The Lost Penny

Hotel taxes are at the center of Cantrell’s fight to provide more money for New Orleans infrastructure

By Jeff Adelson

Source: The Advocate

February 24, 2019

This year agencies in New Orleans charged with overseeing the Mercedes-Benz Superdome, running the Ernest N. Morial Convention Center and promoting tourism in the city will do so with the help of more than $160 million in tax dollars.

That’s nearly three times the budget for the Sewerage & Water Board’s drainage system, which officials warn will not have enough money to cover its needs this year. It’s almost five times as much as the city spends paying off bonds for street repairs.

In a city where boil-water advisories are routine and many streets resemble obstacle courses, Mayor LaToya Cantrell has put out a call for the tourism agencies to kick in more money for basic city services — what she dubs the industry’s “fair share.”

Cantrell has repeatedly criticized the current division of taxes in the city, and her political action committee has launched a campaign to try to wring from those groups a substantial portion of the $80 million to $100 million a year she says is needed for infrastructure work.

Tourism leaders and state officials, however, say that doing that would knee-cap the industry that is the lifeblood of New Orleans’ economy and produces a large share of the taxes that the city and the S&WB now receive.

Despite the importance of tourism, there’s little doubt as to why the hotel taxes that primarily benefit the sports, convention and tourism groups are the main place Cantrell is looking as a source for more funds: That’s where the money is.

Altogether, those organizations will get about 14 percent of the $1.2 billion in taxes collected in New Orleans this year, according to an analysis by the Bureau of Governmental Research, a nonpartisan policy group that has questioned the tourism industry’s share of the city’s tax revenues for years.

There are few other pots of money city officials can turn to. The school system receives a quarter of the total tax haul; the New Orleans police and fire departments, courts, jail and other public safety agencies get another 25 percent; and the rest of city government and other associated agencies receive about 30 percent of the total.

“When you have 14 percent of the locally generated revenues going to tourism and sports and 3 percent going to streets, there’s a serious misalignment of the needs and resources, and it’s something that really needs to be addressed,” said Janet Howard, BGR’s former longtime president and CEO.

“If we don’t, we’re going to continue to have deterioration and decay, and that’s going to discourage people from living here and locating here and eventually will affect tourism.”

Cantrell is not the first city leader to look to hotel taxes as a way to fund needs throughout city government, though other efforts have foundered in the face of the industry’s opposition. But the mayor’s public campaign for rededicating revenue has made it a defining issue for her administration and has brought state officials and tourism leaders to the table.

Cantrell has her sights set high. Earlier this month, she said her goal is to get $40 million a year redirected from sports, convention and tourism groups each year on top of a $75 million infusion of cash from the state to stabilize the S&WB’s finances.

A group of city officials and members of Gov. John Bel Edwards’ administration are currently looking at that proposal, though the governor’s office has said they are focused on the source of one-time funds rather than recurring revenues.

Even if Cantrell gets everything she wants, it wouldn’t meet the $80 million to $100 million a year that she says is needed to fix the city’s pipes, streets and other infrastructure.

The rest could come from a variety of sources such as imposing a drainage fee, looking for unnecessary city spending to cut and doing a better job of collecting money owed to the city. But Cantrell has said she won’t go to residents with proposals that would make them bear the costs — in other words, a new fee or tax — without showing that the city first got as much as it could through other means.

When trying to avoid adding to the costs borne by residents, the hotel taxes paid mostly by tourists are the obvious place to start.

Nearly three-quarters of the $200 million a year collected in taxes on hotel bills goes back to groups tied to the tourism industry. Less than 10 percent of that money goes to the city to be used for general purposes — an amount that’s out of step with other large cities across the country, according to a report released this year by BGR.

The city now gets just 1.5 percentage points of the 16.35 percent tariff that hotel guests are charged on their bills — about $20.8 million a year. That’s less than the shares of those taxes that help fund the Superdome, the Morial Convention Center and New Orleans & Co., the new name for the former Convention and Visitors Bureau. Each of them gets more than the city does.

“The report demonstrates that our tax structure falls short of best practices,” said BGR President and CEO Amy Glovinsky. “But it also points to areas where excess revenue exists, which indicates a misalignment between dedicated revenue streams and the community’s needs.”

Cantrell’s not the only one eyeing the hotel taxes.

The Regional Transit Authority is seeking to reclaim the $2.9 million a year it gives to the New Orleans Tourism Marketing Corp. and the Convention Center under a deal cut in 2001 to allow a sales tax for public transit to apply to hotel bills. The RTA now says that deal was unconstitutional and is calling for those agencies to return $31 million collected over the past 18 years.

Hospitality groups have said raising taxes on hotel stays could deter visitors, damaging an industry that brings 18 million people a year to the city. Should those numbers drop it would hurt not just the tourism industry but also the bottom line at City Hall and other government bodies that benefit from the sales taxes on purchases those visitors make.

New Orleans & Co. President and CEO Stephen Perry has also argued that the city has shown itself to be a poor steward of the money it already gets.

“We look at this (proposal) and we’re truly incredulous because the argument is (to take money) from a high-performing, organically created private sector enterprise … to give it to the people who have been managing the Sewerage & Water Board, who have been the stewards of everything from flooding and drainage management, who have given us the modern-day (New Orleans Police Department),” Perry said in an interview with The Lens last month. “I can just go on and on.”

And the hospitality groups say the money they collect is needed for upgrades and improvements to their facilities.

While Cantrell and others have pointed to the Convention Center’s $235 million in accumulated reserves as evidence it has money to spare, the organization says that money is needed to help fund a planned hotel and the ongoing revamp of Convention Center Boulevard. And Edwards has said the Superdome’s funding should not be cut so the state can improve the facility before it hosts the 2024 Super Bowl.

While it makes sense that tourism promotion and facilities used by visitors would be funded through a hotel tax, that also means those millions of tax dollars are not contributing to the general maintenance the city needs, Howard argued.

“Stores don’t get to say their sales taxes should only go to support retail, and residents can’t say their property taxes should only go to residential areas. Tourism shouldn’t be able to say their taxes should only go to support tourism,” Howard said. “We have common needs in the city, and there’s a need for everyone to be chipping in here.”

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