If a proposed rate hike passes Newport City Council, Newport short-term rental businesses, including vacation homes and traditional hotels/motels, will charge an additional 2.5 percent in transient room tax beginning in the fall. (Photo by Mathew Brock)

NEWPORT — The Newport City Council will hold a public hearing May 17 on whether to increase the city’s tax on short-term rentals, including vacation homes and traditional lodging establishments, by more than 25 percent. This is being considered in a bid to make up a longstanding imbalance between revenue and expenditure growth, as well as provide for maintenance of city-owned facilities.

During its regular meeting Monday, the Newport City Council voted to schedule a public hearing on whether to raise the Transient Room Tax from 9.5 to 12 percent. The move is a recommendation of the city’s Finance Work Group within its five-year financial sustainability plan, which was approved by the city council in March. The plan outlines a strategy to increase revenues and reduce expenditures — the measures it contains must also largely be considered individually by council or even be sent to the voting public for adoption.

The increase would give the city among the highest room taxes in the state, according to a 2018 survey of Oregon municipalities included in the Finance Work Group’s five-year plan, and it’s the highest in Lincoln County. Lincoln City imposes a 9.5 percent tax, unincorporated areas are taxed at 10 percent, Yachats’ transient room tax is 9 percent, Depoe Bay’s is 8 percent and Waldport’s is 7 percent. Elsewhere on the coast, Astoria taxes rooms at 11 percent, Warrenton’s tax is 12 percent, Seaside taxes 10 percent and Coos Bay’s tax is 7 percent.

Joshua Conrad, general manager of the Best Western Plus Agate Beach Inn, said he’s worried that asymmetry will hurt local lodging businesses. “I believe the current proposed increase is steep and will pose a possible impact on our lodging by shifting business to adjacent municipalities that have not raised their tax as high as Newport is currently proposing,” Conrad said in an email to council members.

The City of Newport Finance Work Group was created by council in 2018 when it identified a deficit between the growth of revenues versus expenditures within the city budget. The group developed a forecasting tool, with which it determined that about a $1 million General Fund gap needed to be made up through either revenue increases or budget cuts to avoid bleeding reserves dry.

The advent of the COVID-19 pandemic brought additional budgetary pressure, such as the temporary moratorium on lodging that cut off room tax revenue, which provided about $4.7 million during the 2019-20 fiscal year, including $2.7 million to the $14 million General Fund. With city staff predicting a 50 percent reduction in room taxes, as well as other impacts of the pandemic and the already identified structural deficit, the Finance Work Group was tasked in 2020 with devising a five-year plan that included a $2 million reduction in budgeted revenues for 2020-21.

Some of that reduction was accomplished with the elimination of 22 full-time equivalent positions on the city payroll this fiscal year. City Manager Spencer Nebel said the five-year plan does create and restore some positions, but most would not be restored. The reduction in room tax revenue was also not as severe as expected, Nebel said — only 5 percent below the previous year’s collection as of February.

Nebel said the work group also had to consider how to pay for needed maintenance at the city’s 48 facilities supported by the General Fund, an area the city manager said had long been drastically underfunded. He said the work group was faced with either getting rid of some of those properties or finding another source of revenue.

“These facilities are really critical to what Newport’s about, like the Performing Arts Center and Visual Art Center and public facilities on the Bayfront,” Nebel said. Rather than see them close, the work group examined the possibility of raising the property tax levy or adding a surcharge to utility fees, which would be a direct cost to locals, and decided that tourists, a keystone in the city’s economy and also a significant pressure on its services, should share the load.

“They focused on the fact that we shouldn’t place all of the burden on the 10,000 people who live here,” Nebel said.

The city’s current 9.5 percent transient room tax is split between 54 percent to the General Fund and 46 percent designated for tourism promotion and facilities that provide services for visitors. A 2003 state law would apply to the 2.5 percent increase and split that portion 70-30. Based on last fiscal year’s transient room tax collection, that’s an additional $325,000 to the General Fund and $759,000 for tourism-related expenditures.

Nebel said that would allow the city to perform maintenance and repairs at facilities that cater to visitors; enable expansion in landscaping, litter collection and other maintenance tasks; create new spaces that the public as been asking for, such as more off-road trails; and bolster the General Fund to add more parks personnel. It would also allow the restoration of a police officer position eliminated in the 2020-21 budget.

There are two future revenue components to the five-year plan needed to fund infrastructure and capital projects, as well as restore some full-time positions eliminated in last year’s budget. The plan proposes an increase in the gas tax — which funds road improvements — to 5 percent per gallon, up from 3 percent during five peak months and 1 percent during the offseason.

The plan also proposes a 5 percent tax on prepared food, such as is imposed in Yachats and Ashland. Both of those measures would have to be approved by Newport voters and could appear on the ballot as early as November.

Conrad, the Best Western manager, said he wants to see city council explore other tools before proposing a room tax hike, especially considering the three-month moratorium on tourist lodging implemented last March. “The actions of the city council heavily affected lodging last year, and it is concerning to see a proposed action that could affect our lodging just over one year later,” Conrad said.

He said he’d also like to see more specifics about the use of funds, as some of the facilities listed as recipients already get room tax revenue.

The current proposal would see the room tax increase implemented on Sept. 1. If council decides to proceed following the May 17 hearing, it would consider approval of an ordinance during a subsequent meeting.

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