OVERNIGHT: Austin City Council votes to raise hotel occupancy tax, angering county leaders

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City Council votes to raise hotel occupancy tax early Friday

AUSTIN (KXAN) — In the early hours Friday morning, Austin City Council voted unanimously to raise the hotel occupancy tax. This prioritizes the possible expansion of the Austin Convention Center at the expense of the Travis County Exposition Center.

That decision frustrated county leaders who had hoped to increase the hotel tax themselves to fund the Expo Center expansion. The City of Austin’s move boxed them out and prevented them from also raising rates.

Overall, this will increase Austin’s Hotel Occupancy Tax (HOT) to 17% — the highest allowed under state law. More specifically, Austin raised the local hotel tax from 7% to 9% Friday. The state collects another 6% and there’s a 2% venue tax voters approved back in 1998. When you add those together you get the state maximum of 17%.

In an update last week, the council was told this ordinance would be ready for them to consider by the end of the council year, but after county leaders tried to move forward on a hotel tax increase of their own, the city posted this as an emergency item for Thursday.

After the city’s vote to increase the HOT rate, Travis County Judge Sarah Eckhardt sent out a statement noting that the council hasn’t given the county a guarantee of when the city will pay off its current debt on the downtown convention center. Paying off that debt would allow the county the potential to access a 2% chunk of the HOT funding stream.

Eckhardt said Friday, “Travis County is asking for a commitment to East Austin by a date certain. Pay down the City debt and release 2% of the Hotel Occupancy Tax by 2021 so that meaningful investment can be made in the Exposition Center and East Austin. “

This vote was one of two at council Thursday which was related to Hotel Occupancy Tax dollars. The other item related to those HOT dollars was a petition effort challenging the city’s convention center expansion efforts and council voted at the meeting to put amended ballot language from that petition before Austin voters in November of 2019. This measure challenging convention center expansion will be called Proposition B on the ballot.

Travis County concerns

A supermajority of Travis County Commissioners Court made the trek to City Council ahead of the vote. (Judge Sarah Eckhardt said she had never been to City Council before.) They urged caution and asked the city not to increase the hotel tax.

The county officials said the county needed a chance to benefit from HOT dollars to do things like invest in the eastern portion of the county and redevelop the Exposition Center.

Under the local government code of state law, the city is allowed to increase the HOT rate by 2% so long as that money is used for a convention center expansion. Travis County officials say that as the county has grown and tourism around the county has expanded, they’ve become more interested recently in exploring avenues through state law to allow for those HOT dollars to benefit the county as well.

City staff say that the additional HOT dollars would be needed for a convention center expansion and would also allow increased funding to go the promotion of arts and historic preservation.

Austin Mayor Steve Adler told KXAN he believed increasing the Hotel Occupancy Tax rate was urgent and hoped the council would approve it, fearing the city would miss out on more hotel occupancy tax dollars the longer it waited.

“In a day and age like the one where we exist in, where money is tight and we’re not trying to increase loads on our local taxpayers, we should access and save and collect and capture that almost $2 million a month, every day that goes by there are tourist dollars that we could be capturing to spend here locally,” he said Thursday.

Adler also said that he believed even if the city approved the increase, the county could still benefit from the HOT dollars once the city pays off its previous bonds.

Travis County Judge Sarah Eckhardt as well as Travis County Commissioners Brigid Shea, Margaret Gomez, and Jeff Travillion were present and spoke before council members Thursday. Eckhardt said in her 11 years on Commissioners Court she had never appeared before city council to oppose a city action, noting that she believes the city’s emergency ordinance to increase hotel occupancy taxes would harm the interest of Travis County and that getting the county involved could help to avoid that harm.

The county, she explained, has expressed interest in using a 2% slice of the total Hotel Occupancy Tax benefits from tourism in East Austin to help redevelop the Expo Center. Eckhardt said that since the 1990s the city, “has used up the entire HOT tax increment available to local governments to fund the Downtown Convention Center. “

Initially, she said that was not a problem for the country. But as tourism spread to places like COTA and hotels popped up in places like Lakeway and Pflugerville, the county became more interested in tapping into those dollars. The county is hoping the city could continue using the 7% HOT designated by the state’s tax code and the county could eventually take the 2% HOT designated by the state’s local government code because that is the only portion of HOT funding the county is allowed to access.

The county became optimistic that this could happen when the city agreed with them to partner on exploring using HOT dollars for the Expo Center. Eckhardt said the county assumed the city was considering allowing then to use that 2% slice but didn’t hear back officially.

In 2017, the Commissioners Court began looking into redeveloping the Expo Center and Eckhardt said that she met with Mayor Adler who said the city would likely want to extend its use of the 2% HOT under the Local Government Code to fund redevelopment and expansion of the Downtown Convention Center. After that conversation, the county held out hope for an option the city had told them about to pay down that two percent slice by 2021, allowing the county to use it afterward.

Eckhardt said she was troubled when she saw the council resolution in May directing city staff to move forward on convention center expansion because she believed the council was calling for the city to use all of that HOT funding for up to 30 more years.

Eckhardt expressed frustration that she had tried to get a commitment from the city and even met with the city manager over the summer, but still couldn’t get clarity. For Travis County to access the HOT dollars, they need to ask permission from voters and have already started the process of looking into putting a referendum on the ballot in November of 2019.

The county wanted the city to commit to paying down the 2% under the Local Government Code by 2021 so that the county can use the money afterward.

“But we don’t have a commitment from the city to do that by 2021, we don’t have a commitment from the city at all, and the resolution in May indicated that they were looking to use all of the HOT tax for up to the next 30 years,” Eckhardt said.

Despite conversation at the council, none of the councilmembers seemed ready to make that commitment, Council Member Alter said while she acknowledged the county’s concerns, she would need more information from city staff on what is possible.

Thursday, the Office of Texas Comptroller approved Travis County’s resolution for the redevelopment of the Expo Center and Travis County can move forward with its effort to explore a November election.

To expand or not to expand the convention center?

At the meeting, the council also voted to place Unconventional Austin PAC’s petition challenging convention center expansion on the November 2020 ballot.

Council voted unanimously in May to move forward with the process of expanding the convention center as part of the larger Palm District Plan and as part of an effort to increase funding for things like arts, music, and addressing homelessness. Though city leaders have been looking into the possibility of this increase for years, it was in May that council directed city staff to move forward with initiating the HOT increase “with any ordinances necessary.”

Unconventional Austin launched their PAC and a petition effort around the time council voted to start exploring expansion. As their name suggests, they are not in favor of the council’s effort for convention center expansion.

They crafted an ordinance which calls for a different allocation of HOT dollars, giving less to the convention center. Unconventional has maintained they believe this would be legal under state law and would benefit local arts and businesses. But many others including Mayor Adler and the PHAM PAC — which was launched to oppose Unconventional –doubt that what Unconventional is calling for is allowable and fear the petition may jeopardize funding streams the city has already vetted. Save our Springs Alliance is one of the major contributors to Unconventional, you can view KXAN’s reporting on their donors here.

By July, Unconventional had gathered more than 30,000 signatures on their petition. The City Clerk verified that 24,481 of those signatures were valid, enough to force the petition onto the ballot.

The petition from their PAC would limit the Convention Center to receiving 34% of the total annual Hotel Occupancy Tax Revenue. It also would require that 15% or more of that HOT revenue go to a historic preservation fund, and 15% or more go to the cultural arts fund, with the remaining dollars going to enhance Austin’s “cultural tourism industry.”

The Unconventional PAC has suggested that expansion is in the best interest of the hotel lobby and not the city.

“Why would we put so much of our money that should be rewarding those people and places that deserve to be rewarded that have created this wealth, rather than transferring that wealth to a handful of downtown hotels and to the big construction companies?” asked Bill Bunch, executive director of Save our Springs Alliance and Unconventional Austin supporter.

Bunch and Save our Springs Alliance make up more than half of the contributions to the Unconventional PAC reported in the July campaign finance report.

“It’s more of a priority of mine rather than the organization’s,” Bunch said. “And the funding that we’ve put into the campaign has been donor-directed toward that specific effort.”

“We see that there should be money going to Barton Springs, to our other parks and pools that are either tourism draws now or if we invested in them could be tourism draws as well, so it is important to our mission,” he added.

A counter PAC has been formed to oppose Unconventional Austin. This counter-PAC is called the PHAM PAC, named for Palm School Preservationists, homeless service advocates, the arts industry and the music industry. The PAC believes expanding the convention center would give the city access to nearly 300 million dollars to benefit those groups. They also believe that Prop B will jeopardize those community benefits.

This PAC has not yet filed campaign finance reports.

The PHAM PAC’s supporters at a press conference in front of city hall. (KXAN Photo/ Alyssa Goard).

At a press conference Thursday, PHAM showed up at city hall with many of their supporters. Present were representatives from Austin’s Ending Community Homelessness Coalition, the Long Center, the music community, members of the South by Southwest leadership team and more. The general managers of music venues like Stubb’s, Saxon Pub and Mohawk were there in support of PHAM as well.

“There’s a lot of misinformation out there about what music and musicians support,” said Cody Cowan of the Red River Cultural District and Treasurer of the PHAM PAC. Cowan was also the former GM of Mohawk.

“We support the convention expansion and we’re going to have some work to do between now and [the election] to reach those people who are going to be voting and considering this proposition,” he said.

Austin musician Nakia Reynoso was there to support PHAM and has been frustrated by Unconventional’s assertions that the petition effort is in the interest of artists and musicians.

“It’s [expletive]and it’s misguided, they clearly have some other agenda, it’s not musicians, its not art, its not the homeless, if it was, they would be standing up here with us today or they wouldn’t have done this in the first place,” Reynoso said.

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