(Reuters) – Maryland’s tourism industry faces $100 million in cuts and a tax increase as state lawmakers consider whether to raise the state’s tourism tax from 2 percent to 5 percent, a move that would raise $9.7 billion in the first year, officials said.
The tourism industry is already suffering from a $2 billion loss in the last fiscal year, which ended on March 30, as it struggles to attract more tourists to the state, which has one of the nation’s highest unemployment rates.
The tax increase, which could raise more than $1 billion a year, is part of a broader plan to lure visitors to the United States.
Maryland has already approved an increase in the state tourism tax, and it could be on the table as lawmakers consider new spending for the upcoming fiscal year.
The state tourism office estimated that the proposed hike in the tax would be about $8 billion a decade.
The proposal would raise more money than the $6.9 billion in additional funding from the state General Fund that would be available for the tourism tax hike.
“We’re seeing an industry that is already struggling to stay afloat and it’s hurting tourism in the region,” said Bill Loebs, the Maryland Tourism Development Authority’s regional marketing director.
Loebs said Maryland is already facing the effects of a record-low occupancy rate of 5.7 percent in the second quarter.
The state is in the middle of a major tourism holiday season, which will likely include a number of major tourism attractions, such as the Baltimore Harbor, the National Mall, the Chesapeake Bay and the National Aquarium, among others.
“It’s not going to be sustainable, and we’re just going to continue to see the industry struggle to survive,” he said.
While the state already has a significant amount of money in the General Fund to help attract tourists, Loebers said there are more questions than answers.
For example, he said, the agency doesn’t have any information on how many Marylanders would be eligible to take advantage of the new tax, including people with disabilities, those who earn less than $40,000 per year and those who have no more than two dependent children.
Some state lawmakers, including some Democrats, have said the state needs to find a way to bring in new tourists to help balance the budget.
“I think this is really an opportunity to bring back some of the people that have been losing jobs and income to other states,” said state Representative Dan Delaney, a Republican from Annapolis.
“And to do that, we have to figure out how to make it a little bit more attractive for people to come and do business here in Maryland.”
The proposal has drawn opposition from Maryland’s top tourism executives, who argue that it could hurt Maryland’s economy and tourism in other parts of the country.
Maryland tourism officials say the state has already received more than a billion dollars in state funding to promote tourism over the past 10 years, and that the state would not be able to raise taxes if tourism is declining as much as in Maryland.
“The business community needs to be able, at some point, to figure something out that we’re going to get this back,” said Chris Kratz, the president and chief executive of the Maryland Association of Counties.
“The tourism and hotel industry has been a core part of our economy for decades, and this is just a step in the right direction.”
Maryland is in an awkward position as the tourism industry has struggled to attract tourists because of the severe drought in the Great Lakes region and because of its proximity to some of those water bodies.
In the first quarter of 2018, tourism in Maryland dropped 1.6 percent compared with the same period last year, according to the tourism agency.
In addition, the state is dealing with a record number of severe weather events and flooding, which have reduced the state government’s ability to provide basic services, such in the form of public works and transportation.
The proposed tax hike is one of several measures being considered by the General Assembly as lawmakers grapple with the state budget, which is expected to be passed by the end of the week.
In a bill expected to pass this week, the General Services Administration is expected give the go-ahead for the new 2 percent hotel tax hike, which would be $1 per person, a $1.25 increase over the previous 2 percent rate.
The hotel tax increase will also generate about $6 million a year in revenue for the state.
In an unrelated proposal, lawmakers are expected to consider an increase of the state income tax from 6.25 percent to 7.75 percent, which economists say is a good starting point for the revenue boost that would come with a 5 percent hotel hike.
(Reporting by Eric Tucker; Editing by Cynthia Johnston and Peter Cooney)