The Brown County Convention and Visitors Bureau wants to plan how innkeepers tax money will be spent over the next three years if it has to split that revenue with a new music venue.
The amount of innkeepers tax that could be needed won’t be known until the venue opens and money starts coming in.
Innkeepers tax money has been pledged as a backup revenue source to pay the mortgage of the Maple Leaf Performing Arts Center if it does not make enough in profits to cover it.
Building the 2,000-seat center, slated for construction this year near Hawthorne Drive, is estimated to cost $12.5 million, including construction, administrative and financing costs. Maple Leaf Committee member Barry Herring, a former builder of commercial shopping centers, estimated the costs with the help of entertainment company Live Nation.
The county took out a bank loan for that amount in December. The Maple Leaf’s estimated opening is in the summer of 2019.
Herring told the county commissioners in the fall that the $559,000 mortgage payment would be paid with revenue from the venue, plus a new entertainment tax and facilities fees, before innkeepers tax revenue would be used. The $1-per-ticket entertainment tax has yet to be approved by the Indiana General Assembly.
All of the CVB’s operating budget comes from the innkeepers tax. The agency uses that money to market Brown County to visitors and employ six people working full- or part-time.
Currently, and for several years, the CVB has received 95 percent of innkeepers tax revenue from the Brown County Convention and Visitors Commission. The CVC takes the other 5 percent, and in the past, has spent it on special tourism promotions.
In November, the Brown County Council unanimously approved a resolution pledging innkeepers tax revenue to pay the Maple Leaf’s mortgage. No specific amount was listed on the resolution.
“I would like to say the CVB has been very resilient over the years,” said CVB Executive Director Jane Ellis. “I think there’s always an opportunity to see what is in front of us and adjust and make the best out of it.”
CVB’s projections
During meetings with the CVC board and CVC earlier this month, Ellis shared for this year through 2025 which she called the “worst-case scenario.”
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Innkeepers tax collections rose by around 3.5 percent for 2017 compared to 2016. Ellis provided a chart to board members that showed the total for 2017 at $844,490.99; collections for 2016 were $815,665.17.
When Ellis made her projections, she assumed that the innkeepers tax would cover the mortgage payments on the Maple Leaf for the first five years.
For 2018, Ellis also projected that the county wouldn’t see any increase in innkeepers tax revenue from 2017. It also would have $121,967.85 rolling over in that fund from 2017.
The CVB’s budget for 2018 is set at $712,500, but the CVB does not get that lump sum at the beginning of the year; it gets it only as the innkeepers tax is collected. That means each quarter, $178,125 is moved from the Brown County Convention and Visitors Commission — which holds innkeepers taxes — to the CVB.
Ellis projected that at the beginning of the second quarter in 2018, the CVB would be short by $99,010.43, after a second withdrawal of $178,125 is made to help fund the its budget.
In past years, innkeepers tax collections in the winter months have been lower because visitors aren’t coming here as often. Tax revenue picks up in the summer and fall.
CVC President Kevin Ault said another $100,000 of unused innkeepers tax from 2017 still is in the CVC’s account, and that is not accounted for in Ellis’ $121,967.85 rollover balance for 2018.
At the end of the fourth quarter in 2018, Ellis projected there would be $243,966.61 in the CVB fund.
At the end of 2018, the CVC will receive its 5 percent share of the innkeepers tax, which Ellis estimates will be around $37,500. That would be subtracted from the amount left at the end of the year, leaving $206,466.61 to carry over to 2019, Ellis said.
In the past, the CVC has used its 5 percent share of the innkeepers tax for tourism promotion, like for the Christmas season, Ault said.
Most recently, the CVC gave the Brown County Chamber of Commerce $10,000 to promote its passport program. Other money has been used to promote mountain biking in Brown County. In 2011, the CVC gave the Brown County Playhouse $80,000 for promotions after Indiana University opted to cease operating the theater and a local nonprofit took it over, Ault said.
Ault said there is less than $30,000 in the CVC’s savings right now.
More expenses?
Ellis said she is looking at the next three years of advertising and budget planning. She wants to see if it’s possible to evenly spread money over that three-year period, to avoid having to delay advertising later in the year when more money is usually available.
“There’s an 18-month construction loan, then a year and a half of operations. That gives everybody time to really get in there and … we’ll have more information,” she said.
Herring said that final numbers on the cost of the project will be known within the next month. Bids haven’t come in yet for most parts of building the venue, such as sewer and water hookups or construction.
In his Maple Leaf budget presentation to the county commissioners last fall, Herring said he had estimated high on costs and low on income.
Ellis said at some point, a discussion might have to happen because there’s not money in the 2018 budget to pay for an executive director over the Maple Leaf, but the CVC does have additional money — from its 5-percent share of the innkeepers tax — that could possibly pay that person. “It could be for this first year, it could be they are a CVB employee. They get hired and they are on our benefit package and all of that kind of stuff, then transition as needed,” she said.
Herring said all of those decisions need to be made after project bids come in, because money also needs to be set aside to put down-payments on acts.
“We have to have something within our budget that gets us to opening. There are going to be acts we have to give deposits to and they are typically larger for unknown venues,” he said. “Once we’re up and running for 10 years, we paid all of our bills, we’re a government-run agency, I guess sometimes you don’t even have to pay one, or you only to pay the deposit 10 days out. They start getting real flexible with you, but as we’re an unknown venue, we might have to (pay further in advance).”
Herring did not respond by deadline when asked whether he took into account having to pay deposits on acts in his budget estimates for the venue.
Herring told the board to keep in mind that money for those deposits may have to come from the CVC’s 5 percent of innkeepers tax or out of money set aside for marketing.
“You might earmark it for that person (the Maple Leaf executive director), but in my mind, there might be another call for that money,” he said. That’s why he wants to wait until bids come in before making other spending decisions, “so we can see how big the pocket is to fund all of this.”
The current contract between the tourism commission and the CVB states that the CVB will receive 95 percent of innkeepers tax revenue with the CVC getting the remaining 5 percent. That contract expires Dec. 31, 2018. A new contract will be negotiated at that time to address all of the operational nuances resulting in the new relationship among the CVC, CVB and Maple Leaf Management Corporation.
The Maple Leaf Management Corporation is currently being formed and is expected to go before the Brown County Council and commissioners soon to confirm who serves on it, Ault said. The management corporation is responsible for overseeing the day-to-day operations of the music venue.
The CVC will appoint at least two people to the management corporation, which is expected to have around seven members. The board voted unanimously to appoint Ault and Herring on Feb. 8. The county commissioners and council also will appoint members.
The Maple Leaf Management Corporation is a sister corporation to the CVB, Herring said. Both boards will make reports to the CVC, which is the board that first voted last year to free up innkeepers tax to build the Maple Leaf.
Growing revenue
In the projections Herring shared with the county commissioners last fall, he had innkeepers tax revenue growing by 20 percent in 2019.
Ellis had projected a 10 percent increase in innkeepers tax revenue for the third and fourth quarters of 2019, assuming that the Maple Leaf would be open in July 2019, which is in the third quarter.
But she also projected that at least half of the loan payment would be due in the third quarter, which is around $275,000. On paper, this made the third-quarter balance negative by $6,367.91.
However, by the end of 2019, Ellis projected the fund would be in the black, with $103,890.91 rolling over to 2020.
In her projections, Ellis only has the CVC receiving its 5 percent share of the innkeepers tax in 2018. That line is zeroed out through 2025.
In 2020, she reduced the CVB’s budget to $500,000, which she said is the least amount of money the CVB can survive on without making major compromises to programs. The exception is advertising, which the CVB had planned to cut anyway by using social media to market Brown County.
“If, worst-case scenario, if innkeepers tax is paying it (the mortgage), we would have to reduce our budget to that,” she said.
At the end of 2020, Ellis projected there would be $71,553.86 left left in the CVB’s fund and that $1,017,662.95 would be collected in innkeepers tax for the year.
“In the past we’ve usually not started the year without at least $100,000 in that rollover,” she said.
According to her projections, 2021 shows a 20 percent growth in innkeepers tax revenue over 2020, and the CVB going back to its original budget of $712,500. At the end of 2021, Ellis projects $1,221,195.54 will have been collected in innkeepers tax.
But that growth decreases in 2022, when Ellis projects only a five-percent growth because the Maple Leaf will “level off a little bit.” She projects a total of $1,282,255.32 will be collected in innkeepers tax in 2022.
Ellis projects 2023 and 2024 remaining flat, with no increase or decrease to innkeepers tax.
In 2025, the annual mortgage payments on the venue increase to $750,000.
“That’s another year that the CVB budget could get reduced. If it gets reduced to $590,000, that leaves us at the end of the year with $31,000 (actually $31,770.67),” she said.
In looking at ways to save money and bring in additional revenue, Ellis said the CVB has focused on using social media as an affordable way to market the county. The CVB also is doing Sippin’ Trips, where visitors ride around in a bus for a tour of local wineries, breweries and distilleries. Ellis said they are looking to add walking tours throughout the week in order to bring in more money.
In one month, the Sippin’ Trips brought in around $4,000. She said the Visitors Center’s new retail area also would bring in additional revenue, and there are plans to sell merchandise online as well.
She said the CVB is also looking into creating more marketing packages they can sell to local businesses.
Her projections did not take into account any of that additional revenue, or the revenue brought in from businesses advertising with the CVB.
“My goal of this was just to let you guys kind of know what the future looks like. I update and watch this monthly. I keep an eye on this as far as increases and things like that,” she said of the projections.
“The only way it can get worse than this is if we don’t see increases (in innkeepers tax revenue).”
Because the mortgage payments on the Maple Leaf are currently set to be paid in January and July, the CVB’s cash flow would not be hit as heavily in the beginning of 2020 as Ellis projected, Herring said at the Feb. 8 CVC meeting.
Ellis’ budget had showed $550,000 coming out of the innkeepers tax at the beginning of 2020.
Herring said that it would be cheaper to make the payments monthly, and that also would allow the CVB to better plan its cash flow.
He said the semiannual payments were set up to keep them on track with other county bond payments, but the bank is charging a premium to do payments that way. “I don’t think the bank cares one way or the other. They are just kind of waiting on us to say, ‘We want to amend the agreement to pay monthly,” or whatever,” Herring said.
Herring said occupancy isn’t the only factor playing into how much innkeepers tax money is collected, even though it is a large factor.
“If your room rate goes from $100 to $150 a night, you’re getting that 5 percent on another $50 too. Don’t look at this as just, ‘You have to have occupancy to drive these increases,’” he said.
Ellis said the CVB does not know how full the county’s lodging establishments are, or if innkeepers are paying their taxes on time. She said these statistics will be important to know in order to measure the impact of the Maple Leaf.
CVC board member Derek Clifford offered to share occupancy information with Ellis for his business, Rawhide Ranch.
Herring said the local hotels could look into participating in the STAR program, which measures occupancy rates nationwide and shows how other nearby hotels are doing. Ellis suggested creating a focus group of inns and other overnight facilities to study the occupancy rate and daily rates from now until 2021, when the Maple Leaf is expected to be in full operation.
“It’s just a matter of how do we go about that,” she said.
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Currently, the Brown County Treasurer’s Office is responsible for collecting and recording innkeepers tax payments.
The Brown County Convention and Visitors Commission is considering giving that responsibility to the state.
Bruce Gould, president of the Brown County Convention and Visitors Bureau board, asked the CVC to consider having innkeepers pay the 5 percent tax on overnight room rentals directly to the state online.
“The Cornerstone (Inn) would prefer paying online. It’s so much simpler,” he said about his own business.
“If everyone paid online, and were required to, then we would circumvent the treasurer’s office here and the issues we have. It seems like there’s always issues of not getting our payments on time. That throws us off. … We can’t count on that figure at the end of the month. Is this one month or two months or a month and a half? We use that to analyze what’s happening in Brown County.”
The state collects the tax monthly instead of quarterly.
The state also would also take care of following up on delinquent collections. “That’s how they make their money on this deal. If there’s a delinquency they are on it, they keep the penalty,” Gould said.
With the innkeepers tax pledged as backup revenue source if the Maple Leaf does not bring in enough money to cover its mortgage payments, Gould said it’s important for the county to have a handle on what is coming in monthly from that tax source.
He said the town of Nashville does a similar thing with its food and beverage taxes, collecting them from merchants online. In the beginning, the town also had problems with those taxes being collected on time, he said. “They are very satisfied with how that is working out,” he said.
Gould said the town receives a check every month for food and beverage tax.
He said that most counties have switched to collecting innkeepers taxes online. “If we can simplify things and get our money when we need it, it will help the next month,” he said.
CVC President Kevin Ault said he would call the Indiana Department of Revenue to see if that could be a possibility.
CVB Executive Director Jane Ellis asked if the CVC wanted her office to start doing innkeepers tax delinquency reports for the board. “I started the last few months getting some (reports) and I noticed some people (were not paying),” she said. “I am seeing delinquencies and I didn’t know if we should take that over?”
Ault said he would speak with Treasurer Mary Smith about getting updates on delinquent payments.
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The Maple Leaf Performing Arts Center project is on track for groundbreaking sometime in April.
Civil engineering drawings are nearly done, Barry Herring told fellow members of the Brown County Convention and Visitors Commission on Feb. 8.
Currently, there are no plans in place to market the Maple Leaf, but leaders with the Brown County Convention and Visitors Bureau believe that marketing should be happening now.
The 360 Group was on the agenda to present their plans for marketing at the CVB Board of Directors meeting Feb. 27.
Maple Leaf organizers say that bids on building the venue must come in before they can decide how much money they want to spend from the construction loan on marketing.
With the groundbreaking nearing, CVB Executive Director Jane Ellis asked the tourism commission about allowing the CVB to market the Maple Leaf for the next three years. The CVB already has the 360 Group on retainer for $5,000 per month; the firm plans advertising campaigns and negotiates rates for the CVB. The CVB still pays for the advertisements to be placed in different outlets, like magazines.
“I think that’s going to be dependent on how the bids come in,” Herring said about the CVB handling advertising. “There will be a major look at all of the line items and how all the bids come in. I think there needs to be money set aside for that (marketing).”
Bids have not been returned yet for several facets of the project, including paving, water, sewer, building Maple Leaf Boulevard and curb cuts. Bids on the construction of the actual building are going out this week.
CVB Board President and Maple Leaf Committee member Bruce Gould said that if the Maple Leaf is going to do its own marketing, it needs a marketing director on staff right now.
Ault and Herring both said $100,000 should be built into the construction loan to help cover marketing costs, but that number won’t be finalized until they know what the bids are in the coming weeks.
“Part of that $100,000 is probably going to pay for that (position), so whereas right now we could use 360 (Group) and they are ready to pull the trigger any day,” Gould said.
According to a presentation that Herring gave to the Brown County Commissioners last November, around $870,000 was built into construction numbers for contingencies or unforeseen costs.
Herring said it will be easier to make decisions relating to marketing once bids come in and budgets are finalized, “albeit I agree with you, those people need to be on board right now,” he said.
Ellis said a stipulation with the Maple Leaf, since it’s a government-owned business, is that the marketing must promote Brown County as a whole instead of just the music venue. She said the CVB could make a webpage within its current website for the Maple Leaf that could handle ticket sales, and CVB staff would manage it.
“That is not going to cost anything. As we look at trying to get our dollars in line and up and running, I think there’s a lot the CVB can offer that will help the Maple Leaf get up and running,” she said.
Despite not knowing how much the Maple Leaf has to spend on marketing, Ellis said the 360 Group is still willing to do the work. “If it doesn’t come to fruition, they are not going to hand me a bill. They are an excellent partner,” she said.
“I hesitate to spend any nickel right now, even though we should,” Herring said.
Ellis said she would like to have a Maple Leaf brand development underway by the time the groundbreaking happens. Gould said that having the 360 Group handle marketing would take the pressure off a marketing manager and would allow the executive director of the Maple Leaf — who has yet to be hired — to have some say on who the marketing person should be.
Herring said that Gould has taken the lead on finding the executive director and he will be placing advertisements.
“We’re not going out there and offering a salary or benefits package. We’re saying, ‘Hey, this is the job. What are your expectations of compensation?’ Instead of us trying to come up with it now, we’re going to have the marketplace to tell us what that is,” Herring said.
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