An Outlook

By now, almost everyone knows that the city of Sturgeon Bay and most of the rest of Door County are at odds over how this peninsula will be marketed to vacation travelers in 2009. If you somehow missed this controversy you can read about it elsewhere in this paper. And while I have strong opinions on this matter I’m going to focus my comments in this column on some of the room tax numbers involved in this controversy.

Every month the Peninsula Pulse faithfully reports the room tax numbers provided to us by the Tourism Zone Commission. There is a lag time involved in these reports (two months) because of payment dues dates in relation to the end of any given month, and these figures are often adjusted at a later date for reasons that I will explain later. These numbers are critical to understanding the health of the tourism economy in Door County and in tracking the success and/or failure of our marketing efforts. And because they are so critical it is important that these numbers are understood by everyone, so bear with me while I explain a few of the key elements you see in these monthly reports.

Every rental property in the tourism zone (resort, inn, cottage, house, etc.) that is required to pay sales tax and rents for 30 days or less fills out a form at the end of the month where they list the number of rooms they had available during that month. So if I owned a hotel in the tourism zone that had 100 total rooms for rent during the month of June, I would fill out 3,000 available rooms on my reporting form (100 rooms times 30 days = 3,000 rooms).

Now as it turns out, my hypothetical hotel in my hypothetical June, rented a total of 1,500 rooms, which I also report on the form. This means that my occupancy rate was 50 percent (1,500 rented rooms / 3000 available rooms = 0.50).

I’m open in the off-season, as well, but in January I close off a portion of my hotel and only have 25 rooms open. Thus, for the month, I have 775 rooms available and in this particular January the weather is very cold and I rent just 100 rooms, so my occupancy rate is just 13 percent (100 rented rooms / 775 available rooms = 0.13).

When you combine my hotel with every other tourist rental property (meeting the criteria I outlined above) in my municipality you begin to see just how useful these statistics become. Suddenly, for each month of the year, for each season of the year, we have solid numbers documenting how our lodging industry is performing.

The other critical statistic that shows up in the monthly reports is the “Average Daily Rate.” Some of you may recall that I wrote a column taking issue with the naming of this particular statistic, but those concerns don’t alter the importance of this number.

This number is derived by taking the gross revenue generated by rented units and dividing it by the number of rented units. For example, let’s say the gross revenue of all the tourism rentals in a community during a month is $100,000 and that 1,000 units are rented in that month. Then the “Average Daily Rate” is $100 ($100,000 gross revenue / 1000 rented units = $100 average cost of rental).

While this number, like the occupancy rate, will go up and down depending on the time of the year on the peninsula, what we want to see is the Occupancy Rate going up while the Average Daily Rate remains constant or goes up somewhat when compared to the same month in the previous year. If the Average Daily Rate goes down sharply from one year to next, it means the owners of tourism rental properties are taking in significantly less money unless the occupancy rate goes up dramatically (which could signal a discounting competition that benefits no one).

As I mentioned earlier, these numbers are usually adjusted, because the Zone Commission back credits any late payments to the correct month. So if a payment for June doesn’t come in until September, the amounts and numbers are added back into June, providing an accurate reporting of what actually occurred in June rather than skew the numbers in September.

The room tax in the Tourism Zone began on May 1, 2007, so we have just begun to see Occupancy Rate and Average Daily Rates that can be compared to last year’s figures (at least among the original member municipalities) and so we are now beginning to create our “yardstick” to measure the effectiveness of our marketing efforts. The innkeepers, the resort owners, the cottage owners, etc. can look at these numbers and see whether the tax they are collecting is being spent wisely be the marketing agency which, in the case of the Tourism Zone, is the Door County Visitor Bureau.

Because, folks, while we should all take an active interest in these numbers, the audience they matter to most are the people who rent lodging to our visitors. A room tax has one – and only one – purpose: to bring more people to the peninsula to rent more lodging. More colloquially, a room tax is intended to be spent on marketing that puts heads in beds. It is not intended to sell more books in my bookstore; it is not intended to sell more Swedish Pancakes at Al Johnson’s Restaurant, and it is not intended to sell more rounds of golf at Peninsula State Park. It is intended to fill more rooms at the Wagon Trail Resort, at the Blacksmith Inn, etc.

These Occupancy Rate and Average Daily Rate numbers are the measuring devices that help us determine whether the marketing efforts of the Door County Visitor Bureau, as contracted for by the Tourism Zone, are achieving those results. The Visitor Bureau’s job is to bring people to the county to fill those beds; therefore their focus is outside this peninsula. How well they do that job is what the Tourism Zone Commission and those who rent accommodations continue to monitor through these reports.

Will my bookstore benefit from more hotel rooms rented? If I run my business successfully, it should. But until I start collecting some sort of tax on my books that is to be spent on marketing, I’m not entitled to directly benefit from a tax that is collected by another industry for marketing. I may well benefit, but it is not a requirement.

And this is one of the fundamental differences between the Tourism Zone and the city of Sturgeon Bay. The city collects its room tax payments on a quarterly basis and the only statistic they request is gross receipts for the quarter. According to one source, the reason they don’t ask for more detailed information like available units and units rented is because an attorney said they couldn’t legally ask for this information. Yet, if the innkeepers were aware of the measuring capabilities this information could provide them, and if they were assured that their individual statistics would be confidential (as they are for properties in the Tourism Zone), why wouldn’t they provide this information willingly – even if the attorney’s opinion was correct?

One answer is that many in the city don’t believe that a room tax is solely intended to fill lodging units. Spending room tax dollars on festivals, sidewalk sales, etc. – or even cutting the weeds in the canal – are perfectly legitimate expenditures according to several emails I have received over the past week from parties in Sturgeon Bay (though no one in the lodging industry that I know has expressed this opinion). Thus, if you don’t accept the notion of room tax dollars putting "heads in beds," why do you need quantifiable data?

For over 10 years the city of Sturgeon Bay has been collecting a room tax with virtually no accountability for the manner in which the revenues are spent and no possibility of any meaningful measures to determine if the marketing money is having a positive effect. In just 16 months, with 14 months of reported collections, the Tourism Zone already has more quantifiable data in hand. How can this make sense to anyone?