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Seven Year-old 8% Hotel Tax for Expansion of Virginia's Richmond Coliseum Successful,
Yet no Funds Remain for Expansion

By Michael Martz, Richmond Times-Dispatch, Va.McClatchy-Tribune Regional News

Jan. 3, 2010--A tax on hotel rooms is generating millions of dollars more in the Richmond region than needed to pay for the expansion of the convention center seven years ago.

But local officials caution that there is no pot of money available from the 8 percent room tax to pay for a new or substantially refurbished civic arena to replace the aging Richmond Coliseum.

"What I can tell you definitely is there is no money left over," said John A. Vithoulkas, finance director in Henrico County.

Henrico, Chesterfield and Hanover counties have received almost $37 million in refunded money from the transient-occupancy tax in the past five years, or about 38 percent of all the money collected. Last fiscal year alone, the three jurisdictions received more than $7.2 million left after covering debt service on the bonds sold for the center and operating expenses, with Henrico receiving the lion's share at more than $4.7 million.

Richmond isn't getting any money back but instead is paying about $2 million a year to fully fund its obligation because of hundreds of hotel rooms that were projected but never built in the city.

"We don't get the money -- the other jurisdictions do," said Byron C. Marshall, Richmond's chief administrative officer.

However, the expanded center was built in downtown Richmond. "There is a benefit to having that facility downtown," Vithoulkas said.

A little less than half of the money coming back to the counties is revenue they already were collecting from a 2 percent hotel tax levied long before the $170 million expansion of the Greater Richmond Convention Center. While that money is returned to the counties' general fund budgets, the remaining excess tax revenue -- about $19 million in the past five years -- is restricted for promotion of tourism and economic development in the region.

"As far as a method for financing of the center, it's been a huge success," said Chesterfield County Administrator James J.L. Stegmaier. "It's done exactly what it was designed to do."

Still, a senior state senator from the region wonders if the money generated by the hotel tax could do more.

"I don't see what the problem is with using that as a regional source of revenue," said Sen. John Watkins, R-Powhatan.

The hotel tax is returning as an issue as officials in Richmond and a regional task force begin to wrestle with the long-term solution to chronic problems with the condition of the 38-year-old Coliseum. The city is preparing to spend about $300,000 on emergency repairs to the building's leaking roof and electrical system, but two consultant reports document up to $14 million in long-term needs for the arena to remain viable.

A task force of the Metropolitan Richmond Convention & Visitors Bureau is taking on the issue as a potential regional concern, even though the Coliseum is owned and operated by the city.

"The bottom line is they're not going to be able to make it work unless they do it on a regional basis," Watkins said.

The challenge is finding the money to pay for a major renovation or, as some prefer, a new arena that could cost as much as $200 million and compete for major concerts and sporting events.

In the case of the hotel tax, all of the money is pledged to underwrite the bonds, initially $158.4 million in 2000. An additional $6 million in bonds were issued in 2003, and the Greater Richmond Convention Center Authority refinanced about $148 million in bonds. "At the end of the day, the bondholders want to get paid," said Joseph P. Casey, Hanover's deputy county administrator for finance.

The authority pays annual debt service of about $11.5 million. It also pays about $1 million a year in general operating expenses and about $2 million in other net contractual expenses for operating the center.

If the region wanted to raise money for a new arena, it would have to get permission from the General Assembly to raise the tax.

"You'd have to ask to double the occupancy tax," said Henrico County Manager Virgil R. Hazelett, who is chairman of the convention center authority.

And that isn't something that hotel owners would support, said Thomas A. Lisk, a lawyer and lobbyist for the Virginia Hospitality and Travel Association.

Lisk said he was surprised that about 38 percent of the $97 million raised by the tax since mid-2004 has been returned to localities, based partly on their share on the obligation to pay for the convention center expansion. "I would not have expected that to be that high," he said.

He recognizes that the three counties already had authority to levy a 2 percent hotel tax to spend as they like. The counties received back about $18 million over the past five years to account for that portion of the tax.

"If more than 2 percent were spent on something other than tourism promotion, [hotel owners] would be very concerned about that," Lisk said.

Officials for the counties say they all spend more on tourism and regional economic development than they receive in excess funds from the tax.

They also say they haven't been approached yet about a potential role in the Coliseum solution.

But they know it's coming.

"These are beginning conversations," Hazelett said. ------

Contact Michael Martz at (804) 649-6964 or mmartz@timesdispatch.com.

-----

To see more of the Richmond Times-Dispatch, or to subscribe to the newspaper, go to http://www.timesdispatch.com.

Copyright (c) 2010, Richmond Times-Dispatch, Va.

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