New Lodging Tax: Needs Direction and Monitoring See the audit report for Full Details |
Crit Luallen |
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(Frankfort - August 14, 2007)
State Auditor Crit Luallen released today a performance audit of Kentucky’s new statewide lodging tax that became effective on June 1, 2005. The tax, which brought approximately $7.5 million to local, regional, and state coffers, was deposited into a restricted fund whose sole purpose was additional promotion of tourism throughout the Commonwealth. The new tax represents a nearly three-fold increase in marketing expenditures and raised Kentucky’s total tourism budget from the 33rd largest in America to the 15th. Despite this new influx of state dollars, the growth of tourism’s economic impact actually slowed during the first year of the tax. In 2005 the growth rate of tourism’s economic impact was 8.2%. In 2006 it was 6.6%, falling below the growth rate of national travel expenditures. This new funding was spent without adequate direction or performance measurements to monitor the success of the promotional efforts.
Two million dollars was given to the FEI World Equestrian Games to promote, market, and plan the equestrian games. In addition, over $300,000 from the lodging tax was used to offset general fund advertising expenditures, which allowed the general fund dollars to cover a budget cut in the Department of Tourism. In essence, restricted funds were used to pay for a budget shortfall, which is inconsistent with the intended purpose of the tax. These two expenditures equaled over 95% of the nearly $2.5 million in state funding disbursements. Regional and local entities spent only 62% of the $6.8 million in new tourism marketing resources allotted to them. Many local tourism entities did not or were unable to spend their allotment. A regulation governing the regional and local marketing program, which has not been revised in over 10 years, has been used by the Department of Tourism to attempt to also govern the large influx of new money for statewide marketing. The audit advocates that adequate guidelines and training be provided to ensure that the new money is spent to promote the tourism industry throughout the state. “Tourism is Kentucky’s third largest industry and second largest employer. It was a tremendous step forward to obtain this increase in marketing dollars. Despite millions of additional dollars, the growth of the economic impact of tourism actually slowed during the first year the tax was implemented. Without a true strategic marketing plan, the Department of Tourism has no way to measure if the money is being spent in the most effective way possible. Kentucky needs a more strategic approach to spend those funds effectively and ensure a good return on the investment being made” State Auditor Luallen said. Also, due to tax reporting limitations, Department of Revenue collections from lodging businesses cannot be verified. The reported delinquent rate is 8%. The audit recommends that Revenue should collaborate with Tourism to update and maintain a list of which lodging facilities should be paying the tax.
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