Falmouth Town Meeting Rejects Increase in Room Occupancy Tax

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By: Christopher Kazarian
Published: 11/16/10

The Annual November Town Meeting kicked off last night with Town Meeting members quickly dispensing of 24 warrant articles utilizing the blanket vote, but then they labored over eight others, ending the night at 11:30 PM by shooting down a proposed 2 percent increase in the local room occupancy tax in Article 12.

This is the third time in roughly a year that Town Meeting has rejected the room tax as a way to boost Falmouth’s revenue stream, which has been hard hit by cuts to state aid and sagging local receipts.

Selectmen were in favor of this article along with Article 15, yet to be discussed, that would raise the local meals tax by .75 percent.

The board’s chairman Brent V.W. Putnam presented a recommendation to Town Meeting members on how to use the increased revenue from the increase in taxes.

Selectmen, he said, were in favor of taking the increased revenue and appropriating half of it equally to the town’s stabilization fund and capital expenses. The remaining 50 percent, he said, would go toward the general operating budget as delineated in the selectmen’s budget policy.

Increased revenue, decreased budget gaps

Acting Town Manager Heather B. Harper later added to the rationale behind the selectmen’s recommendation, noting that the increase in taxes is estimated to bring roughly $1 million into town coffers. Roughly $600,000 of that would come from the meals tax hike and the remainder from the hotel/motels tax.

The increased revenue would come at a time, he said, when selectmen are asking that next year’s fiscal year budget be increased by 1.5 percent, barely enough to cover $800,000 in estimated cost increases to insurance as well as $250,000 for retirement, $30,000 for insurance, and $350,000 for contractual obligations.

These projected cost hikes, she added, do not account for the school department’s budget, which is losing $350,000 in federal stimulus money next year.

About 35 percent of Massachusetts communities, 121 out of a total of 351, have elected to raise the meals tax, Ms. Harper said, including several Cape towns such as Yarmouth, Dennis, Brewster, Harwich, Orleans and Wellfleet.

With the rooms tax, she said, the numbers are lower, with 86 out of the 351 Massachusetts communities, representing 24 percent, electing to raise revenues this way. Barnstable, Yarmouth, Provincetown and Brewster are the four Cape towns that have it.

Effects on local economy

Town Meeting members were cool to the idea with restaurateur Kevin E. Murphy, Precinct Five, the first to speak in opposition to Article 12.

“This is a tax increase,” he said. “Please understand that.”

Already Falmouth taxes hotel/motel rentals at 4 percent while the state takes an additional 5.7 percent, amounting to a total 9.7 percent that visitors to town are charged for rooms, Mr. Murphy said.

Article 12 would increase the total tax to 11.7 percent, a figure that he said is scary to many of the smaller bed and breakfast establishments in town.

He said it would put Falmouth at an unfair disadvantage with the coast of Maine, the town’s primary competitor for tourists.

And those tourists, he said, are valuable to the community, spending $8 for every $1 they spend on their rooms here.

“It helps me employ 30 people, five of whom are school teachers in Falmouth,” he said.

He then showed slides of several buildings throughout town that once operated as hotels, motels or bed and breakfasts in towns, but are now defunct. He asked Town Meeting not to increase the tax as it could lead to similar outcomes for those businesses currently providing rooms to tourists.

“These people help our community and will help us in the future,” he said. “If we put this on right now, it will hurt them.”

The case for Article 12

But Edward H. Schmitt, Precinct Eight, urged Town Meeting to push through the tax increase, highlighting three Cape towns, Yarmouth, Brewster and Provincetown, that have passed the increase in their towns and have seemingly reaped the benefits.

Each of those towns, he said, has generated revenues beyond the initial 50 percent that would come from boosting these taxes from four to six percent.

In July, he said, Provincetown had a 53 percent increase in revenues compared to the previous year as the result of the tax, while Brewster’s revenues rose by 86 percent. Yarmouth, he said, showed the highest gains, witnessing an additional 91 percent in increased local revenues from the hotel/motels tax.

As part of his presentation, Mr. Schmitt showed one slide that drew groans from the back of the Lawrence School auditorium, quoting President Franklin D. Roosevelt’s line “that the only thing we have to fear is fear itself.”

With all that Falmouth has to offer tourists, from public access to the beach to its historic districts to its boating and fishing opportunities, Mr. Schmitt said this tax increase would help preserve all that is good in this town.

Business owners weigh in

William F. O’Connell, owner of the Palmer House Inn, argued otherwise. He purchased the property about six years ago and invested in the bed and breakfast the first few years by re-roofing the building, purchasing a new boiler and hot water heater while devoting money to marketing.

It was not until about four years after purchasing the property, he said, that he and his wife began to show a profit, but that stopped after 2008 with the recession. Last year, he said, “it hurt us severely. We lost about 18 percent of our business.”

While Mr. O’Connell continues to pay the mortgage, he said, much-needed maintenance has been deferred.

If Town Meeting voted in favor of Article 12, Mr. O’Connell said he feared that tourists would shy away from town. Already, he said, one of the most common inquiries from prospective clients is what the rooms tax rate is in Falmouth, and becoming upset when they learned about the current 9.7 percent rate.

“We fear going over the double digit is a psychological hurdle most of our guests will not jump,” he said. “We don’t have the room to absorb any further decrease in occupancy.”

It was a similar sentiment shared by Mary Patricia Robinson, owner of the Captain’s Manor Inn.

“There is a reason this is feared,” she said, noting it has the potential to change people’s habits. “We saw it with the alcohol tax and with the trash fee.”

Ronald J. Smolowitz, Precinct Eight, said he could not support the article if it did not return any of the revenue toward marketing Falmouth as a tourist destination that would help the businesses affected by the tax.

This is something that Provincetown and Yarmouth have done with a percentage of their increased revenues from the tax hike, Todd L. Bidwell, Precinct Four, said.

He, too, was against Article 12, stressing that it could lead to foreclosures for other hotels, motels or bed and breakfasts in town.

“We are losing rooms at a considerable rate in town,” he said. “Without rooms we cannot attract visitors.”

This sector of the tourism industry, he said, is already hurting as it lost roughly $100,000 in revenue last year and is showing a decline of $38,000 in revenue for the first quarter of this year.

Town Meeting members decide

Others to argue against Article 12 were Robert C. Young, Precinct Five, who said he could not support the tax increase until both selectmen and the Falmouth Finance Committee, which recommended indefinite postponement, backed such a move.

And Deborah Siegal, Precinct Six, had a change of heart, noting she supported the tax increase previously, but not now.

“As much as I would like to see fewer tourists in town... that is not the question,” she said.

Town Meeting then voted in a strong voice vote to not support Article 12.

While that proposal failed, Falmouth should see additional revenue after Town Meeting elected to petition the general court to impose a room occupancy tax on timeshares, which passed on the blanket vote in Article 14.

Town Meeting resumes tonight at 7 with Article 13, a proposed room occupancy tax on short-term vacation rentals not currently subject to such a tax. Following that, Town Meeting will debate Article 15, which would increase local options taxes on meals.

Other TM highlights

Among other articles that passed without discussion were Article 28, which appropriated $3,000 from free cash to fund Menauhant Beach nourishment conservation compliance expenses, and Article 30, which appropriated $35,000 from the town’s Reserve Energy Fund toward renewable energy projects.

Article 31, which created an Affordable Housing Fund, also passed on the blanket vote.

The fund, designed by the community preservation committee and supported by selectmen, would create an account that allows the town to grant and loan money for affordable housing projects. The fund needs approval from the state.

Last night’s session kicked off at 7 with a quorum of 199 Town Meeting members. Among the early highlights was the Brian Boru Pipe Band playing “Amazing Grace” in honor of those Town Meeting members who have died over the past year, with Town Moderator David T. Vieira remembering Diane C. Thompson, who died in September.

Also honored last night was Matthew C. Patrick, Precinct Seven, who was presented a certificate of appreciation for 14 years of service to the town as a selectman and a state representative by Mr. Putnam.

Mr. Patrick corrected Mr. Putnam, noting that he actually has 16 years of service to the town, six as a selectman and 10 as a state representative.

Mr. Patrick said, “I am the luckiest guy alive. You inspired me to help people, which is what public service is... Thank you. It was an honor and privilege to serve you.”

He was treated to two standing ovations and a heartfelt thanks from Mr. Vieira who bested him as the state representative for the Third Barnstable District earlier this month.

 

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