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Hotels adjust proposed new tax, giving city steady funds for homeless services

Tuesday, September 12, 2023 by Chad Swiatecki

The city’s major hoteliers have agreed to adjust the terms of a proposed new tax that will provide the city consistent money to fund homelessness services even while tourism drops off during the forthcoming reconstruction of the Austin Convention Center.

City Council members Ryan Alter and Vanessa Fuentes announced Monday they had reached an agreement with the Austin Hotel and Lodging Association to expand the expenses eligible for reimbursement to the city as part of the proposed Austin Tourism Public Improvement District. The TPID will be funded by a new 2 percent tax on guest nights that hoteliers have agreed to, with the revenue in funding additional marketing and business development costs to bring in more bookings.

The city’s reimbursements will come in large part from “buydowns” and discounts for event bookings, which are traditionally paid for through a decrease in the city’s portion of revenue from bookings at the convention center.

The TPID’s proposed structure had forecast generating $78.2 million for the city over a 10-year period, with that money intended to be used to fund homelessness services. Alter, Fuentes and other Council members had expressed concerns that the reduction in hotel bookings during the four-year closure of the convention center would result in the city receiving far less money into its TPID Fund account.

The new structure, which will be outlined in an amendment Alter expects to share at today’s Council work session, expanded eligible reimbursement expenses to include public safety and other city costs for major events such as Austin City Limits Music Festival and South by Southwest.

Council had scheduled a vote to approve the structure of the TPID at its Aug. 31 meeting but delayed that vote over Fuentes’ concerns that the 10-year duration of the agreement would lock the city in for too long if the effects of the convention center closure were too severe.

Alter said he and Fuentes reached out to Texas Hotel and Lodging Association president and CEO Scott Joslove to work on revising the TPID’s plan of work to make the flow of money into the city more consistent.

“What this does is essentially guarantees that we will get to the dollars that were initially proposed. So you’re talking about millions and millions of additional revenue that will find its way to the city for critical needs that we would not have seen but for this deal,” Alter said.

“Our concerns primarily were around the time when the convention center was closed there was going to be a severely smaller return to the city as that passthrough … where the money is going to the convention center and then to the city. Those funds were going to be very delayed and were going to get very little in those years and have a bunch of that even be delayed. We kind of shared some of our thoughts of ways we could address that and the hotels came up with this approach, which I think is a great solution.”

Council is set to vote on the revised plan Thursday. If approved, it would then need to win approval from 60 percent of the ownership groups of eligible hotels, with the city and hoteliers then working together on the needed public hearings and other administrative steps.

The TPID has been eyed as a funding source to address homelessness since at least early 2017, though a change in state law in 2019 significantly reduced the kinds of expenses that could be covered by the tax revenue. The ongoing impacts of the Covid-19 pandemic for local hotels caused a further change to the TPID structure than was discussed with city leaders for years.

The TPID plan that was offered to the city less than two months ago was so different from previous drafts that the Tourism Commission failed to render a vote for or against it at its July meeting. That commission is set to consider the item again at its Wednesday meeting.

In a prepared statement, Fuentes said the revised TPID structure provides needed financial certainty for the city.

​​“This agreement improves upon the prior proposal presented a few months ago. It will result in a greater investment in our local community while allowing the City to further address critical needs. I sought to delay approval of the TPID because it is crucial we take the time to get this deal right. We should always look for ways to invest in our people and communities,” she said.

Photo made available through a Creative Commons license.

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