Baker City Manager Barry Murphy recommends the city council withdraw from an agreement with Baker County that requires most of the taxes that guests pay at motels and other lodging establishments — nearly $1 million in the previous fiscal year — be spent for tourism marketing and economic development.

The city-county agreement dates to 2006. Either the city or county can withdraw with 60 days’ notice. Murphy proposes that the city leave the agreement as of July 1, 2025.

In a May 30, 2024, letter to county commissioners, Murphy proposed to negotiate changes to the 2006 agreement that would guarantee the city receives a share of each year’s lodging tax revenue.

Murphy said in June 2024 that he wanted the city to remain in partnership with the county, and that he did not want the city to withdraw from the 2006 pact and administer its own, city-only, lodging tax.

But in a report to city councilors for their meeting Tuesday, March 11, Murphy wrote that he believes “there is still significant resistance at the County when it comes to the City’s input on (lodging tax) funds.”

Councilors will consider Murphy’s proposal during their meeting Tuesday at 6 p.m. at Quail Ridge Golf Course, 2801 Indiana Ave.

In a report to councilors, Murphy wrote that he believes withdrawing from the agreement with the county would give the city significant amounts of money for its general fund, which includes the police and fire departments.

Based on a projected shortfall in the general fund of $900,000 for the current fiscal year, which ends June 30, 2025, the city council imposed a monthly public safety in June 2024 of $10 for households and $20 for businesses.

In his report to councilors, Murphy wrote that the current city-county agreement “does not adequately address the City’s interests and its current financial state. The County operates the program and allocates spending with very little input from the City despite the fact that the City generates approximately 80% of (lodging tax) revenue.”

County records peg that figure at about 61% in the most recent fiscal year. The actual percentage is difficult to calculate because companies that handle some vacation rental homes don’t distinguish between tax payments in and outside of Baker City. Regardless, a majority of the county’s motel rooms and vacation rental homes are within the Baker City limits.

Under the 2006 agreement, Baker County administers the collection and distribution of the lodging tax.

A county ordinance requires that 70% of the money be spent for tourism marketing, and 25% for economic development.

The county can keep up to 5% of the revenue for administrative costs.

The county ordinance complies with a 2003 state law that requires any jurisdiction that imposes a lodging tax spend at least 70% of the revenue for tourism marketing. The state law, unlike the county ordinance, does not require that 25% of revenue go to economic development. The state law allows cities and counties to use the remaining 30% for any purpose.

Murphy is proposing that the city withdraw from the 2006 deal and start collecting the lodging tax within the city limits, leaving the county to oversee the program outside the Baker City limits.

If that happened, the city would still be required, under a state law, to spend at least 70% of the lodging tax revenue on tourism marketing, said Tyler Brown, chairman of the county’s lodging tax committee, which advises county commissioners on using tax revenue.

Because a majority of the taxes are paid by guests at establishments in Baker City — again, the county’s and city’s estimates for the actual percentage differ — if the city were to withdraw from the 2006 agreement, the county would have significantly less revenue to distribute.

Murphy said he understands that, which is why he is proposing that the city, if it withdraws from the agreement, divert some lodging tax money to the county, through June 30, 2026, to help the county continue the three current contracts it pays for with lodging tax revenue.

The contracts are $70,000 per year to Travel Baker County for tourism marketing, $87,000 per year to the Baker County Chamber of Commerce (operating as Baker County Unlimited) to operate the visitor center at 490 Campbell St., and $56,760 per year to Bryan Tweit, the county’s economic development director.

Baker County commissioner Christina Witham said Monday that although if the city withdraws from the agreement the county would have less tax revenue for tourism marketing and economic development, she believes the county could continue both programs, albeit at reduced levels.

“It’s going to be different, but it’s not necessarily a bad thing,” Witham said.

One positive, she said, is that due to record-high lodging tax collections over the past three fiscal years, the county has cash reserves in both its tourism marketing and economic development budgets that could serve as a temporary “cushion” were the city to withdraw and start collecting a majority of the lodging taxes.

The county’s marketing budget had a beginning balance of $1,560,000 for the fiscal year that started July 1, 2024.

The economic development budget had a beginning balance of $396,000.

Murphy thinks the city should receive some of the cash in the county’s tourism marketing fund.

As part of his report to city councilors, Murphy included a draft letter that the city would send to county commissioners should councilors choose to withdraw from the 2006 agreement. That letter states that: “Regarding the remainder of the funds, the City will also work with the County to ensure that it receives a fair portion of the (lodging tax) funds that remain in the Beginning Working Capital of (the tourism marketing) fund.”

If the city and county end up with separate lodging tax programs, Witham said the county would focus its tourism marketing and economic development outside the Baker City limits, since the city would have its own programs and revenue.

In his report to city councilors, Murphy proposed that the city, if it withdraws from the agreement with county, use the city’s 5% share of tax revenue to pay part of the salary for a new city employee, a community development coordinator. That person would both administer the city-only lodging tax, and “focus more broadly on the planning, design and implementation of Community Devellpment projects and programs. I also envision this individual being very proficient in positive customer relations and to serve as the City’s ‘face’ when it comes to all new development.”

Murphy’s report to councilors includes a proposed job description for that new position.

“This decision is an important one, and I firmly believe it is time to chart this path forward to enhance the City’s tourism promotion efforts, to improve how the City tackles new development and community development, and to help balance the General Fund,” Murphy wrote in his report to councilors.

Murphy said an interview Monday morning, March 10, that he believes separating the city and county lodging tax collections will help the city focus tourism marketing to benefit the city’s various business districts.

How the lodging tax works
Guests pay the tax when they stay at lodging establishments, including bed and breakfasts, RV parks and campgrounds.

The tax is 7% of the rental rate.

(There is an additional 1.5% statewide lodging tax, but that money is collected by the state, not by counties.)

The lodging tax is charged in Baker City, Halfway, Sumpter, Unity and unincorporated parts of the county.

Murphy, in his report to councilors, contends that with the 2006 agreement in place, which requires that tax revenue go to tourism and economic development, the city “loses significant revenue that it can use to help balance the General Fund (with the funds allocated to city services) or to modernize its tourist-related facilities.”

Murphy noted in his report that Ontario, La Grande, Pendleton and Hermiston all divert some of their lodging tax revenue to their general funds, in addition to tourism marketing.

Because the state law requires all jurisdictions, whether cities or counties, spend at least 70% of lodging tax revenue for tourism marketing, the city, if it withdraws from the 2006 agreement, would have only 30% of the tax revenue available for its general fund.

Brown, who owns Barley Brown’s Brew Pub, a tourist-dependent business, as well as serving as lodging tax committee chairman, said that if the city decides to set up its own tax system, he will advocate for the city to appoint a new city advisory committee whose members include representatives from lodging businesses and others that cater to tourists.

Brown said that whether the city or county is collecting the tax, or if both do so, he will pay close attention to how the entities are spending the 70% that is legally required to go toward tourism marketing.

Lodging tax revenue has been rising for past few years
Tax revenue is on pace to set a record for the fourth straight fiscal year.

After a slight drop during the 2019-20 fiscal year, due to the pandemic, lodging tax revenue has more than doubled.

The fiscal year runs from July 1 to June 30.

From 2006-19, annual revenue ranged from $385,000 to $576,000, with an average of $439,000.

Tax collections dipped to $408,000 in the 2019-20 fiscal year. In April 2020, the height of restrictions due to COVID-19, revenue plummeted to $8,360, the lowest total for any month on record.

Collections for the 2020-21 fiscal year totaled $538,000. That was the third-highest yearly total since the city-county agreement was signed in 2006.

Revenue in fiscal 2021-22 jumped by 33%, to a then-record $715,000.

As the pandemic waned, revenue continued to rise, with a 20% increase, to $860,000, in fiscal 2022-23.

The trajectory flattened a bit in the 2023-24 fiscal year, which ended June 30, 2024, but tax revenue rose by 11%, to a new record of $954,000. Monthly revenue topped $100,000 in June, July, August and September 2023, including an all-time record of $130,404 in July. Prior to that fiscal year, tax revenue exceeded $100,000 in only one month, July 2022.

Revenue for the first quarter of the current fiscal year — July, August and September 2024 — was up 6.7% from the previous year, putting this fiscal year on pace to set another record.

Despite major wildfires burning in and around the county starting the second week of July, lodging taxes for that month reached an all-time record of $133,889 — 2.7% higher than July 2023.

The previous monthly record, set in June 2023, was $130,620.

City manager’s report
Murphy, in advocating for the council to withdraw from the 2006 agreement with the county, wrote that he believes doing so would not only boost the city’s general fund revenue but also “significantly enhance Baker City’s attraction in the tourism industry.”

Murphy wrote that he believes “there is too much duplication” in tourism promotion between Travel Baker County and the Baker County Chamber of Commerce, both of which receive lodging tax revenue.

As required by the ordinance, the county diverts 95% of lodging taxes to two departments — marketing (70%) and economic development (25%).

The county uses lodging tax revenue for three separate contracts.

Jessica Hobson is the tourism marketing director, working under the Travel Baker County moniker. The marketing budget includes $70,000 for the contract.

The Baker County Chamber of Commerce operates the visitors center at 490 Campbell St., near the freeway, under a contract for about $87,000 per year.

The county’s contract with Bryan Tweit as economic development director is for $56,760 per year.

This year’s budget also includes $80,000 for marketing for Baker City Downtown.

The budget for the current fiscal year also includes separate lines for a variety of tourism projects, including:

• $40,000 for grants for county events.

• $10,000 for newspaper adverting out of the county.

• $10,000 for multimedia and radio advertising.

• $15,000 for social network/internet marketing.

• $12,000 for Travel Baker County merchandise.

• $20,000 for Baker County visitor guide.

• $15,000 for cooperative marketing with the Eastern Oregon Visitor Association.

• $32,000 for advertising in travel periodicals.

• $15,000 for brochure distribution.

• $51,590 for “wayfinding,” such as signs and maps.

• $10,000 each for marketing for cycling, arts and culture and ag tourism/culinary.

• $10,000 for sporting events promotion.

Baker County commissioners voted 2-1 in 2024 to give Baker City $750,000 for three projects — replacing the irrigation system at the city-owned Quail Ridge Golf Course, to replace restrooms at Geiser-Pollman Park, and for economic development.

Commission chairman Shane Alderson said in September 2024 that he voted for the disbursements to the city because he believed the county could afford to do so given the record lodging tax revenue the past three fiscal years.

Witham, who cast the lone dissenting vote on motions to divert lodging taxes to the city projects, said last year that she is “tired of the threat” that the city could withdraw from the 2006 agreement.

Also on the agenda
Police position
Councilors will consider a proposal from Police Chief Ty Duby to change the department’s detective sergeant position to a lieutenant.

The lieutenant would join the chief as the department’s two non-union employees, according to Duby’s report to councilors. He is the only current police department employee who isn’t a union member.

The city changed the lieutenant’s job to a sergeant June 30, 2021.

The lieutenant’s base salary would be $6,807 per month, compared with $5,521 for a sergeant. That’s a difference of $15,432 per year.

Baker Sanitary Service rates
Baker Sanitary president Stephen Henry wrote in a March 4 letter to the city that the company will add a 2% fee to residential and commercial customers’ bills on May 1 to reflect the city council’s decision late in 2024 to increase Baker Sanitary’s franchise fee from 5% of its gross revenues collected within the city to 7%.

The increase boosts the company’s franchise fee payment to the city from about $70,000 per year to about $98,000. The money goes to the general fund.

Currently, Baker Sanitary bills don’t show the franchise fee as a separate line. That will change on May 1, Henry wrote.

Residential customers who have a rollcart emptied weekly will pay $1.39 more per month due to the franchise fee hike. Commercial customers will pay $1.74 more per month.

Baker Sanitary is not increasing landfill rates.

Bill in Salem would change lodging tax spending limits

A bill in the Oregon Legislature would give cities and counties more flexibility in how they spend lodging tax revenue.

The current state law, from 2003, requires cities and counties to spend at least 70% of tax revenue on tourism promotion or for tourism-related facilities, which can include such things as parks and golf courses.

House Bill 3556 would add a third definition — “tourism-impacted services.”

This could include such public services as police and fire, as well as water, sewer, streets and public transportation. The idea is that an influx of tourists can put additional pressure on those public services.

The bill, if it becomes law, could potentially affect Baker City if the city council, as city manager Barry Murphy suggests, withdraws from an agreement with Baker County to administer the lodging tax program.

If the city starts collecting lodging taxes paid by guests within the city limits, and House Bill 3556 passes, the city could potentially spend some of the 70% of revenue on public services as well as on tourism marketing.

Murphy, in a report to councilors for their March 11 meeting, wrote that one reason he thinks the city should pull out of the 2006 deal is to allow the city to add some lodging tax revenue to its general fund, which includes the police and fire departments.

— Jayson Jacoby, Baker City Herald