Showdown over hotel tax increases could put city and county at odds

A week after the Travis County Commissioners Court voted to explore tapping a 2 percent increase in the local Hotel Occupancy Tax for its own uses, Austin City Council appears set to claim the same tax increase to fund an expansion of the Austin Convention Center.

Late Monday, an emergency resolution was added to the agenda of Thursday’s Council meeting, approving a capital improvement plan for the convention center and increasing the city’s share of the hotel tax by 2 percent. That increase would bump the total tax rate on local hotel room stays to 17 percent, the maximum allowed by state law, meaning Travis County wouldn’t have access to an estimated $20 million per year that had been suggested as a funding source to make improvements to the Travis County Exposition Center.

In May, Council voted unanimously to move forward with plans for a $1.2 billion expansion of the downtown convention center. Those improvements will be paid for solely by hotel tax revenues, though a recent petition effort seeks to require voter approval for any improvements to the facility costing more than $20 million.

Last week city staff delivered a memo laying out progress to date on the financing, land acquisition and other efforts connected to the expansion. The memo did not call for an immediate increase to the hotel tax.

Mayor Steve Adler has pushed for the convention center expansion as a lever to increase the hotel tax and direct more of its revenue to cultural arts and historic preservation, with an additional 1 percent voluntary tax from hotels creating funds for homelessness relief programs.

He said the resolution was added to Thursday’s agenda as a follow-on to the progress indicated in the staff memo, and that increasing the tax now will create more funds for the city to speed up the payoff of bond debt from the most recent convention center expansion. Recent calculations have put that payoff date sometime in 2022, though room rates and overall bookings can cause the amount of hotel revenue to fluctuate.

The potential showdown over the 2 percent tax is complicated by the fact that Travis County is eligible for at most 2 percent of the total 17 percent levy. If the city invokes its ability to use the maximum rate itself with no money directed toward the county, Travis County would have to wait for the previous expansion to be retired – and a resulting rate decrease to 15 percent – to try to invoke its own 2 percent levy.

Adler said his talks with county leaders have always been based around the county collecting hotel tax revenue after the previous expansion was paid off, and that Thursday’s resolution was not intended to block the county’s intention to receive some of the hotel tax revenue.

“It was my understanding that Travis County wanted to use the Chapter 334 portion of the money after the previous bond got paid off, and this was not intended to use the convention center, cultural arts and historic preservation to stop anything they had been looking at,” Adler said.

“The bottom line is the sooner we start collecting $20 million more per year, the sooner we can keep from leaving money on the table.”

The expected 2 percent increase by the city to the maximum 17 percent is only allowed by state law if the revenue is primarily used for an expansion of the convention center or improvements to nearby facilities.

Council’s move comes as the city and county are already pushing divergent plans for how best to use the historic Palm School property that is owned by the county but located near the convention center. The city had proposed the county give it the school property for historic preservation purposes, but county leaders had explored a possible sale, or swapping the school in exchange for the city-owned land upon which the county-owned expo center facility sits.

Travis County Judge Sarah Eckhardt said she and other commissioners had intended to use the 2 percent tax levy – and possibly using it to fund the convention center work – as a negotiating piece in talks with the city.

Following a meeting Eckhardt had with City Manager Spencer Cronk last week, county and city staff had been directed to explore possible asset exchanges. The city’s use of the 2 percent extra tax changes the framework of any deal talks.

“The issue is neither of us has ready cash to purchase property and Palm School is an extremely valuable property. The city may have core competencies to hold and preserve a historic piece of property like Palm School, and looking at the different resources it’s interesting that there are lots of ways for us to help each other,” she said.

“If the city opts to utilize all of that (hotel) tax, then that is one less thing to put on the table when it comes to negotiations.”

Photo by Ed Schipul [CC BY-SA 2.0], via Wikimedia Commons.

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