Fair Play, Fair Share, Part 1: New Orleans and the Lost Penny

By Michael David Raso

March 25, 2019

It’s 2019, but looking at some of the city’s old and antiquated infrastructure, it doesn’t feel like it. We have a pumping system that includes parts that are over a hundred years old, and a water and sewer system with cracked pipes that burst to flood the streets regularly – streets that look like as if they were intended to be obstacle courses. The sidewalks in relatively affluent neighborhoods are covered in cracks and sticking out at odd angles, such as those on Maple Street, making it a death race for anybody with limited mobility. In less financially well-off neighborhoods, the sidewalks are crumbling, often deeply hidden beneath trash, dirt, and overgrown grass. In some parts of the 7th Ward, residents face streets littered continuously with garbage.

However, you wouldn’t know any of this if all you were doing is staying at the Hyatt off Tulane Avenue. Sure, much of the Central Business District (CBD) has some embarrassingly poor infrastructure, too, but it’s not like the areas outside it. The areas that are primary holders for the hospitality industry look magical compared to those where the actual hospitality workers live. And, of course, where they can afford to live gets smaller and farther away every day.

Like all poverty institutions, the chickens will come home to roost. If you want to understand how this situation happened, it’s necessary to understand a little city history. This part of the story begins with New Orleans’s love of the Saints.

In 1966, the citizens of Louisiana voted to amend the Louisiana Constitution by 76% to approve the budget to build the Superdome, with a 4% tax on hotels. Part of what went to create the Superdome within the Louisiana Stadium and Exposition District included the suspension of a 1% hotel tax the city collected by itself. The suspension was supposed to be temporary, and the city would eventually be able to collect it again.

By 1975, the construction of the $138 million stadium was completed. However, the 1% tax that the city had given up for the Superdome never returned. Pennies on the dollar were taken away from a city that provides more money for tourism than anywhere else in Louisiana. Eventually this tax, according to the Bureau of Governmental Research (BGR), was known as “the lost penny,” as discussed in BGR’s report.

When outsiders think of Louisiana, they don’t think of our state capitol Baton Rouge. Nor do they usually think of Pineville in mid-state, the no-fun zone where I grew up. When people think of Louisiana, they think of New Orleans, the Saints, New Orleans, great food, New Orleans, history, New Orleans, let’s do business by day and party all night, New Orleans, the Big Easy, the Crescent City, the City that Care Forgot, New Orleans.

But for all the tourism and business the city brings in to Louisiana, New Orleans gets less than its fair share. The 1% sales tax that could give at least $12.3 million for infrastructure has been largely ignored by everyone including the state legislature and governors, both Democratic and Republican. Everyone, that is, except Mayor La Toya Cantrell and the actual experts, the Bureau of Governmental Research.

BGR describes itself as “a private, nonprofit, independent research organization dedicated to informed public policy making and the effective use of public resources for the improvement of government in the New Orleans metropolitan area.” According to BGR, despite the massive growth of the tourism industry in New Orleans, and various other taxes, the city of New Orleans is still not getting its “fair share.”

In 2019, that penny tax we no longer collect will deprive the city of approximately $12.3 million. If that seems like a pittance, keep in mind that various taxes on hotel guests now add up to 16.35% which will, in 2019 alone, be estimated to be over $200 million.

Compared to most cities, New Orleans is not doing well. BGR’s report says, “The suspension of the City’s 1% sales tax on hotels is unusual. In the vast majority of large parishes and peer cities, the full local sales tax applies to hotel room charges.” Also, “the annual share of hotel taxes allocated to general municipal purposes in New Orleans would have to increase by the equivalent of a 1.3% tax ($15.8 million at current revenue levels) to match the median share for the peer cities.”

While New Orleans is receiving its $18.9 million, the 235 million laying around from the 1% tax it is going elsewhere:

“The New Orleans Ernest N. Morial Convention Center has accumulated $235 million in unrestricted reserves largely because it continues to receive a 1% hotel tax, two hotel tax dedications, and a citywide food and beverage tax ($22 million in total for 2019) that were originally intended for an expansion project it deferred indefinitely after Hurricane Katrina. The center’s new five-year $557 million capital plan could decrease the unrestricted reserves to $122 million upon completion of the plan in 2022. However, the reserves could begin growing again by $$25 million a year in 2023, according to a financing scenario the center’s financial consultant prepared.”

BGR recommends that the Legislature increase hotel taxes in New Orleans through an at least 1% tax ($12.3 million currently). One way to do this would be to restore at least a portion of that 1% sales tax on hotel rooms for high-priority needs. After that, they could redirect a part of excess hotel tax dollars to minimize any negative impacts on the tourism groups and other current recipients of that money. The report also suggests several ways to improve how tax revenues can be structured to help meet the needs of New Orleans dated infrastructure.

The biggest argument you hear from some of the main players is that any tax increase, even one percent, would drive away tourism (from a city that has an Airbnb mansion that retails for $2,200 per night).

Depending on whom you ask, in 2017, New Orleans brought in either 10.98 million tourists according to the University of New Orleans or 17.74 million, according to the New Orleans Convent and Visitor’s Bureau (CVB) and the New Orleans Tourism Marketing Corp. (NOTMC).

That same year, according to D.K. Shifflet & Associates (DKSA) tourists spent 8.17 billion overall and most importantly for this discussion, 1.77 billion dollars was spent on places to sleep for the night.

Also according to the DKSA report, the number of tourists continues to grow, with a growth of 5.7% in 2017 from previous years.

So why isn’t New Orleans receiving its fair share? It’s not enough to say that the legislature, the Governor, and the tourism industry don’t want to give the city back the lost penny, despite original promises to the contrary, despite the City’s crumbling infrastructure. It’s not enough to say their reasoning is flawed. In this series, Big Easy Magazine will attempt to identify specific players in government and the tourism industry who may be influencing the way this plays out.

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