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The New Orleans Hotel/Motel Tax

Charles Maldonado on the 13 percent tax levied on hotel rooms, and where that money goes

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During last week's hearings on Mayor Mitch Landrieu's proposed 2013 city budget, District B City Councilwoman Diana Bajoie told one of those stories politicians use to make a point. "I was somewhere yesterday and I was asked the question, 'Why is it the city doesn't have enough money when we have all these big events coming into town?'" Bajoie said. "Super Bowl, Final Four, Mardi Gras, all these things filling up hotel rooms."

  It's a question that may be on the minds of many New Orleanians who are now following the city's budget talks — and who have heard for years about the economic impact of big tourism events on the city's coffers.

  The answer lies in the dispensation of the funds from the city's hotel/motel taxes, which are levied on visitors here just as they are in many other cities — but the money doesn't end up going to the same places as it does elsewhere.

Landrieu's 2013 general fund budget proposal is lean: $491 million, based on the most recent revenue projections. That's a cut of about $6 million from the 2012 adopted budget (though actual 2012 revenues are expected to be about $14 million lower than forecast by the end of the year).

  About $13 million of the 2013 proposed budget will go straight to the city's reserve fund to pay off debt remaining from 2010, when Landrieu's new administration faced a $100 million deficit left from Ray Nagin's tenure. That leaves roughly $477 million for actual city operations next year. On top of that, the city faces new expenses, including $7 million for the New Orleans Police Department's anticipated consent decree and millions more in increased employee health care and pension costs.

  The result: City departments are threatened with cuts averaging 8 to 10 percent. Some, such as Orleans Parish Juvenile Court, face cuts of about 32 percent. Landrieu proposes a 2 percent increase in utility franchise fees — which he hopes will generate about $10 million to fix streetlights — and, in a bid to recover millions potentially lost in unpaid sanitation fees, Landrieu wants the City Council to allow the Sewerage and Water Board to have the discretion to shut off water services for those who don't pay their trash bills.

  At the same time, tourism, one of the city's largest and most visible industries, is doing well. A recent study by the University of New Orleans Hospitality Research Center estimates that tourists in New Orleans spent nearly $3.5 billion in the first half of 2012, up from nearly $5.5 billion in all of 2011. Annual economic impact from Mardi Gras, we're told, is anywhere from $300 million to nearly $1 billion, depending on how it's calculated and who's doing the calculating. In 2013, tourism officials boast, the Super Bowl alone is expected to generate more than $400 million in economic impact for the city.

  And yet all this has little effect on city tax revenues, because most of the taxes generated by tourism don't go to the city's general fund.

  Take the 13 percent hotel tax, for instance.

  Norman Foster, City Hall's chief financial officer, told councilmembers last week that the city expects about $13 million from the hotel tax in 2013, about the same as the most recent estimates for this year.

  Based on that number, total reported hotel sales will approach $870 million, from which the state of Louisiana should expect about $78 million. In a fantasy scenario, in which all hotel taxes went to the general fund, the city's general fund would reap about $113 million next year.

  But that's not the case.

  Three state entities — the Louisiana Superdome Commission, the Ernest N. Morial Convention Center and the state general fund — get 9 of those 13 cents per hotel dollar. The Superdome Commission — responsible for the Superdome and the New Orleans Arena — gets the biggest cut: 4 cents per dollar, or about $34 million in 2013, based on city revenue estimates. The next largest beneficiary is the New Orleans Exhibition Hall Authority — which governs the Ernest N. Morial Convention Center — with 3 cents, or about $26 million in 2013.

  Two cents go directly to the state general fund. Of that, about $7.3 million is allocated this year to the New Orleans Metropolitan Convention and Visitors Bureau and $2 million to the Morial Convention Center for debt services on outstanding construction bonds.

  Of the four cents not going to the state, two-and-a-half cents are divided between the New Orleans Regional Transit Authority and the Orleans Parish School Board.

  The remaining penny-and-a-half goes to City Hall — meaning only 11.5 percent of the city's hotel/motel tax take goes to city government. At the Nov. 9 budget hearings, council vice-president Jackie Clarkson gasped when she misheard RTA president Justin Augustine announce the agency's share of hotel/motel revenues of "one and a half." "We only get one and a half," she said.

The same model does not apply in other tourism-reliant cities.

  San Francisco's 14 percent hotel tax — an entirely local tax — was expected to generate $220 million in the 2011-2012 fiscal year, according to city budget documents. Thirty-six percent, or $80 million, went to specific programs. Last year, well over half of that was allocated to convention center expenses, tourism and marketing. But about $16 million went to city-funded museums. And the 2012-2013 budget earmarks more than $5 million for the city's affordable housing/rental assistance program. The remaining $140 million — or 64 percent — went to general fund discretionary spending.

  If the same formula applied in New Orleans, the tax would generate about $72 million for the 2013 city budget, roughly equal to the combined general fund budgets of the Health Department, the Sanitation Department and the Orleans Parish Sheriff's Office.

  Atlanta budgets one-quarter of its 8 percent hotel tax revenue to the general fund. If New Orleans government took in the same portion of the city-state 13 percent hotel tax, it would receive about $28 million, $15 million above current estimates. That increase would more than cover added costs for streetlight repairs, with enough left over to pay for most of next year's consent decree expenses.

  Then there's Clark County (Las Vegas), Nev., which allocates one cent to discretionary general fund spending and one cent to local road projects.

  Other city general funds, however, see even less return from a similar tax than does New Orleans.

  Austin levies a 9 percent hotel tax, of which nearly 90 percent is spent on the city's convention center and tourism promotion. The remainder goes to the city's cultural arts programs. Miami-Dade County's 2012-2013 budget sends every cent generated by its 6 percent local hotel tax to tourism and convention-related programs or debt service on entertainment and sports facilities.

New Orleans' $13 million in projected hotel tax dollars equals one-tenth of the city's expected property tax revenue and less than half what it expects to make from parking and traffic tickets next year.

  However, as city budget director Cary Grant pointed out last week, there are even smaller sources of revenue.

  "Our 1.5 percent of the hotel-motel tax is more than the state gives us in general funding," he told Gambit.

  The 2013 budget calls for about $10.8 million in intergovernmental transfers — money that mostly comes from state government — down from around $20 million per year from 2007 to 2010 and $13 million in 2004.

  "We pay everything to the state," said council vice-president Jackie Clarkson during last week's hearings. "We collect all the big monies to the state through tourism — and they send us unfunded mandates."

  Which is the short answer to Bajoie's question.

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