N.J. Arts Groups Short-Changed by Hotel-Motel Tax

NJ Council of Arts lose millions in funding due to 'poison pill' clause.'

Spend a night at the four-star Heldrich Hotel in New Brunswick, and you'll pay $17.52 in taxes on your midweek deluxe room.

Of that, a few bucks are supposed to support arts organizations like the State Theatre right across the street.

Trouble is, not all of the money designated for the arts makes it to the performing arts centers, museums and orchestras.

In fact, a Star-Ledger examination shows the 10-year-old hotel-motel occupancy tax has generated more than $1.1 billion for state and local governments, but only $184 million has gone to the New Jersey State Council on the Arts, the largest of the four state agencies it was designed to fund. After an early boost, the arts council has seen its share of funding shrink from a high of 33 percent of tax receipts in 2005 to a proposed 15 percent next year. In real dollars that has meant a cut from $22.7 million to $16 million.

"It's discouraging, because we see the benefits," Assemblywoman Valerie Vainieri Huttle (D-Englewood) told a room of arts leaders at a council meeting last month. "We need to get the funding restored."

The idea of the tax surfaced in 2003 after former Gov. James E. McGreevey eliminated all direct arts and history funding in his 2004 budget. The new tax would help the state bring millions of new dollars into its coffers. It would help the cultural agencies, groups often stuck at the back of the line at budget time, by tying their funding to a separate revenue stream that, in theory, could only grow. And it would help municipalities by allowing them to tack on local fees for rooms in their towns.

After taking a hit in 2004, cultural groups were told they would be repaid the next year with a boost in funding guaranteed to remain. In 2005 and beyond, "22.68 percent (of the tax revenue) shall be annually allocated for appropriation to the New Jersey State Council on the Arts,'' according to the law. Similarly, the historic commission would receive at least 3.84 percent, the New Jersey Cultural Trust would get a minimum of .72 percent, and tourism promotion and advertising had a guarantee of 12.76 percent. All of the percentages came with hard-dollar guarantees.

The agencies rejoiced, thinking they had walked away with a guarantee of at least $40 million in funding every year. But the first year's figures, those supposed one-time cuts, are part of a "poison pill clause'' intended to keep government officials honest. If lawmakers appropriate less than 2004's $28.2 million -- $16 million for the arts council, $2.7 million for the historical commission, $500,000 for cultural trust and $9 million for tourism -- the tax "shall no longer be paid or collected."

That clause, arts advocates say, has given lawmakers wiggle room, and they frequently have chosen to distribute the smallest amount possible and return the extra receipts to the general fund.

Put another way, the groups are now left with a smaller piece of a larger pie.

In 2005, for example, the four agencies shared 59 percent of the tax revenues, or $39.9 million of $67.7 million.

Fast forward a decade and Gov. Chris Christie's 2014 budget plan calls for them to split just 27 percent, or $28.2 million, of a projected $106 million. If the letter of the law had been followed and grants been made by percentages originally written into the law, 2014 should have totaled $42.4 million.

"We pass these taxes and fees and there's always a commitment, from bulletproof vests to beach replenishment to renewable energy, I can give you a list,'' Sen. Jeff Van Drew (D-Cape May) said. "And none of them, almost none of them . are used for their intended purposes."

Christie spokesman Michael Drewniak said the governor has succeeded in preserving state funding for the arts, history and tourism "even during challenging" fiscal times.

"We continue to make careful budgeting choices now to restore our state's fiscal health so that, hopefully, we can responsibly expand funding in areas like this in the future," Drewniak said.

There have been other hurdles for the organizations.

The annual revenues from the tax were wildly over-estimated, The Star-Ledger review shows. The law was structured on predictions that it would generate $123 million-$140 million annually in the first few years. In the first nine years, state revenues never topped $86 million.

Then politics seemingly came into play.

In 2009, Gov. Jon Corzine funded the arts council below the minimum and then employed some creative accounting by passing the Newark Museum's separate line through the arts council budget in order to reach the target. Arts leaders protested, and former Gov. Tom Kean threatened to sue.

Candidate Christie bashed Corzine for not following the spirit of the law. But as governor, Christie has not increased the arts council's budget even though the revenue from the tax has grown dramatically in the past three years.

"That's disappointing,'' Jeffrey Woodward, a leader of ArtPride New Jersey in 2003 who is now managing director at Syracuse Stage. "You clearly had a state that wanted and embraced the arts."

That's how we got it through.

"But I would guess if it hadn't passed, (the current arts appropriation) would be a lot less,'' he said.

The disparity between the government portion and the cultural piece reaches new levels in the 2014 budget. The state treasurer's prediction of $106 million in receipts would make the arts council's 22.68 percent about $24 million. That is 50 percent more than the governor's proposed $16 million appropriation.

"It may not seem like a lot in the large scheme of things,'' Playwrights Theatre of New Jersey artistic director John Pietrowski said, referring to the $8 million difference. "But for arts people used to doing a lot with a little, it means we can do a lot more with a little more."

New Jersey Arts Education Partnership chairman Robert Morrison said that as the economy improves, the arts community should advocate for the full amount.

"Now we are going over $100 million, there can be a discussion about what the funding level should be,'' he said. "That's the important concern. How do we get to where we'd like to be?"

The effort by arts and history leaders to secure the dedicated tax thrust them into the national spotlight, and the tax itself became a model for other states to study. By shifting from an annual appropriation to a portion of a new revenue stream, the cultural leaders believed they had ended the annual battle for state grants, matching funds that are the lifeblood of their annual fundraising and the sole source of state support. And since a hotel-motel tax would be paid by visitors, mostly from out of state, they could make the case that the state's investment was not coming directly from taxpayers. Finally, by linking their funding to a separate revenue stream, they believed increases would be steady and growth of their industry would be possible.

That makes its actual performance all the more frustrating, they say.

Many programs and staffs have been hurt by the continued minimum funding. The arts council supports hundreds of arts groups, big and small, with general operating grants that must be matched with other funds.

"It's been crippling. Groups had to retrench, lay off staff, furlough staff," South Orange Performing Arts Center executive director Mark Packer said. "And when you have to retrench and lay off staff, then you do less programming, and then you're generating less earned revenue. It's like a tsunami."

But fewer dollars are better than none, and many in the arts community believe the tax has prevented another funding crisis.

"It kept us safe through a devastating recession," ArtPride New Jersey executive director Ann Marie Miller said about the tax. "What we hope to do is make sure the intent of the law is adhered to, so that the allocations, or appropriations, are consistent with the law."

Former Assembly Speaker Joseph Roberts, who is credited with proposing and getting the law passed, said the $1 billion in revenue is a sign of its success. But he is not shocked by the uneven distribution.

"With a growing source of revenue, it's tempting to use it to address other needs. There are a lot of very worthwhile programs. I understand the competition. It's very, very real," the now retired Roberts said. "It may be something the administration and the Legislature want to revisit."

But he sees a silver lining.

"It does provide a safety net at least. There is a minimum guarantee, and that's desirable," he said.

"I understand their (position): `We'll take it. It's not what we'd like but it's better than nothing.'?"

Original story, click here.

Copyright AP - Associated Press
Contact Us