Hoteliers hope to fill rooms by charging more

The city is taking steps to impose a new fee on hotel rooms — and the hotel industry is actually on board.

That’s because it would control the money.

The revenue would be managed by a group of hotel executives and used to give incentives, such as transportation or speaker fees, to those considering holding major events or conventions in Philadelphia. Coming off the city’s successful hosting of the NFL draft, supporters call it a way to compete with other cities trying to snag such events.

It also would add another layer to the already complex way Philadelphia markets itself to visitors, with two separate and at times competing organizations.

Ed Grose, executive director of the Greater Philadelphia Hotel Association,  said a new nonprofit created to manage the money would assist the city’s existing marketing branches, Visit Philadelphia and the Philadelphia Convention and Visitors Bureau, and not duplicate their efforts. He said having a fund controlled by the hotel managers makes sense.

“We know better than anyone what sells hotel rooms and what doesn’t,” he said. “And we feel since we’re imposing this assessment on ourselves, we should have full control on how it's spent.”

The proposal has the backing of the Kenney administration, and legislation that would make it a reality will be introduced Thursday in City Council.

The move would essentially create a citywide business improvement district for hotels, similar to the Center City District, which collects a fee from property owners to provide public safety and other services. Hotels with 50 or more rooms would be included.

At 0.75 percent, the fee would add $1.50 to the cost of a $200-per-night room.

It is estimated to bring in $5.8 million in the first year, increasing to over $7 million by 2022.

Grose said the money, to be managed by a volunteer board with 14 voting members from the hotel industry and one from the city, would be given out as grants. The grants would be customized based on the needs of a specific event but could cover transportation, speaker fees,  food, or welcoming activities, among other things.

Julie Coker Graham, president and CEO of the Convention and Visitors Bureau, said conventions are often looking for such perks when weighing locations. She said other cities have dedicated funds for incentive packages. San Diego, for instance, has $35 million, Portland, Ore., has $10.7 million, and Seattle $6 million, according to numbers provided by the hotel association.

Coker Graham said Philadelphia has no such fund.

She and Grose said a bid fund could be especially helpful when convention traffic is slow or event opportunities come up at the last minute.

As an example, Grose mentioned the NBA’s decision last year to back out of hosting its All-Star Game in North Carolina due to the state’s controversial law eliminating protections for LGBT people.

“We could have had an opportunity to get that game if we had funds to go after it,” Grose said.

Grose estimated the hotel industry could have brought in $27.8 million in revenue from that event and nine others the city was unable to secure in 2015 and 2016. The Convention and Visitors Bureau estimated it could have locked in those events with a total of $7.7 million in incentives.

City money for that purpose is scarce, said Harold Epps, the city’s commerce director, who pitched the idea for the business improvement district to the hotel association. Epps said the city used to have more money to put toward major events, but now more of his budget goes to bringing new businesses to the city or to retaining existing ones.

“If I have to make a choice between a football game and putting money into retaining Aramark [headquarters in the city], I’m going to put money into retaining Aramark every time,” he said. “That's a long-term investment. ... But we still need to have those kinds of events in Philadelphia because they help lift your brand.”

The fee would be paid by hotel guests on top of a 7 percent sales tax and an 8.5 percent hotel tax.

The revenue from the hotel tax funds the city’s Convention and Visitors Bureau and Visit Philadelphia, which are both tasked with drawing travelers to Philadelphia but have not always taken on the challenge in coordination.

A 2014 report by City Controller Alan Butkovitz found friction and a lack of coordination between the groups and noted administrative overlap. He and others have questioned the wisdom of having two such groups, which have two high-paid executive directors, two staffs, and even two marketing slogans.

Asked why the city should have another group involved in drawing in travelers, Grose said the new nonprofit would not function as a third entity. Instead, he said, it would work closely with the Convention and Visitors Bureau, which would come to it when it had an event it could lock in with additional resources.

He said the group would not do its own marketing or outreach.

Epps said he was “100 percent” comfortable with the money being controlled by the hotel industry.

“You raise it. You keep it. You decide how it's used,” he said. “It keeps it pure, simple, and clean.”

Grose said he hopes the plan will be implemented before the end of the year. Councilman Derek S. Green, who is introducing the legislation Thursday, called it a “creative” way to help Philadelphia continue luring conventions and major events.

“You have other jurisdictions that are trying to do even more than what we do,” he said. “So I think we need to be proactive.”