A bad deal still isn’t better than no deal.
That’s what the state and New Orleans got as a complex set of bills began moving through the House of Representatives dealing with tourism tax revenues. While the bulk of taxes in this format comes from tourists, through occupancy and sales taxes, state law determines the distribution to New Orleans-based entities, including city government and allied agencies.
Essentially, existing revenue streams in statute heavily favored tourism-related bodies – two largely duplicative nonprofits and the Ernest N. Morial Exhibition Hall Authority, which runs the convention center and ancillary operations. In the past, city leaders occasionally would grumble about millions of taxpayer dollars automatically shunted to these nonprofits and to the special district with responsibility over the convention center, especially as the latter banked tens of millions of dollars annually into a kitty that grew so large that it began to concoct grandiose schemes to spend it all and state officials eyed for other purposes the surplus reaching the hundreds of millions of dollars.
However, new Mayor LaToya Cantrell stepped up the criticism of the convention center’s growing pile of unused cash, threatening the dissolution of city services under fiscal pressure, although using the city’s mismanaged Sewerage and Water Board as the primary example somewhat blunted the force of her argument. At the same time, to siphon off some of its hoard for its own purposes, the convention center found a tool for leverage, hosting a proposed hotel on its property which under state law fell outside its permissible activities.
So, last week the affected parties reached a deal. Essentially, the convention center will make a $50 million one-time payment out of its reserves augmented by state money to the S&WB, and have diverted some of its annual tax revenues to the city and the Regional Transit Authority (which entered the fray in an unrelated dispute) worth by 2022 over $23 million annually (although some would be dedicated to infrastructure) to the city and $3 million to the RTA. In exchange, the convention center can have the hotel on its property and issue construction bonds before 2029 that don’t have to come due until 2069.
Additionally, a tax of 6.75 percent on short-term rentals, with none now collected, from which the city receives three-fourths and the tourism agency (the two combined into one under separate legislation) the rest will put a few million more a year into city coffers. Finally, an unknown amount will accrue yearly to the city from the center for payments in lieu of property taxes on the hotel.
While the deal does something to redress the imbalance of monies flowing to the low-priority projects of the convention center and the now official single tourism agency (New Orleans & Co.), it does so in the most unsavory way by raising taxes. Obviously, most of those extra dollars will come from visitors, but the price hikes they engender will end up attenuating jobs and economic activity. Far simpler and more conducive to economic development, the deal should not have reinstated a suspended tax on hotels but redistributed existing taxes to have more of that largesse flow to the city.
The deal also foists an unnecessary new hotel onto the market, which demands large taxpayer subsidies and will become an unnecessary competitor to the private sector. Nor does it slow the momentum towards aggrandizing the convention center complex that all academic studies show have a negative net return to taxpayers.
Thus, the ballooning of the convention center complex slows somewhat and the city becomes somewhat less penurious, at the expense of higher taxes that retard economic growth and continues wasteful use of tax dollars that either should go to more vital purposes or shouldn’t be collected in the first place. This scenario seems no better than what currently exists, and to change it now in this way mistakenly implies the underlying public policy problem is solved. Legislators should reject these bills as a signal something better can be done.