Updated: Durham's occupancy tax collections are down again

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Update: Bob Klaus, general manager of the Durham Performing Arts Center, emailed over the weekend to remind that DPAC has had significant overall impact on the city's economy. His input has been added below.

*Original post
For all of the Durham Performing Arts Center's success—it ranks No. 1 in the country in ticket sales—there's one area in which the theater seems to be falling short: the generation of hotel/motel occupancy tax money to the city.

One of the selling points for constructing DPAC was that it would boost the number of overnight stays at Durham hotels. To help pay for DPAC's $32 million in construction debt, the City of Durham diverts a portion of the total occupancy tax collections into a fund.

But even as Durham City Council agrees, as it did on Monday night, to provide tax incentives for the construction of additional downtown hotel space, city officials admit that occupancy tax collections aren't as good as they could be.

More than $1.3 million: That's the total hotel and motel occupancy tax monies contributed to the DPAC fund. And while that sum is actually $52,866 more than projections by city officials and the Durham Convention Center & Visitors Bureau, it's still short of the $1.5 million collected in 2008, the year DPAC open. In fact, collections for the DPAC fund have fallen short of the $1.4 million goal every year since.

At least one explanation for the funding gap is the recession, says Shelly Green, CEO of the Durham Convention Center & Visitor's Bureau. Another is the domino effect that occurs when hotels lower their room rates, which according to Green started shortly after the market collapsed back in 2008. "When occupancy slips even a little bit, hotel owners start managing that rate and discounting their rooms more often," Greens says.

So, when hotel patrons pay lower prices, the city collects less in occupancy tax revenue. And yet in the last two months, the city council has approved tax incentive deals that will add an additional 175 hotel rooms to the citywide tally.

Nonetheless, Green was among a handful of downtown Durham boosters who spoke in favor of the deal at Monday night's city council meeting. Adding more rooms, especially higher-end rooms, will make the city more attractive to convention planners, Green says.

It's a well-tread argument. With more hotel space, Durham could accommodate more convention business. But which should come first: demand for hotel space or the hotel space itself? Chicken or egg?

The City of Durham seems to be banking on the former. Meanwhile, convention traffic at the Durham Convention Center, like city occupancy tax collections, has not returned to pre-recession levels.

According to tracking numbers obtained from the Durham Convention & Visitors Bureau, 78,640 "delegates" attended meetings at the center in 2012. That's down from 82,091 that attended at least one meeting at the center in 2008.

But Green, who describes herself as "bullish" on motel construction, says she remains confident that the demand will be there when the new downtown hotels open. Says Green: "As the market starts to improve, as the business comes back, the rates come back."

Update: DPAC patrons spent $49 million at local restaurants, gas stations and retailers, according to figures released by the Durham News Service. That's up from $43.3 million in 2010.

In emails received over the weekend, Klaus also provides figures indicating that the 2011 total actually translates into $2.4 million in tax revenue to local governments. Those numbers surpass projections made prior to DPAC's opening, Klaus writes.

The original version of the story cited figures from 2011 showing that DPAC ranked No. 2 in ticket sales; more recent figures from 2012 put it at No. 1.

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