Hotel taxes don’t belong to hotels

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City Council ultimately voted 10-0-1 yesterday, with only CM Leslie Pool abstaining, to kick off the process of acquiring land for the new Convention Center. 

As I discussed yesterday, my doubts about the long-term viability of the convention industry have only grown as a result of the pandemic. In a brief phone convo with the mayor, however, he said he doesn’t view the expansion as a major “risk” because the city is not on the hook. It is not the city that is issuing bonds to finance the Convention Center expansion, but a separate entity that is funded entirely by hotel occupancy taxes. If the Convention Center goes bankrupt, said the mayor, city taxpayers will not be forced to bail it out. 

I appreciate that. If City Council were actually putting the city’s general fund at risk, that would be an even bigger problem and I imagine the project would encounter much greater opposition. 

Still a major lost opportunity
The problem is that this project shuts the door on the possibility of reforming the deeply unjust way that we use tourism taxes. And yes, that’s what the tax levied on hotel guests is: a tourism tax. It is a tax on tourists, not hotels. They don’t pay a damn thing. It’s their guests who pay.  

The failure of policymakers to understand this distinction has hamstrung the debate. The hotel industry has brilliantly framed the taxes that hotels collect from guests as belonging to them. They frame their support of room taxes as an act of benevolence and it’s only right that the city return the favor by dedicating the great majority of that money to generating more demand for hotel business via a Convention Center. 

But the fact is that it’s not the hotels who generated that tax revenue. It’s generated by tourists and other visitors who are coming to the city to do other things. They’re not coming to Austin for the privilege of staying in the Hilton. The hotel is just one of many local businesses that is providing them a service while they’re in town to visit friends, attend a music festival etc. The hotels are just the most logical place to collect taxes on tourists. For hotels to argue it’s “their” money is ludicrous. Another way to tax tourists is to put a tax on rental vehicles –– should the government spend that money in a way that specifically benefits the car rental industry? Of course not. 

There is a major opportunity to rethink the hotel occupancy tax paradigm that we’ve operated under for decades but nobody in city leadership is interested in that. They’ve resigned themselves to playing by the rules set by the hotel industry and negotiating for crumbs, rather than just taking the whole pie. 

Local leaders in recent years have dismissed calls to reallocate money from the Convention Center by pointing to state law. It’s true that the state law on hotel taxes was written by hotel lobbyists and is geared towards helping the hotel and convention business specifically. However, past attorneys general have opined that cities have broad discretion in their interpretation of the law. More importantly, laws can be changed and in this case, it should be changed. Activists and local leaders in Austin should be leading the charge, along with allies in other cities. 

I really do think there is an opportunity for local and state elected officials to rethink the use of hotel occupancy taxes. There are certainly members of both parties who aren’t happy with the current system. The right-wing Texas Public Policy Foundation, for instance, the influential Koch-aligned “think tank” and lobbying group, is not a fan. And I’m sure that there are many elected officials in urban areas who are desperate for new revenue sources to make up for the Covid-induced plunge in sales tax revenue. If not now, perhaps three or four or five years from now, when Texas may very likely be a blue state. 

But the problem is, building a new Convention Center will shut down the opportunity for Austin to rethink how it spends tourist taxes. Building a new Center ties up our tourist taxes for another 30 years. 

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