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Accommodations tax: Groups with cash must spend to get more

By Charles Swenson
Coastal Observer

One way the group that maintains the landscaped median along Highway 17 in Litchfield hopes to end its reliance on funds from Georgetown County is to build up a reserve from private donations. But the group learned last week that the $20,000 it has saved makes it ineligible for more money from accommodations tax collections.

That interpretation of the county’s accommodations tax guidelines marks a change that could impact how money collected from the state’s 2 percent tax on short-term rentals is disbursed.

Bill McElroy, president of the Litchfield Corridor Beautification Committee, was asked to provide additional information to the county Accommodations Tax Advisory Committee when it met last week to recommend how County Council should allocate $125,000 in available funds. It had six requests that totaled more than $302,000.

But McElroy was caught off guard when Scott Proctor, the county finance director, cited a policy that says the county will deduct any profit from a program’s grant request.

“Staff’s position would be they have to spend the $20,000 before they can apply for more funds,” he told the advisory committee.

“I’m at a loss. I’m at a total loss,” McElroy said. “Are you just going to say, ‘OK, boys, close it down?’ ”

The beautification project’s goal is to be able to operate without accommodations tax revenue by 2013. The tax funds have dropped from 46 percent of the group’s budget in 2008 to 39 percent in its current application, $39,000 out of $100,000.

The advisory committee approved $20,000 provided the group spends its $20,000 reserve first.

McElroy said the group’s reserve doesn’t include accommodations tax funds. And he disputed the notion that the reserve represented a profit. “Profit? There’s no profit in this,” he said.

Aside from helping the beautification group on its way to self-sufficiency, the reserve is also needed to fund cleanup if there is a hurricane, McElroy said.

Advisory committee members were sympathetic. “You’re being penalized for being industrious,” Bill Renault said.

Henry Jobe, a founder of the beautification effort and now a member of the advisory committee, said funding a reserve wasn’t a profit, but an operating expense.

“You’re kind of in a Catch-22,” committee member Dana Arneman said. “We can’t penalize you for being a good business person.”

Rather than cut off funding, Arneman proposed funding $20,000 once the reserve was spent.

Only Will Dieter, who chairs the advisory committee, voted against that solution, saying he needed to support the staff interpretation of the guidelines.

“Once you get past the seed money and generate excess funds, the assumption is that you can stand on your own,” Dieter said.

The Litchfield Corridor Beautification Committee isn’t the only group to receive accommodations tax that also has money in the bank. The Litchfield Beaches Property Owners Association received $49,500 for street lights and maintaining walkways this year. On its application it showed net income in 2009 of $42,000.

The Garden City Beach Community Association got $5,300 for street lights and $23,100 for maintaining landscape on Bypass 17. It had assets of $42,000 at the end of 2009, according to its tax return.

“It seems to me it would be fiscally imprudent not to have a reserve,” said Richard Smith, president of the Litchfield Beaches association. The association gives money to the beautification group, and Smith said groups that deal with plants ought to have money in reserve.

“I can see absolutely if you get their money and don’t spend it you have to give it back,” Smith said. “If you make money you give the money back.”

If the county decides groups with money in reserve can’t apply for accommodations tax, the property owners group could create a Litchfield Beaches Walkway and Lighting Club as a separate entity, Smith said. “That seems silly.”

But McElroy said the beautification group has already discussed creating a foundation to hold any private funds in reserve. The problem with that is it requires setting up another corporation with the associated costs. The other alternative is “we will have to look at our maintenance program and we will have to cut something,” he said.

McElroy said he hopes to convince County Council that his group’s reserve can’t be treated like a profit from a festival or event.

Council Member Jerry Oakley said the goal of keeping a reserve is a good one, but it can’t be funded through accommodations tax.

Council Member Glen O’Connell said that groups may need to change how they account for funds. But he supports the concept that groups shouldn’t be able to accumulate accommodations tax.

He was asked by the Pawleys Island Highway Beautification Program if it could keep some of the $50,000 awarded for landscaping below the South Causeway if it came in below budget. That triggered the review of the Litchfield corridor group by Proctor, he said.

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