SALEM, OR – As the Oregon Legislature approaches its mandatory adjournment deadline of June 29, lawmakers are engaged in critical debates over several key pieces of legislation, none more impactful for local governments and the state’s tourism industry than House Bill 3962.
This significant proposal aims to fundamentally alter the long-standing distribution formula for revenue generated from the transient room tax, commonly known as the lodging tax. Currently, Oregon law dictates a specific split: a mandatory 70 percent of these funds must be dedicated to tourism promotion or investment in tourism-related facilities. The remaining 30 percent is allocated to other essential city and county services.
Proposed Changes Under House Bill 3962
HB 3962 seeks to introduce greater flexibility for local jurisdictions by revising this mandated percentage split. The bill proposes that “at least 40 percent” of the transient room tax revenue be used for tourism promotion or facilities. This change would effectively allow local governments to allocate up to 60 percent of these funds towards services that are significantly impacted by tourism activity. These critical services specifically include police, fire, emergency medical services, and roads.
Rationale for the Shift
The impetus behind HB 3962 stems partly from the anticipated financial challenges facing local governments across Oregon in the upcoming 2025 fiscal year. Many cities and counties are grappling with budget constraints and increasing demands on public services. By allowing a larger portion of the lodging tax revenue to be directed towards core services like public safety and infrastructure, the bill’s proponents argue it would provide much-needed fiscal relief and better align funding with the direct costs imposed by high tourism volumes on local communities.
Legislative Journey and Status
The bill’s journey through the legislative process reflects its importance and the debate surrounding its potential consequences. HB 3962 has already successfully navigated passage through the Oregon House of Representatives. It is now under active consideration by the Senate Finance and Revenue Committee as the clock ticks down towards the end of the legislative session on June 29. An earlier, related bill concerning tourism funding was identified as HB3556.
Potential Impact on Tourism Promotion and Local Budgets
The potential adoption of HB 3962 carries significant implications, particularly for tourism promotion entities that currently rely heavily on the mandated 70 percent allocation. Should the bill pass, many of these organizations could see a substantial reduction in their available funding.
For example, the city of McMinnville, a popular destination, offers a clear illustration of the potential financial shift. Based on its projected $2.15 million in transient room taxes for the 2025-26 fiscal year, McMinnville’s tourism promotion funds could decrease by over 40 percent under the new formula. This reallocation would see more than $600,000 redirected from tourism-specific marketing and development towards general city services, such as enhancing police patrols or improving road maintenance – services directly impacted by the influx of visitors.
Critics of the bill express concern that reducing funding for tourism promotion could ultimately harm the industry’s long-term growth and visitor numbers, potentially impacting the very tax revenue stream that local governments seek to utilize more broadly.
Conclusion
As the mandatory legislative adjournment date looms, the fate of House Bill 3962 remains a key point of contention in Salem. The proposed change to the transient room tax distribution represents a significant policy decision with profound implications for how Oregon funds both its vital tourism sector and the essential public services that support communities and visitors alike. The outcome of the debate in the Senate Finance and Revenue Committee will determine how millions of dollars in tourism-generated revenue will be allocated across the state in the years to come.
