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‘Tax and spend’ or balancing growth: Alabama beach city wrangles with lodging tax increase

AL.com logo AL.com 12/8/2021 John Sharp, al.com
Gulf Shores Mayor Robert Craft speaks during the Alabama Department of Transportation's public hearing into a proposed new bridge over the Intracoastal Waterway on Thursday, November 15, 2018. An overflowing crowd crammed into the Gulf Shores Activity Center to provide public statements about the project. Four years later, the bridge project is in flux as ALDOT has repeatedly delayed bid lettings for the project so Orange Beach and the private owners of the Foley Beach Express bridge can negotiate a project of their own. The city is now pursuing a lodging tax increase to pay for a 90 million, 10-year capital improvement plan. City officials say the bridge project and the lodging tax increase are unrelated. © John Sharp Gulf Shores Mayor Robert Craft speaks during the Alabama Department of Transportation's public hearing into a proposed new bridge over the Intracoastal Waterway on Thursday, November 15, 2018. An overflowing crowd crammed into the Gulf Shores Activity Center to provide public statements about the project. Four years later, the bridge project is in flux as ALDOT has repeatedly delayed bid lettings for the project so Orange Beach and the private owners of the Foley Beach Express bridge can negotiate a project of their own. The city is now pursuing a lodging tax increase to pay for a 90 million, 10-year capital improvement plan. City officials say the bridge project and the lodging tax increase are unrelated.

Traffic congestion into one of Alabama’s most popular tourist destinations can be treacherous during the summer months, Spring Break, and other weekends when visitors flock to the beach.

Built to handle 45,000 vehicles daily, the W.C. Holmes Memorial Bridge is averaging 55,000 cars a day, according to the city’s mayor, and an additional traffic lane is needed to get motorists to the city.

Gulf Shores also wants to reroute Canal Road, add an additional road connecting Coastal Gateway Boulevard to County Road 6 East, build a new pedestrian bridge, construct a new Justice Center to replace a 38-year-old city jail, add a new a fire station to a fast-growing area of the city, add a full-time ambulance crew, and a host of other things including new parks.

Congestion builds on southbound Alabama State Route 59 from the W.C. Holmes Bridge in Gulf Shores, Ala., in this July 2021 photo. A proposal from the city of Gulf Shores calls for increasing the city's portion of the lodging tax by 3-percentage points that would raise the revenue needed to finance a 10-year, 90 million capital improvement plan. Part of that plan calls for adding an additional lane over the bridge that is often congested during peak travel periods to Alabama's beaches. © John Sharp Congestion builds on southbound Alabama State Route 59 from the W.C. Holmes Bridge in Gulf Shores, Ala., in this July 2021 photo. A proposal from the city of Gulf Shores calls for increasing the city's portion of the lodging tax by 3-percentage points that would raise the revenue needed to finance a 10-year, 90 million capital improvement plan. Part of that plan calls for adding an additional lane over the bridge that is often congested during peak travel periods to Alabama's beaches.

Those projects and more are wrapped up into a 10-year, $190 capital improvement plan.

“We are trying to figure out how we can continue to growth this city and make it better and have balance,” Mayor Robert Craft said. “Support residential and the tourism industry. Trying to balance that out is where we are.”

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The city is leaning on the tourism industry to support the program through a 3-percentage point increase in the city’s 13% lodging tax assessed on hotels and vacation rentals. The new 16% lodging tax, if implemented next week, would be the highest along the Gulf Coast and would rival some of the highest rates in Alabama that includes Birmingham (17.5% with an additional $3 room fee per day), Mountain Brook (17%) and Homewood (21%).

For the past two Mondays, city officials have received an earful from upset rental agencies, business owners and residents. The complaints have focused on whether Gulf Shores is raising the lodging tax by too much and pricing itself into a competitive disadvantage with nearby Pensacola Beach and Panama City Beach.

Other arguments have focused on Alabama’s conservative and tax-aversion reputation, and whether political leaders need to raise taxes at all. On Monday, for instance, one resident barked at the council for supporting a “tax and spend” proposal without allowing voters a chance to weigh in.

The council appears poised to approve the increase next Monday, December 13.

“We’ll listen until there are no more questions asked,” Craft said.

Tax rates

Craft and other city officials defend the proposed increase as the only viable revenue solution toward financing the capital program that includes $76.7 million for transportation projects over a 10-year period.

Simply put, city officials say a sales or property tax increase would be too costly to residents. A property tax increase would also need authorization from state lawmakers, and support via a referendum. Neither are likely, Craft said.

The possible funding sources, as laid out during the council’s November 29 meeting, include:

  • Adding 1.29% to the city’s existing 3% sales tax rate would generate $7 million a year at an average annual cost of $230 to the typical Gulf Shores resident.
  • Adding 9.3 mills to the city’s existing 5-mill property tax rate would raise $7 million each year and would cost a Gulf Shores resident with a home valued at $450,000, an additional $418.
  • The 3% addition to the lodging tax also raises $7 million per year but would cost residents nothing.

“I see where we need in this community to prepare for better opportunities for our residents,” Craft said. “The quality of life we have here is the reason our visitors come here. It’s incumbent on us to protect this quality of life for everyone.”

Vacation rental agents argue the city is taxing too much.

Leonard Kaiser, a founding partner of Kaiser Reality, said the increase proposal comes less than four years after Gulf Shores hiked their portion of the overall lodging tax rate by 2%, which added revenue to support a previous round of transportation-related projects. He said the city should “slowdown” on its program and reconsider the impact it will have on his industry.

Rick Kieffer, who also owns vacation rental properties, said the tax increase would occur during what could be a difficult year for tourism. He predicts a recession could be looming, which means fewer people taking beach vacations.

“2021 was an unusual year in that people were finally released from COVID, and had stimulus money in their pockets,” Kieffer said. “2022 appears to be a much different climate. Gas prices are almost doubled and 92% of our visitors come in a car. They won’t have the stimulus money and they will be back to work. I don’t believe 2022 will be as prosperous as 2021.”

Craft has a different view of things. He noted that tourism figures are soaring since the last time the lodging tax was increased in 2018. He said that in 2018, the city had a 76% occupancy during the summer months with an average rental rate of $280 a night. Last summer, he said the average rate rose to $411 per night. Occupancy, despite the rising prices, rose to 84%, he said.

A $300 nightly rate to rent a condo would be $9 more expensive with the new tax rate in place, Craft said.

“What I’m hearing is that we’re pricing ourselves out of the market with a 3% (lodging tax addition) when it looks like the biggest impact is in the price we are charging,” Craft said. “How does 3% price us out of the market? I see it differently.”

Evacuations and health care

The lodging tax increase to finance a capital program comes at the same time a new bridge into Gulf Shores seems unlikely. The Alabama Department of Transportation has repeatedly stalled issuing bids on a project with an estimate price tag of around $80 million while Orange Beach and the operators of toll bridge along the Foley Beach Express negotiate an agreement to lower tolls on Baldwin County residents and add additional lanes.

The Gulf Shores project has been backed by city officials for years as a way to add additional hurricane evacuation routes out of the beach communities.

Craft, during the council’s November 29 meeting, said the unpredictability and strengthening of recent hurricanes illustrates an increasing need for additional options over the Intercoastal Waterway.

But city officials say that capital improvement program — that includes the addition of a southbound lane on Alabama State Route 59 from Coastal Gateway Boulevard north of the Alabama Gulf Coast Zoo to Fort Morgan Road — is not a direct response to ALDOT’s hesitancy for the new bridge project.

“The bridge itself is unrelated to the consideration of the proposed lodging tax increase,” said Grant Brown, a city spokesman.

During Monday’s meeting, Craft reiterated his call for finding improved ways of getting residents and visitors off the beach more efficiently. He said that most of the area’s health care facilities are located north of the W.C. Holmes Bridge, which creates a situation that “needs improvement” in getting residents and visitors access to medical facilities. The closest hospital is the South Baldwin Regional Medical Center in Foley. A new free-standing emergency room is in Gulf Shores, but it’s north of the Holmes Bridge.

“We have a significant number of projects that are important to this community,” Craft said, referring to the capital improvement plan. “There are evacuation situations and getting over the bridge and getting (access) to health care. Very little of that exists on the island. A few doctor’s offices, and that’s it. Situations need ... vast improvements. We must do something to solve some of these problems.”

This story was corrected at 4 p.m. on December 8, 2021, to provide information on how much additional in property taxes would be needed to raise the same revenue as a 3 percentage point increase in the city’s lodging tax.

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