TRAVERSE CITY — A smoldering debate over what some locals dubbed “festival fatigue” prompted city officials to question the tax-exempt status of the downtown property that houses the Traverse City Convention and Visitors Bureau.
The Visitors Bureau is a membership organization designed for promotional purposes, and as such doesn’t qualify for a property tax exemption. Instead, Visitors Bureau officials years ago formed the TCC&VB Education Foundation, a qualified nonprofit under section 501(c)(3) of the Internal Revenue Service code.
The Foundation owns the building on Grandview Parkway and Union Street and leases space to the Visitors Bureau, thus providing a property tax-free home.
Some city commissioners began to question the Visitors Bureau’s financial contributions to the city after its leader, Brad Van Dommelen, last month publicly lobbied against fee increases for Open Space festivals. City officials in recent months discussed such fee increases amid numerous complaints from residents about festival noise and frequency.
Higher fees, some city officials contend, could help offset spiraling costs for city services such as trash collection, public safety and other items owed to the burgeoning number of festivals at the city-owned Open Space.
“I don’t think there’s any way the city is ever going to be able to recoup fully what it costs to have 1.3 million people come here, drive on our streets, use our infrastructure, leave their trash,” Commissioner Barbara Budros said. “But if we continue on this current track it will come to the point where we can’t afford to have any of these festivals, and I don’t want that.”
City officials note the Traverse City Area Chamber of Commerce pays property taxes on its building.
“I can’t see a whole big community benefit difference between what the Chamber does and what the Visitors Center does,” said Mayor Michael Estes. “I believe it is time to update the commissioners on the tax-exempt status of the Visitors Center and to explore the options available to the city.”
Estes wants city commissioners to review the Visitors Bureau’s status, including what some said is the agency’s lack of financial contributions to the city. A meeting date for such a review has not been scheduled.
Van Dommelen, the Visitors Bureau’s president and CEO, said he hasn’t given the exemption much thought.
“It’s just the way it’s always been,” Van Dommelen said. “If they want to focus on our little building here not paying property taxes and ignore the $1.2 billion in economic activity we are generating, I think they are missing the point.”
The Visitors Center’s tax-exempt status and lease arrangement raises some red flags, said Laurie Spencer, Grand Traverse County’s former equalization director, who risked her job when she successfully challenged a property tax exemption for Centre Ice Arena, a facility in East Bay Township.
Not all nonprofits qualify for a property tax exemption, and many assessors have been lackadaisical about making sure nonprofit applicants met exemption criteria, Spencer said.
The Visitors Bureau’s current quarters came about after the Downtown Development Authority bought a former gas station site at Grandview Parkway and Union Street in 1992 for $400,000. Three years later, in a deal brokered by then-DDA director Bryan Crough, the DDA gave the property to the newly formed education foundation for $1. Crough said in a memo at the time he expected the property to be tax-exempt.
The city assessor agreed and the exemption hasn’t been reviewed since.
“Typically, if someone is granted an exemption it continues as long as it remains the same use,” said Polly Cairns, the city’s current assessor. “But we can always review it.”
Chamber of Commerce officials faced city assessor Debra Chavez when their building went up at the corner of Cass Street and Grandview Parkway. Doug Luciani, Chamber president and CEO, said the organization’s leaders proposed an ownership arrangement similar to that enjoyed by the visitors bureau, but Chavez rejected that request.
Instead, the chamber was granted a partial tax exemption for areas of the building used by qualified nonprofit agencies.
The Chamber paid just under $40,000 in property taxes last year, Luciani said.
The 2012 federal tax returns filed by the Visitors Center Education Foundation showed it has no employees and spent $11,813 on promotion and public events, plus awarded $2,000 in grants. Building-related expenses -- including mortgage payments and maintenance -- totaled over $120,000. Its revenue came from $42,616 in donations and $89,403 in rent collected from the non-exempt visitors bureau, whose 15 employees with $5 million in annual revenue take up over half the building space.
City officials should expect an uphill battle to challenge the building’s tax-exempt status, Spencer said.
“You want to get it right initially, because it’s a lot easier not to give an exemption than take it off,” she said.