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Town manager and finance staff outline permitted uses of Flower Mound hotel-occupancy tax; staff estimates about $600,000 in annual revenue
Summary
Town staff briefed the council on legal limits and practical options for spending Flower Mound’s hotel‑occupancy tax, which staff estimates produces about $600,000 annually and is currently used for public art and a fall festival.
Town staff provided a legal and practical overview of the municipal hotel‑occupancy tax (HOT), how state law limits eligible uses, and examples Flower Mound could pursue. John Zagarski presented the briefing and noted the town currently estimates roughly $600,000 per year in HOT revenue, with growth possible as new hotels open.
Zagarski described the “Texas two‑step” test for HOT expenditures: (1) the expenditure must directly enhance and promote tourism and the convention and hotel industry (commonly summarized as “heads and beds”), and (2) the expenditure must fall into one of the statutory categories (for example, convention center expenditures, administering convention registries, advertising and solicitation to attract tourists, funding the arts when it promotes tourism, museum/historic restoration tied to tourism, and certain transportation and signage for tourists).
Staff said current applications of HOT in Flower Mound include roughly $100,000 allocated to public art and about $200,000 dedicated to a fall festival this year. Zagarski described likely future uses the council could consider, such as a dedicated marketing budget to attract multi‑day events and conventions, funding for arts programming designed to draw overnight stays, wayfinding and visitor signage, or tourist transportation shuttles tied to hotel guests.
He cautioned that some HOT categories have changed or carry restrictions: for example, recent amendments bracket how municipalities may use HOT for sports facilities or create designations that cap spending (he noted a cultural‑arts‑district designation could limit available spending to 30% if used improperly). He also explained the reporting requirement: the town must file an annual HOT report with the Texas Comptroller breaking out expenditures and demonstrating compliance with allowable categories.
Zagarski also described the procedural option to increase the local HOT rate from 7% to 9% through an election, which would bring additional revenue but requires a specific public process and voter approval. He said if the council wanted to pursue a higher rate, a formal study and public outreach would be appropriate.
No council vote was taken; staff said they will bring more detailed budget proposals for HOT uses as part of the FY26 process and encouraged thinking about multi‑day arts or convention programming to qualify expenditures under state law.
