful projects, but without the appropriate sales and marketing effort, the community would suffer with an underutilized infrastructure and no return on investment.
As the city of Duluth works in preparing its 2002 municipal budget, one thing is for sure -- the city of Duluth is in business. With an estimated 20 percent to 40 percent of general sales tax revenues paid for by tourists and perhaps as much as $20 million in total tax revenues riding on the success or failure of tourism, decisions on where to invest the relatively small amount of available designated tourism tax becomes ever more critical.
Traditionally, discretions of where to invest these designated revenues have been greatly influenced by the city administration. As tourism grows, however, there is indication that city councilors are taking a more proactive interest, as well. The recent City Council Finance Committee meeting was perhaps a result of a yearning for more process in government. With so much on the line, the city of Duluth is clearly the biggest local player (and winner or potential loser) in the tourism game.
All the while, there is a polite yet strong, clear voice resonating from industry stakeholders paying the tax. Thirty-five percent dedication for advertising and promotion is the minimum, performance-based standard required to ensure the future of Duluth's visitor industry.
There are many demands on all local tax dollars including tough decisions regarding tourism tax accounts. Perhaps the time has come for inclusion of the tourism stakeholders in sharing of the burden for these decisions. Many communities, even those nearby such as Superior and Proctor, for example, have set up special committees to deal with tourism tax decision making.
As Spirit Mountain board chair, Charles "Huck" Andresen presented the recreation area's request for a $250,000 special appropriation offsetting much needed repairs. He clearly stated his parameters: "We don't want the money to come out of promotion. The sales and marketing efforts of the DCVB are as important to the future of Spirit Mountain as this special request is itself," he said.
When commenting on the city's promotional allocation, Brian Daugherty, DCVB board chair, stated, "We're not here to tell the City Council how to divide up the tax, but we can provide suggestions on how you increase these revenues. We're here to tell you how to make more." Promotion is tourism's economic engine, giving benefit to every Duluthian -- those in the tourism industry and those who are not. "This is the investment that drives the local tourism industry," remarked Daugherty.
Tourism promotion is Duluth's hottest form of economic development, and while no one is complaining, the reality is that comparatively speaking, Duluth likely isn't investing enough.
Terry Mattson is the executive director of the Duluth Convention and Visitors Bureau.

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