In The News › Controversial property tax break for Hyatt topic of public hearing today

Controversial property tax break for Hyatt topic of public hearing today

Tuesday, November 17, 2009
By Rebecca Mowbray
The Times-Picayune

The Industrial Development Board of New Orleans is expected to get an earful today at a public hearing about a property tax break given to the developers of the Hyatt hotel last month even though the board’s own advisers say it was excessive.

On Oct. 20, the board said that Poydras Property Hotel Holdings LLC, which is trying to redevelop the shuttered and storm-damaged Hyatt Regency New Orleans, could pay half of its already-reduced property tax bill for the next 15 years. Today, the board will work out the specific language of the PILOT, or “payment in lieu of taxes,” including “clawback” provisions that would allow the arrangement to end earlier if business at the hotel exceeds projections, and is allowing the public to comment on the matter.

The discussion comes as the city is struggling with how to plug a $68 million hole in its budget and is contemplating raising millage rates to help fill the gap.

Janet Howard, president and chief executive of the Bureau of Governmental Research, questioned why a public hearing is being scheduled after the basic PILOT has already been approved. BGR, a non-partisan watchdog, has not taken a position on the Hyatt issue, but is concerned about the city’s tax base and says that a PILOT should never be set below what a business is currently paying in taxes.

Allowing the Hyatt to pay a smaller amount in taxes will shift more of the city’s tax burden onto others paying into the system. “Here we have the City Council talking about rolling forward millage rates. We give the big guys tax breaks so they are paying less than they were the year before, and we increase taxes on the little guy,” she said.

Before Hurricane Katrina, the Hyatt, the city’s fourth largest hotel, paid nearly $2.3 million in property taxes. After the storm, when the hotel failed to reopen, its bill was cut to $881,695. Additional adjustments brought the tax bill to $625,355 this year.

But Poydras Properties said it should get a tax break commensurate with what the family of Saints owner Tom Benson got to redevelop the former Dominion Tower and New Orleans Centre mall complex.

In September, Zelia LLC, the Benson family’s company, got a PILOT worth half of the current property tax bill of the shuttered property they were buying. In fact, Zelia’s attorney came out of the Industrial Development Board meeting with a tax break greater than what he had initially asked for.

In light of the Benson family’s break, Poydras Properties proposed that the Hyatt pay $320,000 a year for 15 years.

Christopher Robertson, managing member of Poydras Properties, did not return a phone message and email seeking to discuss the project Monday.

Two IDB advisers say the breaks are more than what the project needs to survive.

Based on the level of debt that the Hyatt will have, and Poydras Properties’ own financial projections, Tulane economist Toni Weiss concluded that the hotel can afford to pay more in property taxes.

“The coverage ratios and the profit figures indicate that a larger and shorter PILOT is feasible for the Applicant,” Weiss said. “Based upon the Applicant’s net revenues and debt service, a PILOT with a greater payment and shorter time frame should be considered.”

Weiss recommends that the board consider a more graduated PILOT, and notes that clawback provisions require more monitoring by the city, and therefore increase the costs to the city.

Another adviser, Stanley McDaniel, concluded that the IDB should set the Hyatt’s PILOT at its current tax rate of $625,000 for ten years, subject to reviews if the Hyatt exceeds Poydras Properties’ financial projections.

McDaniel found that while the developer said that a tax break would increase Poydras Properties’ ability to secure favorable financing because the company would have more net operating income to pay the debt, McDaniel found that the change in the debt coverage ratio for the developer would be meaningless whether it paid $320,000 a year in taxes or $625,000.

“The difference is unlikely to result in a more favorable bond rating,” McDaniel wrote in a report.

Meanwhile, the Greater New Orleans Hotel and Lodging Association, is up in arms at the prospect of one hotel getting a huge tax break while others are paying full-freight.

It calls the terms of the break “unfair in their nature and egregious in its amount,” and says that under the deal, the Hyatt would pay over the next 16 years, what similar hotels pay in two years, giving it a competitive advantage.

“The Greater New Orleans Hotel & Lodging Association opposes the use of Payments in Lieu of Taxes (PILOTs) for any hotel development. This procedure has never been used for hotels in the history of the city, and sets an unfair competitive advantage to any hotel that would receive it,” Mavis Early, executive director of the association, wrote in a letter to the IDB Monday.

Early, a former City Attorney, notes that ad valoreum taxes are needed to pay for basic services in the city, and that if the IDB finalizes the pilot today, “it may set a precedent for hotels to request and be granted PILOTs for future developments.”

In an Oct. 15 letter to the IDB, Mayor Ray Nagin said he supports Poydras Properties’ request for a PILOT, saying that it will revitalize an important area of the city that will host high-profile events. “I support this request by the Company and request that you give it favorable support,” the Mayor said.

The IDB meeting is at noon in the tenth floor conference room of the Amoco Building at 1340 Poydras St.

Fair Use Notice

This site occasionally reprints copyrighted material, the use of which has not always been specifically authorized by the copyright owner. We make such material available in our efforts to advance understanding of issues and to highlight the accomplishments of our affiliates. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is available without profit. For more information go to: US CODE: Title 17,107. Limitations on exclusive rights: Fair use. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.