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Kentucky Tourism Development Incentive Program and the Tourism Development Act (TDA)

Jump to: What is this? How projects get approved for TDA Application and approval process What does this mean for the proposed resort project? What can be done about this? And what is RRGU doing about this?

What is this?

This is a state-level tax incentive which encourages the development of projects which will attract tourism to Kentucky through the reimbursement of state sales taxes generated from the project.

Eligible projects can recover up to 25 percent of the project’s eligible development and construction costs over a 10-year period. Meanwhile projects constructed on state park, federal park, or national forest lands are eligible to recover up to 50 percent of development costs over a 20-year period.

How projects get approved for TDA Eligibility for receiving TDA approval requires a project to meet specific predefined uses. The eligible uses are: Cultural or historical sites Recreation or entertainment facilities Areas of scenic beauty or distinctive natural phenomena Entertainment destination centers Kentucky crafts and products centers Theme restaurant destinations Lodging, when: Built in conjunction with a tourism attraction and the tourism attraction cost more than the lodging facility; or Built on state or federal parks and recreational lands; or Involves restoration or rehabilitation of a historic structure; or Involves the restoration or renovation of a lodging facility having no less that 500 rooms with project costs exceeding $10,000,000; or Involves the construction, restoration, or renovation of a full service lodging facility which is or will be a part of a major convention or sports facility with project cost exceeding $6,000,000; or Involves the construction, restoration, or renovation of a facility which is or will be located: In the Commonwealth within a 50-mile radius of a property located on the National Register of Historic Places with a current function of recreation and culture; and Located within any of the 100 least populated counties in terms of population density. Projects that do not qualify are strictly retail businesses and recreational facilities that are used primarily by local residents and are not a likely destination for out-of-state travelers. Application and approval process

The company seeking the incentive submits an application to the Secretary of the Tourism, Arts and Heritage Cabinet. With the secretary’s recommendation, the project will go before the Kentucky Tourism Development Finance Authority for preliminary approval.

Upon preliminary approval, the cabinet’s independent consultant will do an in-depth study to make sure the project meets the requirement of the act which will be paid for by the applicant in advance. Using the consultant’s findings, the secretary will determine whether to request the approval be given by the Kentucky Tourism Development and Finance Authority.

Upon final approval from the authority, an agreement will be signed by the applicant and the commonwealth allowing the company to recover the sales tax. The applicant cannot begin construction until after final approval.

What does this mean for the proposed resort project?

If awarded the TDA incentive then the resort development would be eligible to recover up to 25% of their building costs by redirecting any sales tax money generated at the resort back into the resort to pay for building expenses. This means the tax money being directed into the resort via this TDA incentive is not tax money earned by a different business but instead is taxes generated by the resort, once opened.

Normally sales tax generated by a local business would go to the state and local/county government where it was charged. Instead those taxes are redirected back to the resort. This means the county will not receive any new tax money from the resort for at least 10 years or maybe more and any improvements to infrastructure needed due to increased visitors to the resort will need to be paid for by the county without any assistance from direct new taxes.

The Stantec report expects a total incentive of $17,436,180 over 10 years for the project from the TDA. Stantec also states that if the project were to include a public private partnership with Natural Bridge State Park then the project could become eligible to increase their recovery period and percentage of costs eligible to be re-collected to 50 percent. This would bring the total taxes going back into the resort to $34,872,360 over 20 years – that’s $34 million not going to the local government for infrastructure repair and other costs.

What can be done about this? And what is RRGU doing about this?

The TDA, like the KEIA, is an act which basically just requires eligibility of a project to be awarded. If a project meets the prerequisite requirements of the TDA then a project is likely to be approved by the Secretary of the Tourism, Arts and Heritage Cabinet.

Because of this, it is RRGU’s position that we are not actively opposing the awarding of this incentive to a RRED resort development. Simply we don’t believe the is much that can be done to stop it. However, we should emphasize that we do oppose the resort being awarded any TDA incentive simply because development of the resort would add additional stress to already-strained local infrastructure such as roads, water, and water management without adding any new influx of direct taxes to compensate.

If you do want to actively oppose this incentive being awarded to a resort project near the Red River Gorge, letters and phone calls can be directed to the Secretary and different members of the Tourism, Arts and Heritage Cabinet.

Office of the Secretary Kentucky Tourism, Arts and Heritage Cabinet 500 Mero Street, 5th Floor Frankfort, KY 40601

Secretary Office: Secretary –

• [email protected]

Executive Director – Office of Public Affairs and Constituent Services

• Danielle Jones
• [email protected]

Leadership: Department of Parks Commissioner, Russ Meyer 500 Mero Street Frankfort, KY 40601 (502) 564-2172 [email protected]

Department of Tourism Commissioner, Mike Mangeot 500 Mero Street Frankfort, KY 40601 (502) 564-4930 [email protected]

Kentucky Artisan Center Executive Director, Todd Finley 200 Artisan Way Berea, KY 40403(859) 985-5448 [email protected]

Kentucky Center for the Arts President, Kim Baker 501 West Main Street Louisville, KY 40202 (502) 562-0100

Kentucky Heritage Council Executive Director/ State Historic Preservation Officer, Craig A. Potts, 300 Washington Street Frankfort, KY 40601 (502) 564-7005 [email protected]

Kentucky Historical Society Executive Director, Scott Alvey 100 West Broadway Frankfort, KY 40601 (502) 564-1792 [email protected]

Kentucky Horse Park Interim Executive Director, John Crowell 4089 Iron Works Parkway Lexington, KY 40511 (800) 678-8813 [email protected]

Kentucky Venues President & CEO, David Beck 937 Phillips Lane Louisville, KY 40209 (502) 367-5114 [email protected]

Fish & Wildlife Resources Deputy Commissioner, Rich Storm 1 Sportsman’s Lane Frankfort, KY 40601 (502) 564-3400 [email protected]

Governor’s School for the Arts Director, Nick Covault 501 W Main St. Louisville, KY 40202 (502) 566-521 [email protected]

Kentucky Center for African American Heritage Executive Director , Aukram Burton 1701 W. Muhammad Ali Blvd. Louisville, KY 40203 (502) 583-4100 [email protected]

Kentucky Arts Council Executive Director , Christopher Cathers 1025 Capital Center Drive, Third Floor Frankfort, KY 40601 (502) 892-3126 [email protected]

Kentucky Humanities Council Executive Director, Bill Goodman 206 East Maxwell Street Lexington, KY 40508 (859) 257-5932 [email protected]

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Home > Publications > EBH > The Impact of State Incentivized Tourism Development

The Impact of State Incentivized Tourism Development

Introduction

The amount of tourism infrastructure throughout the U.S. is continuing to grow as developers are establishing new and exciting attractions to the benefit of their state and local communities. Broad-based development incentives are commonplace for many state economic development departments. Through tourism specific legislation, there are also many specific economic development incentives that target the tourism industry. Economic incentives are vehicles utilized by states to encourage growth and development within their borders. More and more states recognize the fiscal and economic benefits that result when promoting growth in tourism infrastructure.

Types of State Tourism Incentives

To stimulate expansion of a state’s tourism industry, tourism development initiatives by state legislators have resulted in several states providing these incentives without detriment or risk to the public. The most common form of tourism incentive found at the state level includes the use of state sales tax reimbursements. Under this model, the developer has the ability to recover a certain percentage of their development costs over a specified time frame, typically 10 years. The developer is reimbursed on an annual basis the state sales tax that is paid by visitors whom visit the attraction. The amounts are capped and the term is defined. The public is not at risk, as the benefit to the developer is received after the attraction is up and running. Other tourism incentives found in more narrowly-defined incentive programs include state income tax credits for employees of tourist attractions, use of sales tax increment financing (TIF) to finance bonds issued in connection with construction and development of tourist related attractions, short-term financial assistance programs, interim financing programs, and grants.

State Tourism Legislation

In 1996, the state of Kentucky enacted the Kentucky Tourism Development Act. Known as the KTDA, this economic incentive program is the most aggressive tourism incentive program within the U.S. as it boasts 17 completed projects since its inception. The KTDA legislation specifically addresses a pro-growth attitude toward tourism development at the state level by providing incentives for private developers to create or add to existing tourism attractions that benefit the state’s tourism industry. The incentive vehicle for the KTDA is a state sales tax reimbursement. State programs such as the Arkansas Tourism Development Act, The Colorado Regional Tourism Act, Vision Iowa’s CAT program, and others use a variety of methods including TIFs and grants to incentivize tourism development. Several states including Georgia and Pennsylvania are currently in the process of developing or modifying their own legislation for incentivizing tourism developments. Georgia is in the process of creating the Georgia Tourism Development Act, and Pennsylvania has pending legislation to establish the Pennsylvania Tourism Commission, which would replace their existing travel and tourism act.

Through our research and interviews with economic and tourism officials, there are key characteristics of tourism incentive models that appear in much of the enacted tourism legislation. These key characteristics include performance based incentives, defined minimum project costs, and specifics regarding qualifying locations and types of attractions. Many use the word “destination” when defining tourist project locations. Some types of project definitions are purposely broad, such as Kentucky’s “entertainment destination center,” and Colorado’s Regional Tourism Project of an “extraordinary and unique nature”, while others are very narrow as tying qualifying tourism uses to their specific NAICS codes.

While project definitions are a key component, the application process for qualifying projects typically involves preliminary and final approval on either side of the developer’s requirement to provide market and feasibility studies. These studies help to identify the number of outside visitors to be attracted to the development, in order that minimum standards are met. Positive fiscal impact is mandated in order to move forward. The project’s fiscal impact is analyzed through an economic impact study. As with most application processes, there is a certain flexibility that needs to be built-in to tourism legislation that allows latitude for some interpretation and discretion as the industry evolves and new and different attractions come into existence.

State Benefits – Order Of Magnitude

How well does tourism incentive legislation perform? We have profiled the performance of Kentucky’s Tourism Development Act from its inception in 1996. Kentucky’s tourism incentives are gained through an annual sales tax reimbursement. As of May, 2012 the program has approved applications for a total of 24 tourism-related projects, with 17 of them coming to fruition. Of the 24 projects, four were granted final approval, but were never built, one received preliminary approval, but did not finish the required application process, and one was rejected due to failure to meet minimum requirements. One project is currently in the application process. The following table shows the number of projects by preliminary approval year, the total construction costs, the eligible refund, the total fiscal impact, and the total economic impact of only existing projects.

The table reveals approximately $850 million worth of tourism attractions constructed in Kentucky since the inception of such legislation. In order to generate this amount of infrastructure, the state has committed to a potential reimbursement of approximately $200 million over a ten-year period in sales tax reimbursements. However, the net positive fiscal impact to the state is calculated between $230 million up to $310 million, with a total economic impact of more than $5.1 billion in both direct and indirect impacts. These projects range from the Kentucky Speedway development in Sparta, to new hotel construction adjacent to the convention center in Owensboro.

The existence of the Kentucky Tourism Development Act attests that a state with the ability to incentivize tourism infrastructure has a significant positive impact on its economy. The existence of these incentives also proves advantageous when competition between states for tourism attractions is strong. For example, Ohio lost the bids for a new Aquarium, Newport on the Levy, and Hofbrauhause destinations to Newport, Kentucky, across the Ohio River from Cincinnati, due to the incentives provided through the KTDA.

Tourism incentive models do not need to be highly complex pieces of legislation. Through the simplicity and clarity of well-defined industry specific legislation, states have the ability to promote growth and economic development of their tourism industries. Whether tourism incentives are generated through a sales tax reimbursement or tax increment financing, the end result, if achieved with proper due diligence, is multiple layers of economic impact to the benefit the state and the people it serves.

Eric B. Hansen, AIA, ISHC is the Director of Development Services for Hotel & Leisure Advisors, a national hospitality consulting firm. Mr. Hansen is active in performing appraisals, market feasibility studies, economic impact studies, property condition assessments, and impact studies for hotels, resorts, waterparks, golf courses, conference centers, and other leisure properties. Mr. Hansen offers more than 17 years of experience in the hospitality industry.

He has a passion for all things tourism and is currently serving a three-year term on the board of the Ohio Travel Association (OTA). He is co-chairman of OTA’s Legislation Committee, working to increase awareness and education of the tremendous economic benefits of Ohio’s fourth largest private sector industry.

As a hospitality consultant with a foundation in consulting, architecture, financial management, and appraisal theory, Mr. Hansen brings well rounded expertise to various H&LA assignments and assists H&LA clients with their pre-development, consulting, and valuation needs.

This article was originally published on Hotel Online.

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West Virginia Development Office

TOURISM DEVELOPMENT

Tourism development plays an increasingly important role in West Virginia’s economy. The Tourism Development Act provides a powerful incentive for the establishment of new tourist destinations as well as for the expansion of existing ones.

West Virginia also offers incredible appeal as a tourist destination. The Tourism Development Act provides a renewed opportunity to broadcast tourism development opportunities in the state. Click here for a copy of the  Tourism Development Act.

Click here for a  Tourism Development Act application.

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The purpose of the Kentucky Selling Farmer Tax Credit program is to encourage the continued use of agricultural land for farming purposes by granting tax credits to selling farmers who agree to sell agricultural land and assets to beginning farmers. Selling farmers who complete an eligible sale may qualify for a tax credit up to 5% of the purchase price of qualifying agricultural assets, subject to caps of $25,000 per calendar year and $100,000 lifetime.

Tourism Development

The following tourism-related incentives are administered through the Kentucky Tourism, Arts and Heritage Cabinet.

Tourism Development Act

The Tourism Development Act provides developers of approved new or expanding tourism projects the ability to recover up to 25 percent of the project’s development costs over a 10-year term. Projects including, but not limited to, lodging facilities constructed on state park, federal park or national forest lands are eligible to recover up to 50 percent of the development costs over a 20-year term.

Kentucky Film Incentive

The Kentucky Film Incentive is designed to encourage the development of the film industry in Kentucky. The incentive provides qualifying applicants the ability to recover up a portion of qualified expenditures through a refundable income tax credit. Click on the link for specific details.

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