An internal audit released this week says the Dallas Office of Arts and Culture cannot prove that roughly $4.9 million of last year’s hotel‑occupancy‑tax reimbursements met Texas rules that require funded projects to attract overnight visitors. The review of Fiscal Year 2024 flagged spotty recordkeeping and weak verification across the city’s cultural programs and warned that the city may have difficulty demonstrating compliance with state law if anyone decides to scrutinize how that money was used.
Audit findings at a glance
The report from the Office of the City Auditor, published on Monday, found the Office of Arts and Culture received $8.9 million in hotel‑occupancy‑tax reimbursements during fiscal 2024 and that about $4.9 million went to cultural activities that may not meet the requirements for HOT funding. Auditors reviewed a sample of 25 of the 249 contracts and concluded officials did not consistently verify that money was spent as intended or that promised programming actually took place. The audit cites missing receipts, limited ticketing or hotel‑stay data and a reliance on professional judgment instead of a formal documentation process.
Which groups received money
City records show the City Council signed off on more than $6 million in November 2023 for cultural organizations that include the Dallas Museum of Art, the Perot Museum of Nature and Science, the Dallas Opera, the Shakespeare Festival of Dallas and the Dallas Holocaust and Human Rights Museum. The audit notes it is unclear which of those awards were specifically expected to drive overnight stays. As reported by The Dallas Morning News, the audit does not say the spending was illegal but stresses the city could have a hard time defending the expenditures under state law.
How state law frames HOT spending
Under Texas Tax Code §351.101, municipal hotel‑occupancy‑tax revenue can be spent on certain categories, including promotion of the arts, only when the spending both promotes tourism and supports the hotel and convention industry. The statute and related state guidance generally require cities to show that programs or events attract out‑of‑town or overnight visitors, a standard auditors label the "two‑step" test for HOT eligibility. As outlined in Texas Tax Code §351.101, acceptable evidence can include ticketing data, hotel‑booking links, convention tie‑ins or post‑event surveys.
City response
City Manager Kimberly Bizor Tolbert said the Office of Arts and Culture has worked to ensure hotel‑occupancy‑tax‑supported activities meet eligibility requirements and that the audit points to ways the city can tighten things up. In a statement to The Dallas Morning News, Tolbert wrote that existing processes have provided oversight but that the city recognizes the value of this opportunity to further strengthen and formalize them.
Recommendations and deadlines
The audit recommends the city formalize a process to evaluate HOT eligibility before any money goes out the door, require standardized recordkeeping and receipts, perform budget‑to‑actual comparisons and document visitor impacts. The Office of Arts and Culture agreed to adopt a checklist and other controls and set target implementation and follow‑up dates in the audit’s management response, with milestones running into late 2026 and mid‑2027. Those timelines are detailed in the report from the Office of the City Auditor.
What’s at stake
Without documented proof that HOT‑funded programs put heads in beds, the city faces both reputational and fiscal risks. State officials or auditors could require repayment, or future disbursements could be curtailed until tighter controls are in place. Guidance from organizations such as the Texas Municipal League and the state Comptroller stresses that cities should collect verifiable hotel‑stay or ticketing data to support HOT awards. The Texas Municipal League offers examples of acceptable documentation and internal controls.
For arts groups, that probably translates to more paperwork and stricter reporting requirements. For taxpayers, it is a reminder that public subsidies for culture are supposed to be tied to measurable tourism outcomes. The Office of Arts and Culture and City Hall now have a relatively short runway to turn the audit’s recommendations into enforceable rules ahead of the next budget cycle.
