In FedExForum Funds Search, Don’t Put $3.5 Billion Tourism Industry At Risk

Impact of local hotel-motel tax on Memphis tourism

In its 55th year, the local hotel-motel tax has served as a significant financial catalyst in the economic development of Memphis and Shelby County’s tourism industry. However, the region’s government has often treated the resulting revenues as a tempting reserve to satisfy various political whims. Hence, Memphis Tourism currently operates on a $16 million budget, significantly lower than its peer cities.

Memphis Mayor Paul Young is now considering tapping into Memphis Tourism’s marketing budget to bridge the funding gap for the over $500 million worth FedExForum renovations. While the upgrades are crucial to ensure the Memphis Grizzlies remain in the city, let’s not forget the equally critical $3.5 billion tourist and convention industry.

The danger of bringing the tourism agency’s budget under the blade

Weak management and irregularities at Memphis Tourism, is an issue that must be directly addressed with the president and executive committee of the nonprofit agency. However, lawmakers, including Senator Raumesh Akbari and Representative Antonio Parkinson, must tread carefully to avoid jeopardizing the agency’s efforts to positively boost the community’s image. As it stands, Memphis desperately needs all the positivity, branding, and marketing it can get.

In considering alternative options of funding, every feasible choice, including potentially higher, albeit politically challenging property taxes, should be on the table. The local tourism industry generates $109.7 million in taxes while contributing a whopping $166.4 million in taxes to the State of Tennessee.

A question of credibility

Memphis Tourism was recently highlighted in articles by The Daily Memphian, reducing its standing in the community and making its bank account a tempting option to fund the FedExForum renovations. Suspicions were only heightened when, 22 days after the report revealed a $27 million fund balance for Memphis Tourism, news surfaced about an endeavor to utilize Memphis and Shelby County tax revenue to cover the FedExForum funding shortfall.

The credibility of Memphis Tourism was not aided by their shaky explanations about their huge reserves and their decision to inject a $1.55 million cash infusion into Memphis in May International Festival by purchasing a downtown building owned by the beleaguered organization. This raised questions about the deal, which seemed to reek of favoritism.

Is there a better way?

The reported funding deficit for the FedExForum improvements is approximately $100 million. Rather than jeopardize Memphis Tourism’s budget, local government should consider other means such as modestly raising property taxes or reducing annual tax breaks by about 17%. By lowering tax breaks from 75% down to 60% in the future, a dedicated funding source could be created.

A small increase in the local hotel/motel tax, like Johnson City which raised theirs from 5% to 7%, could be an option. However, given that local hotels and motels already shoulder one of the highest lodging taxes in the U.S., local government needs to secure their support should it choose this route. The hoteliers could potentially back a 2% increase if the revenues are equitably divided between paying FedExForum bonds and funding Memphis Tourism, with an added caveat of no interference in existing budgets and taxes for the tourism agency.

One way or another, everyone has a stake

The responsibility of funding improvements to the FedExForum is not just for the hoteliers. It should be a burden the entire community readily accepts given the high esteem in which our NBA team is held. Here’s hoping Mayor Young’s “robust dialogue” results in a fair solution which maintains the vibrant tourism industry while satisfying the needs for improvement to our beloved FedExForum.