CCW Minutes and Attachments 1-3

COUNCIL COMMITTEE OF THE WHOLE The Council Committee of the Whole met on September 10, 2019 at 6:01 p.m., with Council President Hare presiding. Members of Council present were Mr. Anderson, Mr. Sudler (arrived at 6:03 p.m.), Mr. Neil, Mr. Slavin, Mr. Cole, Mr. Polce, Mr. Taylor, and Mr. Lindell (arrived at 6:23 p.m.). Mayor Christiansen was also present (departed at 6:25 p.m.). Civilian members present for their Committee meetings were Mr. Caldwell and Col. Dix, Retired, (Parks, Recreation, and Community Enhancement), and Mr. Contant and Mr. Shevock (Legislative, Finance, and Administration). PARKS, RECREATION, AND COMMUNITY ENHANCEMENT COMMITTEE The Parks, Recreation, and Community Enhancement Committee met with Chairman Anderson presiding. ADOPTION OF AGENDA Mr. Neil moved for approval of the agenda, seconded by Mr. Taylor and unanimously carried. Presentation - Dementia Friendly Delaware (Lindy Scott) Ms. Lindy Scott reviewed a presentation entitled “Dementia Friendly Delaware, Addressing a Growing Need in the State” (Attachment #1). Responding to Mr. Sudler, Ms. Scott advised that they were finalizing the training process but that it would only be about an hour long and could be done either in person or through the web. Mr. Caldwell asked if the training would involve family members as well. In response, Ms. Scott stated that they wanted to train City workers first and then there would be an outreach effort for caregivers as well. Mr. Neil thanked Ms. Scott and Lieutenant Governor Bethany Hall-Long for making healthcare issues a priority. Mr. Anderson indicated that he had some questions regarding how exactly the program would work and the different organization involved, and that he would contact Ms. Scott for additional information. Mr. Neil moved for adjournment of the Parks, Recreation, and Community Enhancement Committee meeting. The motion was seconded by Mr. Taylor and unanimously carried. Meeting adjourned at 6:16 p.m.

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 2 LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE The Legislative, Finance, and Administration Committee met with Council President Hare presiding in the absence of Chairman Lindell, who assumed the Chair upon his arrival at 6:23 p.m. ADOPTION OF AGENDA Mr. Neil moved for approval of the agenda, seconded by Mr. Anderson and unanimously carried. Public Hearing - Proposed Ordinance #2019-16 Amending Chapter 102 - Taxation of the Dover Code by inserting a new Article VII - Lodging Tax Mr. Neil read the following statement into the record: The Mayor and I serve as the City's representatives on the Kent County Tourism Board. I have witnessed the renaissance of this Board since 2015 into a vibrant, moving forward force to bring visitors to Dover and Kent County. A look at Delaware's Quaint Villages, the Kent County Tourism website shows why more and more visitors have reasons to come and are coming here. I took the Certified Tourism Ambassador Training program and passed, which disproves the statement that "You Can't teach Old Dogs New Tricks." As the worse Lacrosse Player in the University of Maryland history, I love DE Turf because it brings a continuing flow of visitors to this area... but so does NASCAR, Firefly, College Graduations, Homecoming Football Games, the State Legislature, the Kent County Tourism outreach and the miscellaneous other reasons that bring people here. I do know that Hotel/Motel owners receive top dollar when demand is high. They also pay fees to booking agents if rooms are booked through those agencies including those with agreements with DE Turf... plus a fee if they have an agreement with DE Turf. Should we implement this Lodging Tax, they will NOT pay that tax nor will the City Taxpayers. It is a lot cheaper to pay the small additional fee than to pay for the gas to travel to New Castle or Sussex County to stay... and more convenient too. If the City uses this additional money for infrastructure, as I hope it will be used, then I regard this as a User Fee that currently falls solely on the City Taxpayers.

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 3 Keep in mind, during the recession, much of the infrastructure, including machinery, was extended far beyond its life expectancy. The emergency repairs of these infrastructure items cost far more than scheduled replacement would cost. Since both the City and the County can levy this Tax, I certainly will seek a reasonable approach in the amount to set, but it will be implemented. City taxpayers deserve no less. Mr. Hare declared the public hearing open. Mr. K.C. Sheth, 21 St. Annes Court, noted that he had been a City resident for 50 years, and had served on the City’s Board of Adjustment for 27 years, and as former Chairman of the Board for Kent County Tourism. He expressed concern regarding the proposed lodging tax, explaining that it would negatively impact the hotel industry in the City, especially since property and school taxes were just increased. Mr. Sheth stated that he thought that infrastructure was an issue for every resident of the City, so they should carry the burden equally. Mr. Victor Schimp, 163 Stonewater Way, stated that he had been a resident of Dover since 1969 and had worked in the hospitality industry since 1973, starting at the age of 14. He informed members that he had served as a former Chairman of the Delaware Hotel and Lodging Association, former Chairman of Kent County Tourism, and as former Chairman of the Central Delaware Chamber of Commerce, so he has a vested interest in the hotel industry, tourism, and business in general, and cannot sit idly by and watch the industry get hit with a potential 75% increase in public accommodations tax (PAT). He expressed concern regarding the adverse impact that a City and County lodging tax would have on the hotel industry. Mr. Schimp noted that he had heard talk regarding a slowdown approach to the tax increase of 1% or 1.5% and suggested that the legislation be rewritten with a 1% or 1.5% cap. Ms. Bessie Crain, 855 Townsend Boulevard, asked why a nonprofit organization was benefitting from this lodging tax and what the monies would be used to fund, noting that no one was providing any information. Responding, Mr. Lindell clarified that, in regard to a nonprofit organization benefitting, Kent County was considering a lodging tax which would go to DE Turf. He stated that the City was not part of that proposal. Mr. Lindell noted that he thought members planned to discuss what the proposed lodging taxes would fund following the public hearing. Mrs. Sara Herbert, 223 North Bradford Street, expressed concern regarding the proposed lodging tax. She referenced an article from the Delaware State News, indicating that if both the County and City measures are implemented, the lodging tax rate in the City of Dover limits would rise to 14%, making it the highest hotel tax in the state. She stated that she thought it was Council’s job to protect businesses and not make it harder on them. Mrs. Herbert stated that it was her understanding that Kent County Levy Court would be the body to approve the countywide increase, and noted that she was hearing that the rate would be set at 1%, however, she did not trust it. She expressed concern

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 4 that the County had not yet scheduled discussions regarding the tax and questioned why the City would set a tax rate and meet to discuss this matter on September 23, 2019 before they know what Kent County Levy Court is going to do. Mrs. Herbert explained that if the City and County both set lodging tax rates at 3%, then the rate will be up to at least 14%. She stated that she thought that a City tax should go to the City and no where else, noting that the City’s downtown and infrastructure need work. Mrs. Herbert also expressed concern that the lodging tax legislation was pushed through the state legislature at the last minute and was unfair and poorly thought out, noting that DE Turf bragged about the fact that they were not going to use any tax money, and they are a nonprofit that has been making a profit. Mr. Sam Chick, 115 West Loockerman Street, expressed concern regarding the negative impacts the proposed lodging tax increase would have on the economy of Dover, noting that it would be an increase for the hoteliers because there is already an 8% state lodging tax in Delaware. He indicated that the tax would not only impact hotel occupancy but all businesses, explaining that by taking the money through the lodging tax, it could not be spent in the City. Mr. Chick noted that he did not feel it was fair to impose another tax, especially since taxes were recently increased, but stated that he did not disagree with the principle that the City should get some lodging tax. He suggested that if the City wanted a lodging tax, they should go back to the General Assembly and ask them for a portion of the existing 8%. In response to Mr. Chick, Mr. Neil stated that the 8% that the state collects is divided among the counties for tourism uses, with the smallest portion going to Kent County and the largest to New Castle County. He noted that he did not think that the lodging tax would keep anyone from staying in Dover, explaining that they would have to stay somewhere if they want to see their child play at DE Turf. Responding, Mr. Chick stated that five-eighths of the state lodging tax goes to the General Fund, so there is plenty of money sitting there. He suggested that there are other ways to approach this than increasing taxes. Mr. Chick questioned why people would want to stay in or build a hotel in Dover if the taxes are higher in the City than they are in the surrounding County or any of the municipalities. He suggested that it would be better for Council to maintain what they have, explaining that he thought it would make the City more competitive for lodging and more hotels would be built here because it would be more of an economic advantage than the rest of the state. Mr. Joe Fitzgerald, speaking on behalf of the Delaware Hotel Lodging Association, expressed opposition to the tax increase and concern regarding the potential economic impact of the tax. He stated that the Delaware Hotel Lodging Association was very concerned about the manner in which the legislation was passed by the General Assembly. He explained that, while they were only enabling legislation for the City and County, he thought they still merited a committee hearing and should have gone through the regular process so stakeholders could have an opportunity to weigh in on how they thought these taxes would affect them.

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 5 Mr. Schimp clarified that the 8% state PAT is currently allocated as follows: 5% to the General Fund, 1% to the State Tourism Office, 1% to beach replenishment, and 1% allocated to the three counties based on the proportion of lodging revenue. Mr. Hare noted that when the General Assembly passed the enabling legislation for New Castle and Sussex Counties, they stipulated that they could only tax unincorporated areas; however, the legislation for Kent County did not include that stipulation. He expressed concern that Kent County is not treated equally, noting that Kent County does not receive equal treatment regarding payment of in lieu of taxes (PILOT) either. Mr. Hare stated that he thought the County would implement a 3% lodging tax and if the City implements a 1.5% lodging tax, the City would have the lowest lodging tax in the state. He stated that the County’s tax would all go to DE Turf, which he thought would guarantee no future property tax increases from the County, explaining that it would be difficult to raise taxes and give $1M to a nonprofit. Mr. Hare stated that the money collected from the City’s lodging tax would be used to help reduce expenses within the City, which would benefit everyone. Mr. Anderson moved to amend line 8 of Proposed Ordinance #2019-16 by inserting after rent, “starting with an initial rate of 1.5%.” The motion was seconded by Mr. Neil. Responding to Mr. Contant, Mr. Anderson stated that the total revenue for a 1.5% lodging tax rate was still being projected and unknown, but the revenue projections would be approximately $350,000, plus or minus $50,000. Mr. Sudler stated that he thought it was apparent that the City’s hoteliers would endure a financial hardship with the proposed lodging tax, and without stating how the City plans on utilizing the funds, he could not currently support any initiative for a lodging tax. Mr. Slavin stated that he was sensitive to the comments regarding the stacking of taxes, explaining that while it is a decision for the City to raise its own taxes, the City has a beneficial relationship with Kent County Levy Court and has always tried to have a peaceful coexistence, so he thought they needed to take that into account. He stated that he thought that any motion passed by the Committee should specifically state that any revenues raised go to infrastructure deferred maintenance in the City. Mr. Slavin also suggested that if the City were to set an initial rate of 1.5%, it should be stepped specifically in .5% increments over a period of time, to allow the ability to take the rate back down if needed. Mr. Anderson stated that he thought that the state lodging tax was basically an 11% tax now with the rates that had been set by the counties and municipalities. He explained that the Committee motion’s would set a level, which he hoped would be an example to the county not to exceed. Mr. Anderson stated that since people had not stayed away from other places in the state that had implemented lodging taxes, he did not think they would stay away from Dover, since Dover is a place that tourists come and enjoy. He explained that he thought the motion was reasonable because

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 6 it provides some measure of economic certainty. Mr. Anderson cautioned that if the City did not set a level now, it would leave the door open for the County to set a higher level, up to 3%, and he wanted the money to stay in the City to help make it a more economically vibrant place with better infrastructure and to keep taxes lower. Mr. Neil stated that it was very clear that the City’s infrastructure was in need because the tax rate was kept so low during the recession and continued to be low for a long period of time, and any time there is an emergency repair required, it costs more. He explained that he did not think that the lodging tax would hurt the hotels, particularly if they are charging the maximum amount that they can because there are not enough rooms in the area for the people. Mr. Neil noted that the customers would be paying the tax, not the hotel, and they expect to pay it, like they do elsewhere. He stated that, at least they get a break in Delaware because there is no sales tax. Mr. Contant stated that he is always cautious about raising taxes or creating new taxes, because he questions what will stop the government from doing it in the future to the detriment of the economy. He noted that while he disagreed with the way the General Assembly passed the legislation at the end of their session with the traditional committee process, he could see that some people are worried about it being a race to 3%. Mr. Contant indicated that he thought that if the City sets the precedent, it might make the County back off a little bit. He stated that he likes the idea of step increases, so that the City can see the impact over time, and that he would like to see that implemented as an amendment to the proposed ordinance. Mr. Hare noted that he had heard from some hoteliers that DE Turf often cancels events a few weeks out and hotels have to deal with large blocks of room reservations being cancelled. He suggested that DE Turf take some responsibility for the compensation of hotels when they cancel events. Mr. Hare also encouraged those who participated in the public hearing to also express their concerns to Kent County Levy Court. Mr. Cole indicated that he agreed with using the lodging tax revenue for infrastructure and that he also liked the idea of .5% step increases. Mr. Slavin stated that members could amend the motion on the floor or they could ask that the motion be withdrawn and a new motion be put on the floor. Mr. Anderson stated that he did not want to withdraw his motion because they need the certainty. He explained that he thought that the rate was fair and that it would be a huge mistake to do it otherwise because the City would not necessarily get enough revenue to accomplish its goals with a .5% tax. Mr. Anderson stated that he thought they would just be delaying the inevitable. Mr. Taylor stated that he did not think the .5% increments seemed to be enough at a time and Mr. Anderson’s motion seemed to be fair; however, he was concerned for the local businesses

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 7 because of the recent increases in school and property taxes. He stated that he could not support it as is. Mr. Polce referred to information he reviewed during the Committee meeting of July 9, 2019. He stated that the article titled "The Impact of the Hotel Room Tax: An Interrupted Time Series Approach," published in the National Tax Journal in December 1992, (Attachment #2), demonstrates the debate on the hotel or lodging tax in the early '90s and the propensity to sway a consumer's habit on a lodging tax. He also reviewed an article published in January 28, 2019 by the National Conference of State Legislatures (NCSL) (Attachment #3), noting that it demonstrates that no data can be borne out that a marginal increase could sway a consumer's behavior. Mr. Polce noted that the term "marginal" is really critical in this debate, in the fact that members have to decide what marginal is. He explained that the discussion throughout this process had led to a deliberate decision and members were now talking about a 1.5% rate which is $1.50 on $100, regardless of whether it is done as a step increase or implemented at the time the ordinance is enacted. Referring to local hotel data from Travelocity on July 26, 2019, Mr. Polce stated that the cost of a room at Dover Downs was $198, and asked if members thought $1.98 would impact the consumer’s decision whether or not to come to Dover. He noted that he had recently traveled to Dublin, Ireland where his lodging tax rate was 23% and he never considered spending time outside of Dublin as a result. Mr. Polce stated that individuals are drawn to Dover for DE Turf, NASCAR, Firefly, First Fridays, etc. and consumers determine what they are willing to pay, not the industry. Responding to Mr. Taylor’s concerns regarding the recent tax increases, Mr. Polce stated that the citizens of Dover are bearing the City’s decision regarding the property tax increase, and those living within the Capital School District are paying as a result of the referendum. He advised that members have to be mindful that each tax has implications and are coming from different funding sources and potential funding sources. Mr. Polce stated that he thought it was also important to keep in mind that research showed that the vast majority of hotel taxes are not coming from those who live within their same geographical hub. He expressed his opinion that the proposal was a very reasonable compromise. Mr. Lindell stated that he did not support a 3% lodging tax; however, the state legislature provided the City with enabling legislation allowing “up to 3%” and he indicated that he thought the City’s legislation should remain consistent. He stated that he agreed with the suggestion that the tax should be implemented in increments and that he thought any revenue that comes of this definitely needs to go to infrastructure. Mr. Slavin reminded everyone that the Committee would send a recommendation to Council regarding the proposed ordinance and then Council would hold two readings, one in two weeks and one in four weeks, and at each of those occasions, there would be an opportunity for public input. He stated that they do business like that because they do not like to fight on the floor, explaining that they like to hear what the concerns are and then bring things to the floor once they have worked them out and hopefully they can achieve that compromise. Mr. Slavin expressed his opinion that members had carried this matter as far as they could, explaining that the Committee has the option to take the

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 8 spirit of the dialogue and pass the matter onto Council without a recommendation and Council could then continue the dialogue in two weeks. He stated that hopefully in the two intervening weeks members would have time to sit down and work out a compromise, noting that he thought they had certainly exhibited an ability to move on this issue. Mr. Hare noted that no public hearings would be held regarding this matter during the Council meetings in two and four weeks. Responding, Mr. Slavin stated that Council can always vote to suspend the rules and have a public hearing. Mr. Hare indicated that the Committee could recommend that Council set a public hearing, however, he stated that he thought that they would hear a lot of the same comments. Mr. Neil stated that after the vote was completed on the current motion, he would have a motion to designate the funds generated from this tax to go to the infrastructure. Mr. Hare advised members that the First Reading was already accomplished, so the Final Reading would be held during the meeting on September 23, 2019. The motion to amend line 8 of Proposed Ordinance #2019-16 by inserting after rent, “starting with an initial rate of 1.5%,” failed by a roll call vote of seven no (Sudler, Slavin, Cole, Taylor, Lindell, Hare, and Contant) and four yes (Anderson, Neil, Polce, and Shevock). Mr. Slavin moved to advance Proposed Ordinance #2019-16 without any recommendation from the Committee and for a public hearing to be scheduled for the next Council meeting on September 23, 2019. The motion was seconded by Mr. Cole. Mr. Anderson reminded everyone that if no public hearing is scheduled for this particular matter, anyone wishing to speak about it can do so during the open forum segment of the Council meeting. The motion to advance Proposed Ordinance #2019-16 without any recommendation from the Committee and for a public hearing to be scheduled for the next Council meeting on September 23, 2019 was carried by a roll call vote of eight yes (Neil, Slavin, Cole, Polce, Taylor, Lindell, Shevock, and Contant) and three no (Anderson, Sudler, and Hare). Proposed Ordinance #2019-17 - Amending Appendix C - Downtown Redevelopment and Appendix D - Downtown Dover Business Improvement District (Sponsor: CCW/LF&A Committee) This matter was deferred during the Council Committee of the Whole/Legislative, Finance, and Administration Committee meeting of July 23, 2018. Mr. Slavin advised that credit for the introduction of this proposed ordinance was owed to Mr. Taylor, who, like many members of Council, expressed an interest in the status of the City’s downtown. Mr. Slavin stated that this is a taxation issue, explaining that the Business Improvement

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 9 District (BID) tax is levied against property owners within the very area the City is trying to revitalize, and it is levied in addition to property taxes. He reminded members that, two or three years ago, Council was successful in rolling the rate back to zero and had left it at zero. Mr. Slavin stated that he thought that the City should just eliminate this provision from the tax rules entirely, because it is not necessary at this point. He informed members that he had repeatedly heard from downtown property and business owners that they felt that this tax was unfair to them because it was an additional property tax. Mr. Todd Stonesifer, 115 North State Street, advised members that he wants to see the downtown area revitalized and thrive, explaining that he has lots at stake as a property owner in the BID and President of Destination Downtown Dover, which is a nonprofit whose mission is to energize the heart of Delaware, which is Dover’s downtown area. He stated that Destination Downtown Dover is responsible for a portion of First Fridays, as well as History, Heritage and Hops, and Oktoberfest, from which the funding all goes back into improvement of the downtown area. Mr. Stonesifer informed members that the biggest complaint he hears is in regard to building stock. He explained that economic development 101 says that if an individual who wants to open a business in downtown Dover has to bring a very outdated building up to current Code, pay property tax, and then pay a secondary BID tax, and will probably take their idea outside the BID. Mr. Stonesifer indicated that eliminating the BID tax would support the effort of trying to improve downtown Dover. He also suggested the possibility of implementing more incentives and educating people who have an interest in those incentives. Mr. Anderson stated that the City had implemented a number of incentives for downtown Dover, so it makes sense to also eliminate disincentives. He reminded members that Council had set the BID tax rate at zero the past couple of years, and he thought that the proposed ordinance would formalize that decision. Mr. Anderson noted that his only concern was in regard to any possible legal implications and, since he had yet to see any indication that there would be any unforeseen legal issues, he was in support of the proposed ordinance. Mr. Neil moved to recommend adoption of Proposed Ordinance #2019-17, seconded by Mr. Taylor and unanimously carried. Evaluation of Requests for Proposals - Collection Agency Services Mrs. Donna Mitchell, City Manager, reviewed the background and analysis regarding the evaluation of requests for proposals (RFPs) for Collection Agency Services. Staff recommended approval of IC System of St. Paul, MN for Collection Services and authorization for the City Manager to negotiate and sign a final agreement with IC System of St. Paul, MN for Collection Services. Fees are based on a percentage of revenue collected. Mrs. Mitchell advised that the collection agency adds an 18% fee to the amount of the collection; however, she suggested having Mr. Matt Harline, Assistant City Manager, determine whether the

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 10 City would get a better collection rate if they take the 18% out of the City’s collection instead. She explained that the City would only get 82% on the dollar, instead of 100%; however, the City was not getting anything with the 18% add-on fee arrangement with the last collection agency. Mrs. Mitchell stated that she wanted Council’s authorization to negotiate less than 100% in order to get a great collection, noting that she would not go below the 18% reduction. Responding to Mr. Polce, Mrs. Mitchell explained that the agency would still be collecting 100% of the debt; however, they would take their fee from the City instead of adding it onto what the customer already owes. She stated that she wanted to look at the analysis to determine if they would be able to collect more by doing it this way because they did not have much success with the previous agency which was adding on the customer fee. Mr. Contant stated that, based on his experience trying to collect money on behalf of his homeowners’ association (HOA), the HOA found they were more successful in getting money from people when the HOA paid the collection agency fee out of the money collected instead of adding it onto the overall price. He explained, for example, that if someone owed $100, the collection agency fee would be paid from the $100 collected, instead of collecting $118. Mr. Contant stated that he thought that some people were just not willing to pay the additional amount, so they would not pay at all. Mr. Contant asked what the collection success rate is for ICS. Responding, Mrs. Patricia Marney, Customer Service Director, advised that they collected $11M in 2017 and $13M in 2018, noting that they have 700,000 accounts. She stated that she was not sure that answered Mr. Contant’s question and that she would be happy to get that information. Mr. Contant stated that he would be interested in knowing that information; although, he noted that, according to the Staff Evaluation Matrix, he thought that it appeared that ICS met the rest of the City’s criteria better than the other companies. Mr. Anderson expressed his support for Mrs. Mitchell having the authority to run an analysis. He stated that he thought that if they were dealing with people who were not paying, and then the amount changes once they agree to pay, it might psychologically take them back to not want to pay. Mr. Anderson noted that he could understand Mrs. Mitchell’s interest in wanting to try another way, since the City tried it by adding on the fee and only got a 2% success rate, while the national average tends to be approximately 30% for collections. Mr. Sudler stated that Mrs. Mitchell had gained his trust in her insight because she has been accurate and precise when it comes to numbers and analogy in the past. He expressed his support and faith in Mrs. Mitchell’s assessment. Mr. Taylor stated that Mrs. Mitchell also has his support. He noted that, as a business owner with approximately 4,000 customers, if he hired a collection agency and they got 50% of what was owed, that would be better than 100% of nothing.

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 11 Mr. Neil moved to recommend approval of staff’s recommendation of IC System of St. Paul, MN for Collection Services, and authorization for the City Manager to negotiate and sign a final agreement with IC System of St. Paul, MN for Collection Services. Fees are based on a percentage of revenue collected. The motion was seconded by Mr. Sudler and unanimously carried. Evaluation of Bids - FY 19 Street and Alley Program Mrs. Donna Mitchell, City Manager, reviewed the evaluation of bids for the FY 19 Street and Alley Program, noting that the program is based on Community Transportation Fund (CTF) funding, and is prevailing wage projects. She stated that Grassbusters Landscaping, Inc. was currently doing most of the work for the City, they had been doing a good job, and there had not been any problems. Mrs. Mitchell advised that these CTF funds would basically complete the remainder of the streets in the Lincoln Park development. Staff recommended awarding a unit price contract, based upon Bid #19-0024PW for the FY 19 Street & Alley Program to Grassbusters Landscaping, Inc. based on the Prevailing Wage unit prices for each work item submitted. The estimated value of the contract is $483,294. Work will be performed in strict accordance to the Bid Specifications. Mr. Sudler moved to recommend awarding a unit price contract, based upon Bid #19-0024PW for the FY 19 Street & Alley Program to Grassbusters Landscaping, Inc. based on the Prevailing Wage unit prices for each work item submitted. The estimated value of the contract is $483,294. Work will be performed in strict accordance to the Bid Specifications, as recommended by staff. The motion was seconded by Mr. Anderson and unanimously carried. Fiscal Year 2019/20 Edward Byrne Justice Assistance Grant Program - In-car Camera/Computer Systems and Interview Room System Upgrade Mrs. Donna Mitchell, City Manager, reviewed the background information regarding the Fiscal Year 2019/20 Edward Byrne Justice Assistance Grant Program. Staff recommended approval of the grant project, as requested. Responding to Mr. Sudler, Mrs. Mitchell explained her understanding that the Smyrna Police Department Mental Health Partnership Program was where a counselor rides along with the police officers for people with opioid issues. Mr. Polce advised that the Mental Health Partnership Program is a nationally recognized model where they embed a practitioner with a clinical background in with the police to respond for intervention for individuals with either chronic persistent mental illness or substance use disorder. He stated that when the idea was originally pitched to the Dover Police Department, they decided to abstain and the monies were reappropriated to Smyrna. Mr. Polce noted that the initial concern was that the Dover Police Department did not have enough officers in the community policing division, which is where the embedded practitioner would best fit. He explained that the program is very successful in Smyrna and there are also programs in Oceanview,

COUNCIL COMMITTEE OF THE WHOLE MEETING OF SEPTEMBER 10, 2019 PAGE 12 and Georgetown, and it was his understanding that Milford was also attempting to start a pilot program. In response to Mr. Sudler, Mr. Anderson stated that this is a joint grant application for Dover and Smyrna and each agency decides what to do with their funding. He explained that this partnership had been ongoing for many years and because Dover is the larger entity, it has the capacity to act as the administrative agent. Mr. Neil moved to recommend approval of the grant project, as requested. The motion was seconded by Mr. Anderson and unanimously carried. Mr. Neil moved for adjournment of the Legislative, Finance, and Administration Committee meeting, seconded by Mr. Shevock and unanimously carried. Meeting adjourned at 7:49 p.m. Mr. Neil moved for adjournment of the Council Committee of the Whole meeting. The motion was seconded by Mr. Shevock and unanimously carried. Meeting adjourned at 7:50 p.m. William F. Hare Council President WFH/TM/dd/jt S:\AGENDAS-MINUTES-PACKETS-PRESENTATIONS-ATT&EXH\Committee-Minutes\2019\09-10-2019 CCW Minutes.wpd Attachments Attachment #1 - Presentation entitled “Dementia Friendly Delaware, Addressing a Growing Need in the State,” provided by Ms. Lindy Scott Attachment #2 - An article titled “The Impact of the Hotel Room Tax: An Interrupted Time Series Approach,” published in the National Tax Journal in December 1992, provided by Mr. Polce Attachment #3 - National Conference of State Legislatures (NCSL), Table of State Lodging Taxes, dated January 28, 2019, provided by Mr. Polce

ATTACHMENT #1 Council Committee of the Whole Meeting of 09/10/2019 DEMENTIA FRIENDLY DELAWARE Addressing a Growing Need in the State Thank you for allowing me to be here today. My name is Lindy Scott and I am the Executive Assistant to the Director of the Delaware Division of Services for Aging and Adults with Physical Disabilities or DSAAPD. Our division is working with partners from around the state, including Lt. Governor Bethany Hall‐Long, to support people diagnosed with dementia and their caregivers though an innovated new initiative: Dementia Friendly Delaware. This initiative is in response to a growing need for dementia friendly efforts throughout, not just the US, but worldwide. By 2025 the number of people age 65 and older with Alzheimer’s disease and other dementias is estimated to reach 7.1 million. Nearly 60% of people with dementia live in their own community homes and one in seven live alone. 85% of unpaid help (an average of 22 hours per week with a value of approximately $218 billion annually) is provided by family members. Due to caregiving responsibilities, businesses are losing $34 billion annually in revenue and productivity . As one of the states with the fastest growing aging populations, Delaware has seen the dramatic rise of the retirement age population. Currently, there are an estimated 17,000 Delawareans over the age of 65 living with Alzheimer’s disease or related dementias. By 2025 this number is expected to grow by 35% to 23,000. Our division, and one of our sister divisions, the Division of Medicaid and Medical Assistance, have seen the increased need for services, especially for this vulnerable population. So what is Dementia Friendly Delaware? For one, the effort starts with all of you. While DSAAPD is the lead agency and the Lt. Governor is providing much needed leadership in the effort, all of you will play a pivotal role in make Dementia Friendly Delaware a success. 1

Response to the Need: Dementia Friendly Community • The Dementia Friendly Delaware initiative will provide a system of technical assistance, tools and resources to assist communities and individuals in taking action to improve community and system capabilities, optimize the health, wellbeing and involvement of people with dementia and their care partners, and support them to continue in their roles. • Every part of the community plays a role and can work together to take steps to create a dementia friendly culture. • Businesses, such as banks and financial and legal services support customers with dementia and employers support employees who are caregivers • Health care systems promote early diagnosis and options for ongoing care and support • Communities of faith provide welcoming and engaging environments for those with the disease and their caregivers • Local governments plan and implement housing, transportation, public spaces, and emergency response that enable people with dementia to thrive in the community • Neighbors and community members are understanding and supportive to those around them, including individuals with cognitive impairment • Residential care and community based supports offer a range of services to maximize independence and support ongoing community engagement with a variety of options adapted to cognitive decline. 2

Testing Ground: Minnesota Results • Awareness and education: Dementia Friends • Caregiver supports • New, meaningful community engagement opportunities (arts, music) • Cross‐Sector Engagement and Training: business, government, law enforcement, youth, first responder and faith • Health system adoption of optimal dementia care practices • The Dementia Friendly America initiative is based on Minnesota’s ACT on Alzheimer's, a successful statewide, volunteer‐driven collaboration of medical, academic, community, government, business and nonprofit stakeholders from across the state. Developmental evaluation of these communities has shown an increase in services and resources that are supportive of people living with dementia, an increased awareness of dementia and effective responses from those living in communities undertaking this effort, and a greater sense of confidence for those living with dementia and/or their care partners. • Since 2011, 43 communities have come together to prepare for the personal, social, and budget impacts of dementia by addressing community needs and increasing support for people impacted by dementia. Another 7 communities will join the effort in the coming months. 3

Community Update The DFA network is expanding rapidly, as you can see in this slide. Delaware, by joining this network, is able to utilize the knowledge and technical assistance of every other community who has already started these efforts. 4

DFA National Participants ABA | Bank of America | CFPB |Eli Lily |The Global CEO Initiative |The IACP NACo | World Young Leaders Federal Liaisons: ACL, ASPE, CDC, HRSA, IHS, SSA The Dementia Friendly America initiative is led by a coalition of over 35 national organizations that represent different aspects of community. These include but are not limited to: health care, philanthropy, emergency and first response, clergy, and business 5

Dementia Friendly America Initiative • Initiative Goal • Foster dementia friendly communities across the US • Initiative Outcomes • Community capacity to support those with dementia and their care partners • System capacity to support those with dementia and their care partners • Lastly and most importantly, enhanced quality of life and other positive outcomes for those with dementia and their care partners • The Dementia Friendly America initiative has set out to foster dementia friendly communities across the country. To do so, DFA has created a robust set of resources that help all communities work towards dementia friendliness. • The outcomes we hope to see from fostering dementia friendly communities are three‐fold: • Community capacity to support those with dementia and their care partners • System capacity to support those with dementia and their care partners • Lastly and most importantly, enhanced quality of life and other positive outcomes for those with dementia and their care partners 6

Alignment with Age‐Friendly Our website includes sector guides, provider tools, a community toolkit and other guidance for communities working towards becoming dementia friendly. DFA also works to align dementia friendly communities efforts with age friendly efforts and provide resources to help in this regard. In Delaware, this is particularly important because the older population is growing rapidly. 7

Community Web‐Based Resource Here you will see a depiction of the different sectors that DFA has resources for. If a resource is not available through the DFA site, Delaware can reach out to another partner within the network to get the resource needed. 8

An All‐Sectors Approach Taking an All Sectors Approach Every part of the community has a unique role in contributing to dementia friendliness. Every part of community has a unique role in contributing to dementia friendliness. Taking an all sectors approach is a way to build engagement across many parts of the community. It is important as Delaware begins this initiative, that we have representation from all of these sectors. You will notice many nontraditional sectors, that especially our division does not normally work hand‐in‐ hand with, including businesses and financial services. However, these sectors are critical to achieving a dementia friendly Delaware.

Example of Sector Guides • Business • Banks and financial • Community‐based supports • Faith communities • Health and long term care • Legal and advance planning • Local government (planning, emergency response, law enforcement) • Neighbor and community members Every part of the community has a unique role in meaningfully supporting people with dementia and their family and friend care partners. Sector guides provide information, resources, and actions that specific sectors can take. Examples of things in sectors guides that are useful are specific things the sectors can do, such as environmental tips. In the Business sector guide tips include providing quiet places to sit and relax and making there are well‐lit hallways, uncluttered spaces, and prominent, easy‐to‐ understand signs for restrooms and other important places.

How are other states approaching this work? Sector based training and adoption of dementia friendly practices Governmental Champion and Sector‐Based Training Team States are approaching this work through sector‐based training and adoption of dementia friendly practices. This is how we are approaching dementia friendly Delaware. DSAAPD is the governmental champion and connects with the national network, as well as provides annual reports to the DFA national team. We are asking that the City of Dover be our local government sector champion by providing needed dementia training for all city workers. This includes those that interact with the residents of Dover like Customer Service office and first responders. In addition, City Planners can learn from trainings how making small changes to Dover’s public spaces can have a huge impact for someone that has been diagnosed with dementia to be able to thrive in your city. DSAAPD is able to provide technical assistance in order for this to happen. 11

Desired Impact: What are we aiming for? Community Person with System Capability: Dementia— Capability: Adoption of Well‐Being Adoption of dementia friendly optimal practices within dementia care and across all Care Partner and supports in community Efficacy health, long sectors (e.g., term care and faith, business, Care Partner community government, services Support and health care) Family Health This is our desired impact and potential evaluation design. If the community and system have the capability to adopt dementia friendly practices, everyone in our state will benefit. We also believe that the training provided will have a positive effect on other populations, like those with autism.

Contact for Questions Lindy Scott – Lindy.Scott@Delaware.gov Julie Devlin – Julie.Devlin@Delaware.gov 302‐255‐9393 In closing, DSAAPD, with the Lt. Governor’s Office, is excited to join all of you as we move our state forward with this important initiative. We hope you will make the decision to become a Dementia Friendly city, Delaware’s first city or local government entity to do so. If you do, DSAAPD will work with you to implement this important training for all city workers. If you have any questions, please feel free to reach out to me or my colleague, Julie Devlin, who is staffing the initiative with me for our division. 13

(Uec;emtJt-H, 'f':-l�ILJ, pp q,j.:J-'P ATTACHMENT #2 Council Committee of the Whole Meeting of 09/10/2019 THE IMPACT OF THE HOTEL ROOM TAX: AN INTERRUPTED TIME SERIES APPROACH** CARL BONHAM, EDWIN FUJII, ERIC IM, AND JAMES MAK* ABSTRACT bus, phio from l 1.5 percent to 15.5 per­ cent. In August 1984, the average hotel Travel destinations commonly levy hotel room tax rate in 45 U.S. cities with room room taxes to finance services demanded taxes was about 7 percent (Mak 1988). A hy touri:;ts and resicknts. Evidence to d,(lfe similar survey of 242 U.S. visit�r conven­ on the effects of a hotel room tax has cen­ tion bureaus found that the average hotel tered on ex ante analyses of the incidence room tax rate in January 1990 was nearly of a hotel room tax and its effect on the 10 percent [Hiemstra and Ismail, (1990, demand for travel and vacation goods. In p. 4)J. With the enactment of a 5 percent this paper we employ interrupted time se­ hotel room tax by the State of New York ries analysis to estimate ex post the impact in June 1990, New York City currently of a hotel room tax on real net hotel rev­ has the highest hotel room occupancy tax enues by analyzing that time series before in the U.S. at 19.25 percent plus $2 on and after the imposition of the tax. We find every room priced at $100 or more.2 that the tax had a negligible effect on real The popularity of the hotel room tax lwtel revenues. �terns from t�e widely held perception that its burden 1s largely borne by tourists Introduction rather than residents, with little negative T impact on industry sales. For example, RAVEL destinations commonly levy Combs and Elledge (1979, p. 203) argued �pecial tourist taxes to finance public without empirical evidence, that the "de: services demanded by tourists and resi­ mand for lodging in a resort [is] inelastic dents. A popular tax is the ad valorem ho­ with respect to price," and concluded that tel room (transient accommodation) oc­ "a small ad valorem tax imposed on motel cupancy tax, typically assessed as a percentage of the rental price of an oc­ �ooms and other forms of temporary lodg­ cupied hotel room. In 1990, 47 out of 50 �ng would have very little impact on the industry and would generate substantial states in the U.S. levied taxes on hotel revenue for the local government." Hotel room rentals {Hiemstra and Ismail, (April operators, by contrast, generally believe 1990, p. 4)]. Alaska, California, and Or­ that a hotel room tax harms the indus­ egon do not levy state taxes on room rent­ als but permit localities to levy hotel room try.3 However, empirical studies on the taxes. impact of the hotel room tax yield contra­ I n recent �ears, �ising fiscal responsi­ dictory results. 4 . _ _ In a previous article in thisjournal, Fu­ b1hties combined with the growing reluc­ ... tance of residents to pay higher truces have Jll, Khaled and Mak (1985) estimated the induced many state and local govern­ ex ante incidence of a proposed hotel room ments to enact new truces or increase rates tax in Hawaii. 5 We are unaware of any on existing hotel room taxes. Since 1987 empirical studies that measure the ex post Atlanta raised its hotel room tax from 8 effect of the imposition of a hotel room true. The purpose of this paper is to estimate percent to 11 percent, Fort Lauderdale from 7 percent to 9 percent, Portland, Or­ the impact of the 1987 Hawaii hotel room egon from 6 percent to 9 percent, Dallas tax by comparing the real net (after tax) from 9 percent to 13 percent, and Colum- rental receipts of hotel operators before and after the imposition of the tax. A nov­ *Department of Economics, University of Hawaii at elty of this paper is the use of tax base Manoa, Honolulu, HI 96822. rather than survey data to measure hotel Carl Bonham is also a resean:her with the Social Sci�_nce Research Institute at the University of Ha­ receipts. We measure the impact of the true wau. on real net hotel rental receipts using in- 433

(l.Jf~CO !nt.JOI, l ~lJL) , pp. ' l .JJ ...' 11 434 NATIONAL TAX JOURNAL [Vol. XLV terrupted time series analysis. Our em- suming demand and supply remained un- pirical results indicate that the tax re- changed, economic theory predicts that the duced real net rental receipts by about 1 room tax must always increase the (after percent. The coefficient, however, is not tax) price of hotel room rentals to con· significantly different from zero. In sum, sumers and reduce the net price received the State is able to raise substantial by hotel operators, except in cases where amounts of tax revenue from the new tax the elasticity of supply is infinite or the without imposing a significant burden on elasticity of demand is zero. Indeed, if the hotel operators. incidence of the room tax falls partly on consumers, higher after-tax prices are likely to decrease the quantity demanded Taxing Hotel Room Rentals in for lodging and the net revenues of hotel Hawaii operators. Act 340 passed by the 1986 Hawaii State Our model treats the imposition of the Legislature imposes a 5 percent "tran- new transient accommodation tax as a sient accommodation" tax, commonly quasi-experiment and measures its effect called the hotel room tax, on proceeds from using an interrupted time series model.8 the rental of "transient accommodations" The imposition of a transient accommo· beginning January 1, 1987. 6 The tax ap· dation tax in January 1987 breaks the plies to the gross proceeds from room time series for real after-tax hotel rental rentals and includes the hotel tax "visibly receipts into two discrete segments. The passed on and collected." Thus the tax base null hypothesis is that the new tax had for the hotel room tax is equal to 1.0525 no significant effect on real net hotel rental multiplied by the rental price of the hotel receipts. We use monthly data on the nat- room. The effective tax rate is 5.25 per- ural log of real after-tax hotel rental rev- cent of the rental price of the lodging. 7 enues (lnHR) constructed from the gen· With exceptions for very small hotel op- eral excise tax base data on hotel receipts.9 erators, monthly returns and payments are The data span the period from January due by the end of the month following the 1980 to March 1990 (see Figure 1). We transaction month. The new transient ac- began the series in January 1980 to ex· commodation tax is in addition to the 4 elude the potential effects of the (1979) percent sales (i.e., general excise) tax lev- second oil crisis on travel and terminated ied on the gross proceeds received by the the time series just prior to Iraq's inva· sellers for all retail transactions, includ- sion of Kuwait. ing hotel rentals. Hence, the combined An additional exogenous event was rel- tax on hotel room rentals rose from 4.16 evant to the empirical analysis. In Sep· percent to 9.41 percent. Tax collections tember 1985, the Group of Five Nations under the two taxes are displayed in (the U.S., Great Britain, France, Ger· Table 1. many, and Japan) agreed to intervene in In fiscal year 1990, the State collected foreign exchange markets to bring about $82 million from the transient accom- a depreciation of the dollar relative to modation tax, making it the third largest other currencies. The Plaza Agreement, source of state government revenues after as this intervention is referred to, at- the general excise tax and the state in- tempted to correct for the appreciation of come tax. An additional $62 million was the dollar relative to other major curren- collected from the general excise tax lev- cies over the period 1981-1985 (see Yar- ied on hotel room rentals. brough and Yarbrough, 1988, p. 437). Since demand for travel is highly sensitive to exchange rate fluctuations (see e.g., Gray The Model 1966, and Loeb 1982), the depreciation of The imposition of a hotel room tax cre- the dollar subsequent to the agreement is ates a wedge between the price of hotel expected to have a significant impact on room rentals to consumers and the after- foreign travel to Hawaii. Japanese visi· tax price received by hotel operators. As· tors, for example, comprise the second

No. 41 HOTEL ROOM TAX 435 TABLE l TAX COI.l,ECTlONS FROM HOTELS AND TRANSIEN1' ACCOMMODATIONS (in thousands of dollars) Fiscal Year General Excise Tax Hotel Room Tax Total 1987 $49,919 $23,510 $ 73,429 1988 $56,612 $62,279 $123.951 1989 $57,608 $75,973 $133,581 1990 $61,931 $82,438 $144,369 ource: State of Hawaii, uepartment of Taxation, Annual Report, 1987-1988, /Ylflf-1989, and 1989-1990. Notes: The fiscal year runs from July 1 to June 30. Thus for fiscal rear 1987, the t~nsient accommodation tax was in effect for only 6 months. ln that year transient accommodation tax collections were less than half of the general excise tax collections on hotel rentals; this is explained by the lag in getting operators to register for the new tax. As of June 19_87, there were 8,619 filers for the transient accommodation tax. ln June 1988, there were 10,770 filers. largest group of Hawaii tourists. The yen/ nents in the residual series that might be dollar exchange rate fell from 237 yen per mistaken for tax effects. The attraction of dollar in August 1985 to 127 yen per dol- the time series approach is that it pro- lar three years later, cutting almost in half vides a parsimonious representation of the the yen price of vacations in Hawaii. Be- real revenue series in terms of its own past. tween 1985 and 1990 the Japanese share An alternative approach would be to of total Hawaii visitor traffic rose from 14.5 estimate a reduced form equation for the percent to 20. 7 percent. 10 Similarly, the real revenue series with the appropriate share of total foreign visitors rose from economic explanatory variables. A dummy 29.5 percent to 36.4 percent. 11 To capture variable would then be used to capture the the separate effects of the Plaza Agree- effect of a policy change. 12 Such a model ment in 1985 and the imposition of the would, however, require deseasonalized- hotel room tax in Hawaii in 1987 we used monthly data on a long list of variables two policy dummies: one for the exchange (e.g., airfares, incomes, hotel room rates, rate adjustment and the other for the im- prices of other vacation goods, competing plementation of the hotel room tax. destination prices, exchange rates, tourist Intuitively, intervention analysis can be taxes, etc.), not all of which are readily thought of as a two-step process. First we available. identify an ARIMA noise model for the real While the time series approach does not revenue series prior to the Plaza Agree- offer a structural explanation for the be- ment and the imposition of the hotel room havior of the real revenue series, it does tax. This identified model is then reesti- allow us to identify systematic changes in mated using the full sample and the re- the stochastic process generating the rev· siduals are analyzed for systematic com- enue series before and after the imposi· ponents. If the model identified for the tion of the tax. The appropriateness of this pre-intervention sample produces random approach is illustrated by the stability of residuals when estimated over the full the empirical results reported below. The sample, there is no systematic effect from noise model identified in the pre-inter- either policy change. Note that the valid- vention period fits the data remarkably ity of this approach requires a well-spec- well before and after the imposition of the ified noise model for the preintervention tax. period to eliminate systematic compo- Our model is described as follows:

(l.J(n :w1111w', 1 ~ m/.), pp. 113,1- 111 436 NATIONAL TAX JOURNAL [Vol. XLV lnHRi = N, + ~~(IJ,t) (1) 8m(B) = 1 - I 81B 1 (i = 1,2, ... ,m) where D = {O if the impact is permanent lnHRi = ln(real net after tax hotel re- 1 if the impact is transitory ceipts) wh(B) = I w;Bi (i = 0,1,... ,h) = the "noise" component of the k number of periods by which the ARIMA structure initial impact lags behind the == the transfer function capturing intervention point. the effect of the discrete inter~ ventions (j = 1,2) The path of f(l 1) is determined by 8m(B). j = 1: 1 since September 1985 The permanent impact converges to '"h(l)/ (exchange rate adjust- 8m{l). The degrees of polynomials in B, m ment) and h, are empirically determined. 13 0 otherwise Empirical Results = 2: 1 since January 1987 (hotel room tax) The model is initially fit over the pre- 0 otherwise intervention series, 1980:1-1985:8 (i.e., The pre-intervention series is driven en- before the Plaza Agreement (1985:9) and tirely by N, and is assumed to take the the hotel room tax (1987:1)) to identify the form of the following ARIMA model: ARIMA structure underlying the time se· ries. A series of diagnostic checks is per· N, = µ formed using the estimated autocorrela· tion and partial autocorrelation functions. 0q(B) · 0Q(B") The appropriate ARIMA structure is se- + e <!>p(B) . <l>r(B")(l - B)~'(l - B")~2 t lected using the rule of parsimony. The (2) ARIMA structure identified from the pre- intervention sample is: where µ. = mean of N:i <!>p(B) = 1 - ~ <!>;B' (i = 1,2, ... ,p) <l>r(B") 1 - I <l>;.B ;. (i = 1,2, ... ,P) l-6 9B9 (i = 1,2, ... ,q) 4 6q(B) 1 - I 6;B; = µ + (l -<!>1B)(l-<l>12)B 12 1 ( ) 0Q(B") = 1 - I E>;.Bi• (i = 1,2, ... ,Q) are the autoregressive, seasonal autore- Parameter estimates are reported in the gressive, moving average, and seasonal first column of Table 2. 14 The Q statistic moving average polynomials in the back fails to reject the null hypothesis that e1 shift operator B of order p, P, q, and Q, is serially uncorrelated. Thus, we assume respectively. (1 -· B) and (1 - B") are the that the identified ARIMA structure is reverse difference and seasonal difference appropriate. It is noteworthy that the two operators, respectively. The parameters >.. 1 sets of estimated parameters of the AR- and >.. 2 are binary variables. If the series IMA structure in Table 2 are not statis- is first order integrated, >.. 1 = 1 and 0 oth- tically different from each other pairwise, erwise; if the series is first order season- with each parameter estimate within the ally integrated, >.. 2 = 1 and 0 otherwise. other's 95 percent confidence interval. A The innovation series e 1 is independently comparison of forecast and actual real net and identically distributed with zero mean. hotel receipts generated by the model is The transfer function for each interven- displayed in Figure 1. tion is described as: To estimate the impact of the imposi- tion of the hotel room tax, we impose the pre-identified ARIMA structure on the (3) entire sample along with transfer func· tions for the Plaza Accord and the hotel where room tax. The complete model with the

( LJ()(~() /1/1) (>•/ , / }J}Jr.j. {!(!. 'U ,J·'I I 41 HOTEL ROOM TAX 437 l<'IGURE 1 REAL HOTEL REN'l'AL REVENUE lN l.OGARl'l'HMS ACTUAL FORECAST RoomWI 80 81 82 83 84 85 86 87 88 89 ntified transfer functions has the fol- 2 percent initially, with a total long run 1ing form: increase of 28.5 percent. More importantly, our results show that {D = N + W1,o I real after-tax hotel room receipts declined •t.t t (1 - 81,1 B) 1.t- 2 by approximately one percent as a result of the imposition of the room tax in 1987. (5) However, the coefficient of the hotel tax dummy, w 2,0 , is not significantly different !'he ARlMA model estimated for the full from zero. In sum, the hotel room tax had nple with the two policy dummies in- a negligible impact on the real room re- ded is reported in the last column of ceipts of hotel operators. 16 ble 2. The ARIMA structure identified Our results suggest that the hotel room !r the pre-intervention period is very tax is almost fully shifted forward to tour- ble throughout the full sample period, ists (i.e., the price to buyers rose by the licating that the two transfer functions full amount of the tax) with no significant iquately explain the change in the time revenue loss to hotel operators. Thus, the 'ies during the post-intervention pe- demand for hotel lodging may be close to d. Our results illustrate the separate perfectly inelastic. This is further sup- i!Ct.s of the two dummy variables on real ported by examining data on real hotel er-tax hotel rental receipts.16 Note that room rates displayed in Figure 2.17 Fig- ! coefficient of the Plaza Agreement, w10 ure 2 shows no sharp decline in the trend 0.021, is positive and significant (at 5 of the room rate series before and after rcent one-tail test) as expected, indi- the room tax was imposed, indicating that ;ing that the depreciation of the dollar hotel operators were able to shift vir· :>aequent to the Plaza Agreement had a tually the entire tax on to consumers. The :nificant positive impact on travel to shifting is more extensive than predicted twaii. Exchange rate adjustments in- by the earlier work of Fujii, Khaled, and 1ased real hotel revenues in Hawaii by Mak (1985) for Hawaii which suggested

(Uocemo o1, nJ:Jl J, pp. 11..u - 111 438 NATIONAL TAX JOURNAL LVol. XLV TABLE 2 PARAMETER ESTIMATES Parameters Pre-Intervention Full Sample Sample (80: 1-85:8) <80:1 - 90:3) µ 6.5961 l 6.59602 (l()C).29) (123.56) 99 -0.25125 -0.25396 (2.12) (2.86) +1 0.33921 0.24479 (3.02) (2.76) +1,2 0.59489 0.64330 (5.72) (8.91) wl ,O 0.02105 (1.78) 61.1 0.92623 (16.47) 0>2,0 -0.00944 (0.13) ()(24) 21.90 24.98 Notes: ADS01ute t statistics are r~~ m parentheses below each coefficient. I • I 0 0 I Q(24) 1s the L1ung-Box Q stattsllc for the null hypothesis that the first 24 residual autocorrelabons are equal to zero. The Q statistic is distributed as a chi-squared statistic with 24-k degrees of freedom, where k is the number of estimated parameters. ex ante that about two-thirds of the tax round-trip airfare and lodging. 18 Another would be shifted to tourists with a mod- potential explanation for the absence of a erately large negative impact on hotel significant tax impact is that other travel rental receipts. The results are closer to destinations in the U.S. have also in· the predictions of Combs and Elledge creased their room taxes recently. How· (1979) who argued that because the de- ever, it is difficult to imagine that various mand for lodging is likely inelastic with tax changes elsewhere, imposed in differ· respect to price, a small ad ualorem tax ent amounts and at different times and on lodging would have little effect on net places, exactly canceled out the new room after tax hotel receipts and yield substan- tax in Hawaii. tial revenue for the local jurisdiction. One plausible explanation for the lack of a significant impact is that visitors did Conclusion not know about the new tax. Since the In recent years many fiscally belea· room tax is typically paid by tourists when guered state and local governments have they check out, they may not have ade- either implemented new hotel occupancy quately anticipated or responded to the taxes or substantially increased existing higher effective price of rooms. However, hotel taxes to finance public services. The this does not apply to more than half of popularity of the tax stems from the all tourists to Hawaii who purchase pre- premise that the hotel room tax is largely paid package tours that include at least exported to non-residents with little neg·

No. 4] HOTEL ROOM TAX 439 FIGURE 2 HOTEL RENTAL PRICE IN LOGARITHMS REAL NOMINAL- · .16 4.60 ·.24 440 ·.32 4.20 ·.40 ·.48 4.00 ·.56 3.80 ·.64 Room JU 80 81 82 83 84 85 86 87 88 89 ative impact on hotel operators. equal to the ratio of the supply and demand elastic· ities for lodging. Empirical estimates suggested a Our analysis of the effects of the 1987 supply elaaticity of 2 and a demand elasticity of l, Hawaii hotel room tax indicates that the yielding the prediction that approximately two thirds tax did not have a significant negative of a hotel room tax would be passed on to visitors in impact on hotel rental receipts. Our find· the form of higher prices. This study, however, like other extant studies, predicts the incidence of the tax ing may not be entirely surprising since ex ante. a 5 percent increase in lodging expendi- 6Transient accommodations are defined as accom· tures represents less than 1.5 percent of modations that are customarily occupied by a tran· the total cost of a typical vacation in Ha- sient for less than 180 consecutive days. A transient is a person who does not have the intention of making waii inclusive of round-trip airfare. That the accommodation a permanent place of domicile. may not be true of travel to other desti- Exemptions are granted for health care facilities, school nations. Therefore it is important to per· dormitories, nonprofit corporations, military person· Corm similar analyses for other travel nel on permanent duty, and government-subsidized low-income renters. See Bock, Brilliant, and Gerding destinations. (1990). 7 For example, since the tax base (B) is inclusive of the tax charged hotel guests, to net the same room ENDNOTES revenue as before the tax, hotels must add on a tax to guests of 5.25%. That is: **The authors are indebted to Chung H. Lee, Ken White, three anonymous referees, and the editor for B = l .0525*R helpful comments. 1 Wall Street Journal, Tax Report, March 8, 1989. After tax ( = .05*8), hotels net (1-.05)*8 = .95*B = 2See "New York's Hotel Tax Highest in the Na· .95*1.0525*R = R. lion," The Sunday Honolulu Star Bulletin and Ad- "Time series intervention analysis was first pro- wrtiur (September 16, 1990), p. F4. posed by Campbell and Stanley (1966) and Cook and sSee, for example, Schofield (1991), p. 1. Campbell (1979) to aasess the impact of a discrete in· 'See, for example, Fujii, Khaled and Mak (1985), tervention in a social process. The methodology is de· Zuraski and Sanders (1989), and Hiemstra and Ismail scribed in McDowell, McCleary, Meidinger, and Hay (1991). (1980). It has a broad range of applications. For ex· 8This partial equilibrium model demonstrated that ample, Box and Tiao (1975) used it to examine the the burden of a hotel occupancy tax is approximately effectiveness of air pollution control laws. McPheters,

(Ur·w onwv r: 1 ~ ':.J I.) , Pf' . .r1 .1, 1-111 440 NATIONAL TAX JOURNAL [Vol. XLV Mann, and Schlagenhauf (1984) analyzed the impact ruary (peaks and troughs are highly variable, chang· of more severe penalties for the use of firearms on ing from year to year). Visitors to Hawaii must ne- property crime. More recently, Fomby and Hayes gotiate a wide variety of factors in planning their (1990) employed intervention analysis to examine the vacations. When are airfares lowest? When doee Golden impact of the War on Poverty on families in the low- Week or Spring Break fall? Note that school and m est quintile of the income distribution. holidays fluctuate from year to year as do cold spelll 9The hotel revenue series is derived by dividing the in both the East and West. Income is certainly not 1 general excise tax base data on hotel receipts ("'total smooth series either. The lumpiness of Japanese in- hotel rental receipts • 1.0416) by the U.S. consumer come due to significant bonuses in June and Decsm· price index times 1.0416. Two a<ljustments were made ber may contribute to the observed behavior of our to the series. Y.'irst, since we are modeling consump· data. Finally, the conclusions of this paper are un- tion and not tax revenues per se, the data are lagged changed when our model is estimated without the one period (e.g. January tax collections reflect De- moving average parameter. cember receipts). Therefore, the dat.a used in the em- 15 Notice that the dumMy for the Plai11 Agreernen~ pirical analysis actually begin in December 1979. Ii. is lagged one period, while the dummy for the ho- Moreover, since visitor lengths of stay can span two tel room tax, 12, is not. The lagged impact of each pol· monthly reporting periods (and average length of stay icy change is determined empirically. The tax dummy is about 10 days) , we weighted current and previous is not significantly different from zero either contem· ' month receipts by 2/3 and 1/3, respectively. poraneously or with a lag. 10State of Hawaii, The 1990 State of Hawaii Data 18 We have treated the Plaza agreement as an ex· Book, (Honolulu: Department of Business, Economic ogenous policy change. An alternative would be to Development and Tourism, 1991), p. 197. specify a transfer function for the real after-tax nv· 11 Hawaii Vi8itors Bureau, 1991 Annual Research enue series and extract the information in the yen/ Regort <Honolulu, 1992), p. 4, dollar exchange rate by including it as an indepen· 2See Slemrod (1982) for an example of such an ap· dent variable, Using this alternative specification, the proach used to measure the impact of the Revenue pre -interoention sample for the transfer function model Act of 1978 on the volume of stock transactions. ends immediately prior to the imposition of the hotel 13 A transfer function model is a multivariate AR- room tax, not prior to the Plaza agreement. Although IMA model where causal input variables determine the sample periods are different, we find that the noiee the output variable, and the error term (capturing the model from this alternative specification is quite aim· combined effects of all other factors influencing the ilar to that reported in Table 2, and the imposition of output series) is modeled as an ARIMA proceSB. Here, the hotel room tax had a very email negative \mpacl the real revenue series is influenced by policy dummy on real hotel revenues. The hotel room tax dummy inputs. In a more general model the revenue series has a coefficient of ·.0065 with a t-atatistic of 0.04 11 could be determined by inputs such as the explana· compared with a coefficient of ·0.0094 with a t-atatl• tory variables used in a reduced form model , The dy- tic of(.13) as reported in Table 2. Thus, in both caaee, namic response of real revenues to the policy change the imposition of the hotel room tax had a negligible is described by the general rational distributed lag, im~act on real hotel room rental receipts. 1 f!I,), called a transfer function, or an impulse re- These are computed from data on average hotel sponse function. In contrast to the usual static-dummy room rates provided by the accounting firm of Pannell variable approach using a reduced form model, the Kerr Forster based on their monthly surveys or in· transfer function model allows for a dynamic re- dividual hotel properties in Hawaii. The surveys cover sponse of real hotel revenues to policy changes. The approximately two thirds of all hotel rooms and ii path of f(l,) is determined empirically and provides subject to measurement error. Thus we use the price information on the impact, transition, and Jong run series only as supporting evidence. 18 effects of the policy change. Hawaii Visitors Bureau, 1990 Annual Researth 14 The identified noise model reported in Table 2 Report (Honolulu, 1991), p. 50. In 1990, the percen~ contains a nine month moving average component in· age of Hawaii tourists purchasing package tours wu eluded to whiten the residuals by capturing the sig- 54%. nificant autocorrelation in the hotel revenue series at lag nine. While some researchers have attributed sig- nificant autocorrelations at long lags to chance and REFERENCES thus elected to ignore them (e.g. Granger and New- bold (1986), pp. 107-114), others have chosen to model Bock, R., E. Brilliant, and J . Gerding, Taxes of Ha· the observed correlation (e.g., Thompson and Tiao wati 1990. (Honolulu: Cross Roads Presa, 1990). (1971), Fackler and Krieger (1986), Koch and Rasche Box, G.E.P., and G.C. Tiao, "Intervention Analyli1 (1988), and Hanssens and Vanden Abeele (1987)). We With Applications to Economic and Environmental choose to model the observed correlation to eliminate Problems,'' Journal of the American Statistical Al· all systematic fluctuations in the residuals of the sociation. Vol. 70 (1975), pp. 70-79. preintervention model to avoid mistaking them for Campbell, D.T., and J.C. Stanley, E%perimental and systematic effects of the hotel room tax. Furthermore, Quasi-Experimental Designs for Research. (Chi· the seasonal and aseasonal behavior of the revenue cago: Rand McNally, 1966). series is complex enough to generate such correla- Combe, J.P., and B. Elledge, "Effects of a Room Tu tions. There are a wide variety of factors affecting the on Resort Hotels/Motels," Nalicnal Tax Jownal. Vol. seasonal pattern of the revenue series. Hotel room 32 (1979), pp. 201-207. revenues exhibit annual peaks that typically occur in Cook, T.D., and D.T. Campbell, QIU18i-Experimtlllll· June and December and troughs in October and Feb- lion. (Chicago: Rand McNally, 1979)

11.11i c e1111w r, /"1}1 .!.), pp 'l .JJ- •l t No. 4] HOTEL ROOM 'l'AX 441 Department of Taxation, Annual Report. (Honolulu: Loeb, P., "International Travel to the United States, State of Hawaii, 1987 /1988, 1988/1989, and 1989/ An Econometric Jt:valuation," Annals of Tourism 1990). Research, Vol. 9 (1982), pp. 7-20 Fackler, J.S., and S.C. Krieger, "An Application of Mak, J., "Taxing Hotel Room Rentals in the U.S.," Vector Time Series Techniques to Macroeconomic Journal of Travel Research. Vol. 27 (1988), pp. 10- Forecasting," Journal of Business and Economic 16. Statistics, Vol. 4 (1986). McDowell, D., R. McCleary, E. Meidinger, and R. Hay, Fomby, T., and K. Hayes, "An Intervention Analysis Interrupted 1'ime Series Analysis. (San Francisco: of the War on Poverty," Journal of Econometrics. Sage, 1980). Vol. 43 (1990), pp. 197-212. McPheters, L., R. Mann, and D. Schlagenhauf, "Eco- ~'ujii, E., M. Khaled, and J. Mak, "The Exportability nomic Response to a Crime Deterrence Program: of Hotel Occupancy and Other Tourist Taxes," Na- Mandatory Sentencing for Robbery With a l<'ire- tional Tax Journai. Vol. 38 (1985), pp. 169-1'17. arm," Economic Inquiry. Vol. 22 (1984), pp. 550- Granger, C.W.J., and P. Newbold, l"orecasting Eco- 670. nomic Time Series, 2nd edition. (New York: Aca· "New York's Hotel Tax Highest in the Nation," The demic Press, 1986). Sunday Honolulu Star-Bulleti11 and Aduertiser. Gray, H. P., "The Demand for International Travel (September 16, 19901, p. F4. By the United States and Canada," International Schofield, G., "Bed Tax on City Council Agenda,'' The Economic Review Vol. 7 0966), pp. 83-92. Cairns Post, July 6, 1991, p. 1. Hanssens, D M., and P.M. Vanden Abeele, "A Time- Slemrod, Joel , "Stock Transactions Volume and the Seriea Study of the Formation and Predictive Per- 1978 Capital Gains Tax Reduction," Public Finance formance of EEC Production Survey Expectations," Quarterly, Vol. 10 (1982l, pp. 3-16. Journal of Business and Economic Statistics, Vol. 6 State of Haw an, Department of Taxation, Annual Re· (1987). port, 1987-198H, 1988-1989, and 1989-1990. Hawaii Visitors Bureau, 1990 Annual Research Re- "Tax Report," Wall Street ,lo11mal. (March 8, 1989). port (Honolulu, 1991). Thompson, H.E., and G.C. Tiao, "Analysis of tele- Hiemstra, S., and J. Ismail, Amounts and Types of phone data: a case study of forecasting seasonal time Room Taxes Levied on the /,odging Industry . Pre- series,'' Bell Journal of Economics and Manage - senU!d to the Hospitality, Lodging and Travel Re· ment Science, Vol. 2 (1971), pp. 616· 541. search Foundation, American Hotel and Motel As- Yarbrough, B., and R. Yarbrough, The World Econ- aocia tion. (West Lafayette, Indiana: Purdue University, 1990). omy: Trade and Finance. (Chicago: Dryden Press, Hiemstra, S., and J . Ismail, "Analysis of Room Taxes 1988). l.Alvied on the Lodging Industry," Journal of Travel Zuraski, R., and H. Sanders, "Characteristics of Tour- Research, (Summer, 1992), pp. 42-49. ists and State Taxation of Tourist-Related Expen- Koch, P.O., and Robert H. Rasche, "An Examination ditures," 1989 Proceedings of the Eighty -Second of the Commerce Department Leading- Indicator Annual Conference on Taxatio1'. Tax Institute of Approach," Journal of Business and Economic Sta- America, National Tax Association (1990), pp. 63- tutics, Vol. 6 (1988). 69.

7/9/2019 State Lodging Taxes ATTACHMENT #3 Council Committee of the Whole Meeting of 09/10/2019 '"\\NCSL 111111 State Lodging Taxes 1/28/2019 Specific Statewide Taxes on Lodging - By State The following table contains state lodging tax rates. Please keep in mind that these taxes are often levied in addition to local lodging and/or sales taxes. Contact: Jackson Brainerd State Lodging Tax Rates State Sales Tax Lodging Tax Total State Tax Alabama N/A 4.0% [1] 4.0% Alaska No state sales tax N/A None Arizona N/A 5.5% 5.5% Arkansas 6.5% 2.0% 8.5% California N/A N/A None Colorado 2.9% N/A 2.9% *Connecticut N/A 15.0% 15.0% *Delaware No state sales tax 8.0% 8.0% Florida 6.0% N/A 6.0% Georgia 4.0% 5$ fee per room 4.0% *Hawaii 4.0% 10.25% 14.25% www.ncsl.org/research/fiscal-policy/state-lodging-taxes.aspx 1/4

7/9/2019 State Lodging Taxes State Sales Tax Lodging Tax Total State Tax Idaho 6.0% 2.0% 8.0% Illinois N/A 6.0% 6.0% Indiana 7.0% N/A 7.0% Iowa N/A 5.0% 5.0% Kansas 6.5% N/A [2] 6.5% Kentucky 6.0% 1.0% 7.0% Louisiana 4.45% N/A 4.45% *Maine N/A 9.0% 9.0% Maryland 6.0% N/A 6.0% Massachusetts N/A 5.7% 5.7% Michigan 6.0% 6.0% [3] 12.0% Minnesota 6.875% N/A 6.875% Mississippi 7.0% N/A 7.0% Missouri 4.225% N/A 4.225% Montana 3.0% [4] 4.0% 7.0% Nebraska 5.5% 1.0% 6.5% Nevada N/A N/A [5] None *New Hampshire No state sales ta x 9.0% 9.0% New Jersey 6.625% 5.0% 11.625% New Mexi co 5.125% N/A 5.125% New York 4.0% N/A 4.0% North Carolina 4.75% N/A 4.75% North Dakota 5.0% N/A 5.0% Ohio 5.75% N/A 5.75% Oklahoma 4.5% N/A 4.5% www. ncsl .org/research/fiscal-poli cy/state-lodging-taxes.a spx 2/4

7/9/2019 State Lodgin g Taxes State Sales Tax Lodging Tax Total State Tax Oregon No state sales ta x 1.8% [6] 1.8% Pennsylvania N/A 6.0% 6.0% Rhode Island 7.0% 5.0% 12.0% South Carolina 5.0% [7] 2.0% 7.0% South Dakota 4.5% 1.5% [8] 6.0% Tennessee 7.0% N/A 7.0% Texas N/A 6.0% 6.0% Utah 4.7% 0.32% 5.02% Vermont N/A 9.0% 9.0% Virginia 4 .3% [9] 0.0% 4.3% Washington 6.5% N/A 6.5% West Virginia 6% N/A 6% Wisconsin 5% N/A 5% Wyoming 4% N/A 4% District of Columbia N/A 14.95% 14.95% Puerto Rico N/A 9% 9% Virgin Islands N/A 12.5% 12.5% N/A =ta x not levied on accommodations * =no additional local ta x on accommodations [1] State lodging tax rate raised to 5.0% in mountain lakes area. [2] A state lodging ta x is only levied in special statutory designated redevelopment districts at 5.0%. [3] State levied lodging tax varies. Convention hotels located within a qualified local government unit with 81 -160 rooms rate is 3.0% and 6.0% for hotels with more than 160 rooms. All other hotels with 81-160 rooms is 1.5% and 5.0% for hotels with more than 160 rooms. [4] Specific sales ta x levied on accommodations . State has no general sales ta x. www.ncsl.org/research/fiscal-policy/state-lodging-taxes.aspx 3/4

7/9/2019 State Lodging Taxes [5] Counties must levy a lodging tax of 1% or 2% based on population. [6] The rate becomes 1.5% after 7/1 /2020. [7] State sales tax on lodging is lowered to 5.0%. [8] Seasonal Uune-September) [9] An additional 0.7% may be included in the rate in certain planning districts. Copyright 2019 by National Conference of State Legislatures www.ncs l.org/research/fisca l-policy/state-lodging-taxes.aspx 4/4