Council pushes for tweaks to new hotel tax envisioned to help serve homeless population

A hotel tax mechanism long eyed as a source of funding for homelessness services goes before City Council for possible approval today. It could face considerable scrutiny based on the structure of the deal, which some members see as unfavorable for the city.

Council received a presentation at Tuesday’s work session on the proposed Austin Tourism Public Improvement District (TPID), which would operate as a 2 percent tax on guest nights booked at major hotels. That tax, which if approved by Council would also go through two approvals with local hoteliers, would then be allocated for a mix of marketing and sales incentives for the hotels to attract business, with up to 20 percent of the funds later remitted to the city’s General Fund.

The close examination is partially due to the ways the 10-year agreement has been restructured since it was first conceived in 2017 and first proposed in early 2020.

Some of the modifications were made because of a 2019 change in state law that restricted the eligible uses of TPID dollars. That necessitated directing money to the city as a reimbursement for allowed expenses – which could then be used for homeless services – rather than covering those costs directly.

Also factoring into the revised proposal: the impact of the Covid-19 pandemic on local tourism, which drained most, if not all, of the financial reserves for area hotels.

Financial forecasts for downtown hotel receipts, which will be substantially affected by the coming four-year closure of the Austin Convention Center, show the city is likely to receive around $7 million per year into its General Fund from the additional hotel taxes.

Council Member Vanessa Fuentes pushed for the city to shorten the agreement closer to the five-year minimum allowed by state law, in order to allow for any changes to the city’s economy and tourism industry in the coming years.

“There’s been a significant change in the agreement from what was presented in 2019 and 2020. It took a lot of hard work to get to that agreement and a lot of conversations were involved, and we’re here as a Council with the consideration of putting forth a 10-year agreement binding a Council, the next Council, the next Council after that,” she said. “That gives me a lot of concerns, since there’s been such changes. We’ve had changes in the economy, we’ve had changes in the market, we’re gonna have a change with our convention center being fully closed.”

Convention center staff said shortening the agreement likely would put it up for reconsideration during the building’s coming closure as part of an expansion project. The TPID partially is designed to soften the economic blows that closure will cause.

Mayor Kirk Watson acknowledged the concerns of Fuentes and other Council members while pointing out a shorter term would likely have trouble getting approved by hotels that are deciding whether to levy an additional 2 percent tax paid by visitors. That would mean losing out on a source of funding that Watson said is needed to assist the city’s homeless population.

“We’re in a very unique set of circumstances, in that we’re talking about creating a TPID and then closing a convention center. That’s not typically the way a TPID gets created, and part of the problem is four and five years would basically create a TPID for a period of time that (the convention center) just closed,” he said. “The parties that have to actually approve this, the ones that have to actually tax themselves so that the city can utilize this tool, my guess is based on conversations I’ve had with them, we wouldn’t have a TPID.”

Council Member Alison Alter also pushed convention center staff to look for ways to count some of the money the city covers for public safety expenses during South by Southwest as an eligible expense, with the hope of bringing an additional $1 million or more back to the city each year.

Photo made available through a Creative Commons license.

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