Wednesday, August 10, 2022

City councilors see tourism tax as lifeline for Williamsburg

Prince George Street in downtown Williamsburg. (Steve Roberts, Jr./WYDaily)
Prince George Street in downtown Williamsburg. (Steve Roberts, Jr./WYDaily)

Last week, Williamsburg city council approved one of the largest tax increases in a generation. Its goal was to create a fund that would finance projects to increase tourism within city limits.

After years of decreasing visitation, councilors devised it as a kind of lifeline to bring tourists back.

The move was met with both praise and criticism. After a 3-1 vote on the tax Thursday, members of the audience in city council chambers applauded its passage, while others quietly left the room.

The vote came after Mayor Paul Freiling — an employee of the Colonial Williamsburg Foundation — recused himself from the discussion and vote. There was no public comment period before the votes were cast, as a public hearing had previously been held.

The $3.2 million tax increase will be about 7.48 percent of the city’s “governmental funds revenues” if data for the city’s last fiscal year remains constant.

Ten percent of the tax increase will be used to fund administrative work in city hall while the other 90 percent — $2.9 million will be used to pay for tourism projects or debt associated with tourism projects, a reserve called the Tourism Development Fund (TDF).

The fund will be generated from a 1.5 percent increase in the tax on meals, raising it from 5 to 6.5 percent. As well as an increased tax on hotel stays, from 5 to 7 percent. A 3.5 percent tax on admission tickets was also created to finance the fund.

Colonial Williamsburg — the entity most affected by the increase — said the tax increase would be an additional burden on the organization as they work to increase visitation. In 2015, the Foundation raised $19,076,948 in admissions tickets, according to tax records.

Once the 3.5 percent admission tax is implemented — a first for Williamsburg — Colonial Williamsburg’s annual tax burden will be $667,693 or nearly 21 percent of all the money raised for the TDF each year, if 2018 visitation to Colonial Williamsburg is similar to 2015.

“As the President and CEO of Colonial Williamsburg, no one has a more acute understanding of the need for more tourism in Williamsburg,” said Foundation president Mitchell Reiss. “It is a challenge I work on every day…Raising taxes on our guests and every other person who eats at a Williamsburg restaurant or stays in a hotel is counterproductive; it is going to drive people away, not attract them here.”

While the Foundation is worried the new tax will drive away tourists, area entrepreneurs Chris Canavos and Ron Kirkland have both called the tax increase a positive event in Williamsburg history.

“It will bring business back,” said Canavos, owner of Capitol Pancake House. “It’s a major building block to redirect our tourism performance to upward trending.”

“I think city council really did try to make this as open and transparent as they could,” said Kirkland, a Williamsburg hotelier. “We’ve been talking tourism infrastructure for as long as I’ve been here.”

Members of council have thrown out ideas for the projects they want to see funded, such as a bike share, an aquatics center, an indoor-field house, among a laundry list of projects put forward by the city.

“In a place where most stuff is outdoors we need to have things climate controlled indoors, that’s why we love a multi-purpose field house, and the aquatics center,” Kirkland said. “We can’t do anything of size and scope as a destination to bring in the masses and it really hurts.”

It won’t be an easy decision. Whatever project the city chooses, the attraction will carry the weight of sustaining future tourism in Williamsburg. Without it, councilors say the industry could fade. 

“Inaction now means these issues continue for the foreseeable future,” Vice Mayor Scott Foster said before voting to approve the tax increase. “We will continue to fall behind as a great place to live and to visit. I don’t want to wait another 20 years to make that type of investment.”

Councilors will be the first to say that tourists are losing interest in coming to Williamsburg — and the numbers bear that out.

Looking at available hotel room stays within city limits is one way to measure visitation in the city. Hotel room stays have decreased by nearly 18.9 percent over the past five years — from 630,145 in the fiscal year 2012 to 511,239 stays in the fiscal year 2017, according to city manager reports.

“When somebody comes and stays at a hotel, what do they do?” said Councilman Doug Pons. “They buy admission tickets, and they buy meals.”

Councilor Barbara Ramsey, who championed the measure alongside Pons and Foster, agreed with the sentiment of her peers.

“Visitation has decreased, revenues have slackened, there’s increased competition from other markets, and tourists expect more,” Ramsey said. “Visitors are expecting more and we need to provide more variety and options for them.”

The graph above visualizes city data on the annual number of hotel room stays, available hotel room stays, and the citywide occupancy rate for hotels.

While the city hasn’t explicitly said which projects will receive funding, the city manager’s office has said the money will be an investment in “tourism product,” according to an April 10 presentation to council.

Councilman Benny Zhang, the lone dissenting voice in the discussion to raise taxes, voted against the increases.

“One of the reasons I can’t support this today is because I don’t know what we’re voting for,” Zhang said when the tax was first introduced to council June 8. “As of right now with fractured community input and no consensus on this project, I need to know what we’re getting into here.”

The city will start collecting the taxes on July 1, 2018. On that day, taxes on meals and eating out will increase from 5 to 6.5 percent. Taxes on hotel stays will increase from 5 to 7 percent, but most of the increase will be used to pay for funding to the Williamsburg Area Destination Marketing Committee.

With millions of breakfasts, lunches and suppers served in Williamsburg each year, the 1.5 percent meal tax increase will create an estimated $2.1 million in tax revenue from the city’s 89 restaurants, according to city estimates.

The graph above shows the cost of a steak dinner on May 5, 2017 at four restaurants within city limits before and after the tax increase is implemented.

The meal tax increase will raise the cost of dining at Williamsburg restaurants, for example, the cost of a steak dinner at the Blue Talon Bistro will increase by 45 cents — from $33.24 to $33.69.

The cost of a night’s stay at many hotel rooms will increase, while budget hotels costing less than $100 each night will see a slight decrease in the cost of a stay. The lodging tax might increase further if city council decides to raise by one additional percent next month.

The city has 35 hotels and motels, and 22 bed and breakfasts, according to city records.

The graph above shows the cost of a night’s stay on May 5, 2017 at four hotels within city limits before and after the tax increase is implemented.

The price of an admissions ticket to Colonial Williamsburg, Ripley’s Believe It Or Not!, and the Movie Tavern will all increase by 3.5 percent.

The price of an adult single day admissions ticket to Colonial Williamsburg will rise from $40.99 to $42.42 — or $1.43 more.

Colonial Williamsburg has previously criticized the tax as an extra burden on the organization as they work to increase visitation.

In a letter to the City Manager in June, Foundation president Mitchell Reiss wrote “Significantly higher taxes on meals and hotel rooms, coupled with a new admissions tax on attractions like Colonial Williamsburg, will cause significant harm to those working the hardest, and likely contributing the most, to attract more visitors to our community.”

The graph above shows the cost of admissions to attractions within city limits before and after the tax increase is implemented.

For other organizations, it’s less about the tax increases and more about the lack of a clear strategy for the funds.

Karen Riordan, president of the Greater Williamsburg Chamber and Tourism Alliance, said she wants the city to come out with an “overarching vision” for the fund.

“If we’re really interested in sports-tourism projects, we need to have a lot of sports-tourism proposals,” Riordan said, before adding the Williamsburg community needed time to heal after the divisive issue passed city council.

Despite the controversy, Riordan, the Chamber and other local groups are looking toward the future.

“Now the hard work begins for our organization,” she said. “We have to try to bring this community back together.”

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