Commentary: Can a Tourism Authority with taxing authority be justified? | Eastern North Carolina Now

    Publisher's Note: This article originally appeared in the Beaufort Observer.

    Al Klemm is proposing a county tourism authority, with the power to tax. He says it is an effort to promote more tourists coming to Beaufort County and spending more money in local businesses. It will actually do just the opposite. Here's what's really behind this move.

    These tourism authorities across the state have, for the most part, been totally ineffective. There is no valid data to show that the money collected has increased the amount of tourism spending. What there is evidence of is that a few select groups have benefitted from a crony funding mechanism that takes money that tourists would otherwise be spending in local businesses and gives it to other groups and businesses who do not offer a sufficient service or product to entice the tourists to pay for those services or products. Much of the money is sucked out of the local economy and shipped outside the county.

    The theory is that "we're only taxing outsiders." But that is a false claim. To see that deception one only need consider the Law of Supply and Demand. When a tourism authority imposes a tax, whether it be on motel rooms, restaurants or any other product or service, the merchants simply pass that tax along in the form of higher prices. If they don't then by definition they are paying the tax from their before tax profits. If they pass on the tax prices go up. If prices increase demand goes down. Studies, and common sense, have shown that the "demand" for tourism is highly elastic. That is, the amount consumed responds proportionate to the change in price. The greater the elasticity the greater the response to a change in price. If you raise the price, the amount consumed decreases. If you lower the price the demand increases. Of course the price is relative. If one community has higher taxes on tourists and thus higher prices, some tourists will choose not to go there but rather will go where their money will get them more. That's why there are more rental units at the beach that are not waterfront than there are higher priced waterfront rental units.

    And that is an important principle Mr. Klemm apparently does not understand. When tourists decide they are going to visit a tourist destination they have many choices. But it is logical to assume that tourists who consider visiting Beaufort County do so because it is either more convenient for them or it costs them less than going to say Myrtle Beach, Charleston, Savannah or even Nags Head. Those places already have high tourism taxes. So the competitive advantage goes to Beaufort County for tourists who do not want to pay Myrtle Beach prices. If we raise our prices the advantage shrinks.

    The other fallacy of the tourism business is that advertising will attract more consumption than it costs. But there is little data to support this. The Washington City Council a few months ago heard a report from the Washington Tourism people about an advertising plan that involved choices in where to spend the tax money for advertising. Yet the proposal had no supporting data. There was no systematic analysis of the targeted market(s). It was simply a fly by the seat of your pants anecdotal proposition, much more along the lines of "we need to do something..."

    Let us use an example. Some contend that festivals and events on the waterfront attract visitors. And while that is undoubtedly true in one sense most businesses in town will tell you that events like Smoke on the Water and the Summer Festival not only do not increase cash register sales in most local businesses but it actually hurts business while the events are going on. One business owner laughed when we asked how much a recent festival helped her sales. "Killed us..." was her response. "Our customers couldn't find parking places so they did not come in." Notice that you have never seen one of these groups who advocate for tourism taxes present any hard data from cash register sales. The data are available if one takes to time to gather it from the Sales Tax Reports local business make each month but we've never seen anyone try to assess such data.

    The N. C. Department of Commerce has a Tourism division. It publishes a ton of statistics. But as we have pointed out, the data are not reliable because of the way it is collected and analyzed. DOC will not make the raw data nor the computation formulas used to produce the glowing, every increasing numbers available for verification or replication. When independent verification is not possible one cannot legitimately say the reports are valid or reliable. We suspect there is a reason for that. They're afraid for the truth to be known.

    Consider this idea: What attracts more people from out of town to come to Beaufort County is little league sports, much more than any other event. Just ride by one of the sports complexes on a Saturday during season and count the cars, or even look at the license plates and count the ones that are not local. So why do we not tax these events? Actually, we were treated not too long ago to the reciprocal of what Mr. Klemm is proposing. A group went before the City Council and asked for a reduction in the tax (actually they call this tax a "fee") on participation in the recreation programs. Clearly someone had realized that the Law of Supply and Demand impacts how many kids play sports and how many cannot afford to do so. The exact same principle applies to every such activity that has an elastic demand curve. That is, people have choices whether to spend their limited funds of one thing rather than another.

    And that brings us back to Mr. Klemm's proposed "Authority."

    What you actually have being proposed here is that a group of "insiders" (appointed, non-elected "officials") will be selected to sit on this Authority and decide how the new tax money will be doled out. Most such groups solicit "proposals." Then they decide which proposals will be funded and which will not be funded. It is classic crony capitalism. Take money from people who have no choice whether to pay it or not and then give it out to those you favor. It is a scam of confiscating other people's money and picking winners and losers to give it to or not.

    And when we say take money from those who pay the tax it should be understood that Mr. Klemm is, once again—as he did with his crony capitalism economic development program that wasted over ten million dollars and destroyed more jobs than it created—making a bogus claim when he says it is the tourists who pay the tax. No! It is the businesses in the county that pay the tax. All the tax does is raise their cost of doing business. That lowers their profit and thus it is the business person who actually pays the tax. He says the tax will be passed along to the tourists. If that's so he need to show hard numbers to show that demand is inelastic and the proposed amount of the tax is below the Point of Diminishing returns.

    Now, in fairness to those who want a Tourism Authority that has taxing authority we should say that it is not an altogether bad idea. It depends on how it is done. And one of the criteria that should be imposed on such an Authority is to produce solid, hard data to show the impact of the tax on the demand for tourism services and products and the effectiveness in generating more revenue from the expenditure of the tax dollars than the tax decreases demand and profits in local businesses. In other words, before the County Commission approves this idea it should insure that there is a sound plan to measure the effectiveness of the program. No expenditure should be approved without being able to show a verifiable Return on Investment.

    What Beaufort County does not need is another redistribution of wealth, backroom special interest scam being run on the businesses of this community by a small handful of self selected cronies.