Mayor's Update #3: Why H.O.T. Funds is a Hot Topic?
By Mayor Bruce Peele
September 22, 2015
A former City Council Member said that “he could tell how much H.O.T money existed to the penny”. Unfortunately, such a statement would have been wrong—in the past. Before we go into that part of the story, let’s discuss what H.O.T. is.
What is H.O.T?
For many Texas cities, such as Blanco, tourism is a driving factor in economic development. To help promote tourism, the Texas Legislature, in the 1980s, allowed local communities to adopt a local hotel occupancy tax, commonly call H.O.T., to impose a tax on visitors who stay in hotels. It is important to remember that the tax is imposed on an individual renting hotel rooms, not on a hotel.
Once the City receives the H.O.T. funds, it must ultimately use the monies to promote tourism, conventions and the hotel industry. I say ultimately, because the City may hold some of the money in reserve for future expenditure. The following types of activities can receive HOT monies:
- constructing, maintaining and operating a convention or visitor center;
- facilities and personnel for the registration of convention delegates;
- advertising and promotional programs to attract tourists;
- encouragement and promotion of the arts;
- historical restoration and preservation projects and advertising to encourage tourists to visit historic sites and museums;
- sporting events where the majority of the participants come from out of town;
- sports facilities that routinely host regional or national tournaments;
- coliseums or multiuse facilities;
- signage directing the public to sights and attractions frequently visited by tourists; and
- transportation to tourist attractions.
Why H.O.T a HOT topic?
According to one observer—“It’s all about the money”. In 1986, Blanco passed a law imposing the HOT tax. The law provided that the HOT money “shall be used only for the purpose of general promotional and tourist advertising and encouraging the growth of tourist and recreational activity . . .; provided, however, the City shall have the right to deposit in the general fund of the City 10-percent of the amount collected under this Ordinance.” The 10-percent has been referred to as the “reserve account” or “rainy day fund”.
From 1986 through 2011, HOT monies flowed into the City in ever increasing amounts: $9,152 in 1999 to $70,367 in 2011. The reserve account grew (but it was not properly accounted for by the City). The City Council reviewed requests for HOT funds and most of the money went to a single entity.
As the money increased, the number of applicants for HOT funds increased and the City Council listened to the various requests. Eventually, the City Council concluded that it was taking too much time to review the applications so it formed a HOT fund review committee in 2012.
Unfortunately, the HOT fund review committee was formed without any operating rules or procedures to follow. As the HOT Fund committee met, it began to develop its own procedures and made distribution recommendations to the City Council. As time went along, the HOT Fund committee’s meetings became more contentious and in April of 2015, the City Council abolished the committee and took back control of the entire process.
Having taken over HOT fund management, the City Council became aware (i) that the exact amount in the reserve fund was not known; (ii) the reserve fund was not deposited in a segregated account; (iii) various distributions had been made without City Council authorization; (iv) while the City had budgeted $95,000 to be distributed, the promises to make distributions exceeded the budget; (iv) the exact amount of HOT fund monies for the current fiscal year 2014/15 was not known; and (v) to know the exact amount that should be in the reserve and current year’s accounts, the City Council would have to wait for the City’s auditor’s report.
Why was the City Council Confused?
Failure of the City Council to know the amount of the HOT fund was not their fault. Instead, it was the failure of the City to properly account for HOT Fund monies. For a number of years, the City’s auditors had advised the City that it needed to make adjustments to the HOT Fund account. However, the City failed to or was unable to make the necessary adjustments. Thus, the City’s books failed to reflect the correct amount in the HOT Fund Accounts.
The failure of the City’s books is being corrected by the current administration. To do so, the City hired a bookkeeper and she made the adjustments suggested by the City’s auditors. Thus, the correct amount in the HOT fund accounts is now known. Furthermore, the City is in the process of reforming the HOT fund advisory committee to review and make recommendations to the City Council. Hopefully, with the changes, H.O.T. will no longer be a Confusing topic. However, it may still be a HOT topic as various parties compete for the limited funds.