The Lost Penny

Millions set for crumbling New Orleans infrastructure as Gov. Edwards, Cantrell announce tourism deal

By Tyler Bridges and Jeff Adelson

Source: The Advocate

May 6, 2019

The city of New Orleans’ crumbling infrastructure will receive an infusion of tens of millions of dollars under a deal announced Monday by Gov. John Bel Edwards and Mayor LaToya Cantrell after weeks of hard-fought negotiations between their aides and the city’s powerful hospitality industry.

The deal would provide $50 million in coming weeks to the Sewerage & Water Board, which has warned that its drainage system does not have enough cash to finish out the year. The money would come from a combination of unspent state disaster money and funding from the Ernest N. Morial Convention Center.

Just as critically for Cantrell, it also would provide up to $26 million a year in new, recurring revenue that could be used for S&WB needs or other infrastructure projects. That money will largely come from higher taxes on hotels and short-term rentals, rededicated money that would be freed up by merging two tourism marketing agencies, and higher property taxes in the Central Business District.

Finally, the state will delay $17.5 million in payments it had expected from the city for five years.

The city’s potholed streets and ancient drainage system would receive the money with the passage of three legislative bills that will go before the full House on Wednesday. New Orleans voters will then have to approve one of them.

The fight for more tax dollars devoted to infrastructure has been a central tenet of Cantrell’s “fair share” campaign since she took office a year ago this week. Should the deal successfully make its way through the Legislature, she can claim a victory where other mayors fell short.

Still, tourism leaders managed to hold onto nearly all of their $120 million in annual hotel tax revenue, and they also appear much closer now to gaining approval for a controversial $558 million, 1,200-room Convention Center hotel that taxpayers would help subsidize

“It’s a win-win-win across the board,” Cantrell said at a triumphant press conference with Edwards by her side and 12 New Orleans delegation legislators and two hospitality leaders arrayed behind them. “This is a step in the right direction for sustainable infrastructure for the city of New Orleans.”

For Edwards, successfully brokering the agreement offers an opportunity to cement his support in New Orleans, where he needs a big turnout and a large margin of victory as he runs for re-election this fall.

Meanwhile, Stephen Perry, head of the convention-marketing group New Orleans & Co. and a leader in the city’s tourism lobby, appears to have expanded his agency’s role, as the deal calls for the New Orleans Tourism Marketing Corp., a separate city entity, to now effectively fall under his group’s control.

Friday’s rupture of a 114-year-old water main under South Claiborne Avenue, which prompted a boil-water advisory for a large swath of Uptown and for a time caused worries that it would disrupt patient care at Children’s Hospital, added urgency to getting everyone on the same page, Cantrell and Edwards said.

Give and take
Since last fall, Cantrell has been seeking $75 million in one-time money and $40 million in annual recurring revenue for infrastructure repairs, while tourism leaders, who parried similar requests in the past, initially offered much less. But the dire financial state of the Sewerage & Water Board, a desire not to be cross-ways with the mayor and the political exigency of trying to win approval for the controversial hotel next to the Convention Center appeared to bring hospitality leaders around.

The agreement gives both Cantrell and the hospitality industry something they wanted, but each side had to give up something.

Cantrell accepted $25 million less in one-time money and at least $14 million less in recurring revenue than she initially requested. She also agreed that a tax on short-term rentals should be split with hospitality groups rather than being used to build affordable housing, a concession that is certain to draw ire from housing advocates.

The City Council has also been eyeing the short-term rental tax as a way to fund more affordable housing. Council members could not be reached for comment on the new deal Monday.

But privately, council members have been raising concerns about redirecting that money, both because they argue it is needed for housing and because they worry that making infrastructure funding dependent on short-term rentals could undermine their efforts to rein in that phenomenon in New Orleans.

While receiving less than she sought, Cantrell did win agreement from Convention Center officials that the hotel — if constructed — will give money to the city in lieu of paying property taxes.

That issue has been in dispute with Erroll Williams, the assessor, saying the hotel would have to pay property taxes, and Convention Center officials saying it wouldn’t. Under the agreement, the center also would have to pay money in lieu of property taxes when it develops other parcels of vacant land adjoining the proposed hotel.

Cantrell won other concessions from the Convention Center. It will now have to present its budget to the City Council for discussion every year. It also will need to meet requirements for disadvantaged business enterprises for the hotel, although the RFP sent out for the development already required that.

Of the $50 million in one-time dollars for the city, $28 million would come from the cash-rich Convention Center: $20 million from its reserves of $235 million and $8 million that was meant for other projects but wasn’t spent.

The other $22 million in one-time dollars would come from state Hazard Mitigation Grant Program money that wasn’t spent after previous disasters and from a “revolver loan fund” in the Division of Administration from Hurricane Katrina.

Of the $50 million in one-time money, $36 million would go for past-due invoices owed by the Sewerage & Water Board; the rest would pay for urgent upgrades, including making Turbine 6 available for use during cold weather to help power the agency’s pumps.

The specifics
Three bills will enact most of the particulars of the deal.

House Bill 589, sponsored by state Rep. Walt Leger III, D-New Orleans, will authorize the Convention Center hotel. But center officials have yet to finalize negotiations with the hotel’s proposed developers and financiers. Joe Jaeger, who was supposed to develop the hotel with developer Darryl Berger, complicated matters by pulling out of the deal 10 days ago over an unrelated dispute.

House Bill 522 would increase the tax on hotel guests by 1 percentage point and raise $12 million per year. Rep. Neil Abramson, D-New Orleans, is the sponsor. HB522 has passed the House Ways and Means Committee.

The hotel tax increase has been pushed by the Bureau of Governmental Research, a nonpartisan New Orleans think tank that has called for rededicating some taxes away from agencies focused on issues like tourism and toward more pressing city priorities. BGR President and CEO Amy Glovinsky praised the deal Monday for including that element as well as for taking money from the Convention Center’s reserves, another topic the group has frequently said needs to be addressed.

Passage of HB522 would require a simple majority in the House and Senate, not a two-thirds majority, as previously reported, because it would reinstate a tax known as “the lost penny” that previously collected by New Orleans, rather than institute a new tax.

House Bill 43 would increase the tax on Airbnb and other short-term rentals by up to 6.75 percent to equalize the rate with the hotel tax rate. HB43 passed the Ways and Means Committee last week. The sponsor is Rep. Jimmy Harris, D-New Orleans.

If it is approved by the Legislature, the City Council would put that measure on the October ballot, and New Orleans voters would have to approve it. The tax would raise as much as $10.5 million per year, with 75 percent of that going to infrastructure and 25 percent to marketing efforts in New Orleans.

The tax would raise less if the City Council approves a measure to be offered by Councilwoman Kristin Gisleson Palmer on May 16 that would limit the availability of short-term rentals in New Orleans.

The mayor has been pushing for more infrastructure dollars since last fall, and her office and Edwards’ office thought they had a deal last week. But Abramson insisted that they smooth out the language first in HB589. Negotiators worked that out over the weekend in a series of 10 conference calls.

For hospitality leaders, Monday’s announcement ends a disagreement with Cantrell that broke into the open at times when the mayor and Perry, the industry’s point person in the talks, traded words over earlier proposals by the mayor that sought to claim tax revenue that has gone for tourism marketing.

At Monday’s announcement, Perry tried to put those disputes behind him. He hailed Cantrell and her lead negotiator, Chief of Staff John Pourciau.

Cantrell: not done yet 
In the end, the hospitality industry didn’t give up any net tax revenue to the city, but it did accept the tax increase of 1 percentage point on hotel guests. But it also won higher taxes on Airbnb and other competitors among short-term rental companies.

The hospitality industry also won approval to merge the New Orleans Tourism and Marketing Corp. into New Orleans & Co., something Perry has sought. Mark Romig, the well-regarded head of the Marketing Corp., will become a senior vice president for New Orleans & Co.

The merger idea has raised concerns at some council offices, in part because New Orleans & Co. is subject to fewer requirements that can guarantee transparency about its actions than the agency it is absorbing.

Melvin Rodrigue, the Convention Center’s board chairman, also blessed the overall deal.

The $17.5 million in delayed city payments to the state would come by delaying repayments of $3.5 million per year for five years that the city owes the state for GO Zone payments. The city now will have to begin making those payments in 2026.

In her statement with the governor by her side, and in comments earlier to the Ways and Means Committee, Cantrell indicated that she will want still more money for infrastructure.

“I’m committed, as mayor, to filling the gaps,” she said, adding in an interview that she still plans to seek voter approval for a stormwater management fee that would be charged on all property owners in the city. But she said she is unlikely to seek to have that vote on the October ballot.

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