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Hotel tax increase would fund most aggressive convention center plan

Tuesday, February 7, 2017 by Chad Swiatecki

A 2-percentage-point uptick in the city’s hotel occupancy tax appears to be the most favored method of expanding the Austin Convention Center and turning the area around it into a lifestyle and tourist epicenter.

That financing option, which would be a key part of a possible $609 million expansion, was one of several discussed recently by members of the city’s Visitor Impact Task Force and representatives from the convention center and the Austin Convention & Visitors Bureau.

Those groups and stakeholders in local arts, historic preservation and environmental attractions are working through the end of March on recommendations for how the city can best administer revenue from the HOT tax, currently a 15 percent levy paid by hotel guests that generated about $100 million last year.

Because of a complicated series of state and county regulations for how the tax revenue can be used – and the options for increasing the tax and how to disperse any new funds – the so-called “2B” option for the convention center project seems to offer the most flexibility and ability to think big.

Carla Steffen, the convention center’s chief financial officer, explained that of the five scenarios crafted in recent years, the 2 percent increase appears the most attractive because it could be approved through City Council rather than by voter referendum.

The plan calls for the convention center to expand westward, but Trinity Street would remain open and the ground floors of the added convention space would be dedicated to retail and hospitality uses. Steffen said talks are also underway to include a new Austin Fire Department station in the expansion, as well as a new water chilling facility for Austin Energy.

It is also possible that the expansion plan would see Brush Square Park, the historic Palm School and historic homes on Third Street improved and incorporated into convention center use.

Based on cost expectations and conservative projections for HOT revenue growth, it is expected that the current debt on the most recent convention center expansion would be paid off in 2021 – eight years early – and around $7 million a year would be added to spending for cultural arts efforts and tourism promotion.

“Financing options drive the defined project, and what we heard is, ‘Don’t build another big box like you see there today,’” Steffen said. “We’ll make it open and walkable and have talked with other city departments. We would need to work with the county on Palm School and also do the work for the best use of Brush Square.”

The task force is expected to deliver a set of recommendations to Council in early April on how to best allocate HOT revenue, making the group responsible for millions of dollars in local budget dollars and potentially more than a billion dollars in capital projects in the coming decades.

The push to expand the convention center comes as ACVB reps say the facility is losing ground and business to competitors in nearby cities because it is the 47th largest in the U.S. in terms of available space.

Steffan and ACVB President and CEO Tom Noonan told the group that the convention center has seen an uptick in lost business – groups interested in booking the center and blocks of hundreds or thousands of hotel rooms – because its current 247,000 square feet of space was either booked or too small to fit demand. The proposed expansion would bring it to 447,450 square feet of exhibition space, 120,800 square feet of meeting space and 120,600 of ballroom space.

Noonan said ACVB sales representatives are pushing to keep the center booked so that Austin’s continually growing hotel market – 30 new hotels with more than 4,300 additional rooms are expected in 2017 – doesn’t suffer from soft demand in coming years.

“We are doing everything we can to ensure that we continue to attract replacement bookings to make up for this lost business due to our convention center size,” Noonan said by email. “We will continue to market aggressively, both through a nationwide advertising campaign and with one-on-one sales. What we can’t remedy is that our convention center is simply too small.”

Photo by Ed Schipul made available through a Creative Commons license.

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