Richard Lewis, Edinburgh City Council’s culture leader, said there was a definite “need” for an alternative funding scheme in the face of a drastic cut in the authority’s budget over the next few years.
He revealed that the council is “aggressively” working on a plan which would see income generated in the city during August ringfenced for events and venue infrastructure.
But he admitted that it was still trying to find the “right mechanism” would see a proportion of income generated in the city from festival visitors ploughed back into event budgets.
Mr Lewis said Edinburgh City Council – which funds the festivals to the tune of more than £4 million – would be trying to build consensus with the festivals and the business community in the city over some kind of festival tax.
Possible models could include a levy on hotel, bar and restaurant bills, or a business improvement district-style scheme where firms would pay extra rates on condition that cash raised is ringfenced for festivals and events.
But he warned the council was facing a “really difficult balancing act” over how to balance the economic importance of the festivals with the need to make £120 million worth of cuts over the next few years.
He said that as well as the core funding of the festivals, the council needed to address long-term infrastructure issues over buildings such as the King’s Theatre, one of the main venues used for the Edinburgh International Festival.
The council has agreed to carry out an annual “health check” on the entire Edinburgh Festival amid calls for their funding to be stabilised ahead of the 70th anniversary of the event in 2017.
Mr Lewis told The Scotsman: “We have been very clear in pledging to maintain the success of our international festivals and their global brand.
“But we have to do that in the context of the financial pressures on the council as a whole.
“We have to balance the demands on the culture and sport side of our budget with all our other demands.
“I will be fighting as hard as anyone on the fact that the Edinburgh festivals need to expand and look to the future.
“We’ve got to look after the health of the festivals and their incredible success, as well as all our existing venues.
“The pressures on the city’s infrastructure are great.
“We are a Unesco world heritage site, we have lots of older venues. We need to be finding ways of investing in them.
“We’ve got to do all this at a time when we’ve got to save £120 million over the next four years.”
Earlier this year, an official report into the future of the Edinburgh festivals, which are worth an estimated £261 million to the economy, warned they faced losing their “premier division status” if funding levels could not be maintained.
Consultants said there was a “long-term stalemate” over how to find alternative funding for the city’s main events, but said up to £10 million a year may need to be generated over the next decade to deal with a predicted “fiscal cliff”.
The Scottish Government has rebuffed previous efforts by the local authority to introduce some form of bed tax to recoup some of the millions generated by hotel operators during peak periods.
Mr Lewis added: “It’s really about finding the right mechanism.
“If we can find one which everyone is happy with we can go forward. There are various models out there, it is just a case of finding the right one for Edinburgh.
“We need to be doing this. We are aggressively working on it at the moment.”
Some festivals, such as the Fringe, and arts venues already raise funding by asking ticket buyers to make an additional donation when making a purchase.