Headache relieved? Not so fast, my friend

Nearly a year ago, I wrote about the potential impending headache of the Currituck County occupancy tax lawsuit upon many North Carolina destination marketing organizations (DMOs). In late May, the North Carolina Supreme Court ruled in favor of the county, saying that the occupancy tax statute did not categorically bar the county from spending tax revenue on enhanced public safety services that are connected to area tourism. As noted previously, the case was always a bit of a curious one from the perspective of North Carolina DMOs, since Currituck is the only community in the Old North State where a state-mandated tourism development authority (TDA) consists entirely of Currituck’s county commissioners and not representatives from the local visitor economy. (There are a few communities where the investment of occupancy tax funding is directed by a county commission or municipal council.)

That decision of the state’s high court subsequently led to the June introduction of a bill in the NC General Assembly (Senate Bill 484), signed into law by Governor Josh Stein, which placed some restrictions on how occupancy tax revenue can be invested.  This bill barred proceeds from being used for development or construction of a hotel or another transient lodging facility (which was already prohibited by law), and clarified that allowable “tourism-related expenditures” do not include services ordinarily provided by a city for its residents, or for purposes that are designed for or primarily benefit residents of the city unless explicitly authorized by a local act, including all of the following:
a. Solid waste collection or disposal
b. Water supply, distribution, or treatment
c. Fire protection
d. Law enforcement, public safety services, or emergency services
e. Affordable housing
f. Education

(However, Currituck County and the three New Hanover County beach communities of Carolina Beach, Kure Beach, and Wrightsville Beach received something of an exemption to this law via House Bill 240, which defines allowable uses of occupancy tax in those communities to include “services or programs needed due to the impact of tourism and seasonal population changes, such as law enforcement, emergency services, fire protection, construction and maintenance of public facilities, solid waste collection and disposal, and beach nourishment” (which was already an allowable expenditure).  The bill goes on to clarify that “Funds under this subdivision may not be used for services or programs normally provided by
the county on behalf of its citizens unless the services or programs promote tourism and enlarge its economic benefits by enhancing the ability of the county to attract and provide for tourists.” The bill also allocates money for destination promotion.)

North Carolina DMO leaders and boards are not entirely in the clear, however, when it comes to determining what’s an allowable “tourism-related” investment of lodging tax revenue. Senate Bill 484 was simply proscriptive regarding only a handful of potential uses of this revenue. There are still a billion other potential investments of the dollars, and DMO boards will still have to make informed decisions about whether a particular investment meets both the letter and spirit of the law.

Those informed decisions should also include documentation of why the board believes their investment qualifies as “tourism-related.” As noted in a recent opinion piece in the Carolina Journal, one of the concerns cited in both the 2024 Appeals Court ruling (in favor of the plaintiffs) and in a concurring opinion by NC Supreme Court Associate Justice Tamara Barringer was that the Currituck County commissioners did nothing to support their decision “without even a cursory discussion of whether the appropriation was tourism-related.”

DMO boards have the same obligation to their communities and especially their tourism partners as to why anything other than very obvious investments can be legally justified as “tourism-related expenditures.” I’ve seen too many questionable investment decisions made by DMO governing boards without any articulation of how the expenditure benefits the visitor economy, only adding to the lack of transparency that sometimes afflicts DMOs.

The lack of documented justification also creates a slippery slope for DMOs–why is one questionable investment of lodging tax revenue acceptable to the board, but another not unsuitable?

I appreciate that many DMOs love the flexibility of a term like “tourism-related expenditures.” Those words have often enabled them to make tremendous investments that benefit both the visitor economy and the community. But they shouldn’t be abused, either, lest the next piece of related legislation that comes down from Raleigh is more prescriptive (i.e., we’re telling you exactly where you can spend money or how you should spend it) than proscriptive.