Council delays decision on new hotel tax that could fund homelessness services

City Council has put on hold a long-discussed partnership with local hotels that could generate millions of dollars in General Fund revenue to cover expenses related to services for the homeless.

At last week’s meeting, Council voted to delay action on the proposed Austin Tourism Public Improvement District until Sept. 14. The delay in deciding on the TPID was approved 8-3, with Mayor Kirk Watson and Council members Mackenzie Kelly and Leslie Pool voting against.

If approved by Council, the TPID would need two rounds of approvals from a majority of the operators of the larger hotels downtown, who would then levy a 2 percent tax on room nights to generate money for marketing and sales efforts for major events that result in additional bookings.

Current state law covering how TPIDs operate would allow a portion of those expenditures to be rerouted to the city’s coffers. Estimates of future hotel collections and spending of TPID funds put the likely annual total at $7 million that the city could spend on supportive services for the homeless.

The delay on the TPID vote was suggested by Council Member Vanessa Fuentes, who said she and other members need more time to study and discuss the proposal that was given to them roughly a month ago during budget sessions. “We received this service plan about a month ago … given that we just got through our budget cycle, there are still conversations taking place regarding this proposed agreement,” she said. “The terms laid out, I still have doubts about.”

One of Fuentes’ concerns is the 10-year duration of the TPID, which would be locked in even if there are substantial changes in the local economy or the city’s need for funding for homeless services. During last week’s work session, Fuentes proposed shortening the agreement closer to the five-year minimum allowed by the state.

Interim City Manager Jesús Garza said his discussions with leaders from major hotels suggested the TPID would need to be at least seven or eight years in duration to give them a reliable financial forecast. He and Watson said a shorter agreement is unlikely to be approved by the hoteliers who would in effect be voting to tax their own business.

Some Council members have expressed frustration that the initial TPID framework, suggested in 2017 as a 1 percent tax that could directly address homelessness services, had to be drastically changed because of a 2019 change in state law. The new regulations, spearheaded by the hotel industry, put restrictions on how TPID revenues could be spent and resulted in a structure that creates more uncertainty in how much money is available to the city each year.

Hotels in the downtown core are expected to see a 25 percent drop in business during the forthcoming closure and reconstruction of the Austin Convention Center from 2025 into 2029. Revenue collected from the TPID is intended go toward marketing and incentives that hotels can use to attract new meeting and convention business, which proponents have argued will be needed during the convention center’s closure.

Council Member Alison Alter has asked staff for the city and convention center to look for ways to make the city’s public safety costs for South by Southwest an eligible TPID expense. She and Pool also supported looking at modeling how other cities in Texas use TPID money to support cultural arts programs.

“We all just came off of (passing) a budget and we just need a little more time to absorb and think through creatively to see if there’s a win-win that accomplishes all the goals,” she said. “The goals laid out by our staff and the hoteliers’ needs as we go through the convention center process are very real and we need to address them, but we also have to see if there is a creative way forward.”

Photo made available through a Creative Commons license.

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