Rapid revenue growth brought on by Austin’s hotel guests has City Council asking whether the funds can be used to pay for a broader range of tourism-related services.

By the end of 2016, Austin is projected to have 35,100 hotel rooms—a 34 percent increase from 2006—which are all subject to a hotel occupancy tax rate of 15 percent, according to the Austin Convention and Visitor’s Bureau, the city’s marketing entity.

That money funds the ACVB, the Austin Convention Center and the city’s cultural arts program.

Given the rise of hotel tax revenue throughout the years—from $36.6 million in fiscal year 2005-06 to more than $90 million estimated in FY 2016-17—District 8 Council Member Ellen Troxclair wants to look at how that money can be distributed to other community programs, venues and events that draw tourists to Austin.

“Basically, we can use [hotel] taxes to their highest and best use while lowering the property taxes,” Troxclair said. “That is my ultimate goal.”

Meanwhile, discussions continue on a possible Austin Convention Center expansion, which would cost an estimated $400 million-$600 million in citizen-approved bond money, and tourism industry professionals said additional hotel tax revenue is needed to meet increasing demand from visiting organizations.

How Hotels Fund Tourism According to the city of Austin, every person who owns a hotel or short-term rental and collects payment for occupancy must collect a special 15-percent tax from guests. That revenue is used to promote the tourism, convention and hotel industries in Austin. For example, it can be used to advertise the city, repair and improve the convention center, improve historical structures and promote arts programs.[/caption]

Task force to study revenue use

Austin City Council unanimously voted Aug. 18 to approve a Troxclair resolution that creates a community task force to examine whether city-funded tourism entities, such as Barton Springs, Zilker Botanical Gardens, the Carver Museum and the Emma S. Barrientos Mexican American Cultural Center, could instead be funded by hotel tax revenue.

The 13-member task force—consisting of community members and industry professionals—will study how the tourism dollars can be used according to state law, the impact of tourism on those entities and whether operational costs of could be offset by hotel tax revenue.

After the task force is nominated by City Council on Oct. 9, it will have until April 1 to create recommendations on how to best use all hotel tax revenue.

If the task force recommended—and City Council agreed—to use hotel tax revenue to fund other facilities that draw tourists to Austin, the ACVB, the Austin Convention Center and the cultural arts program’s budgets might be affected.

ACVB President Tom Noonan said in an email an ACVB funding decrease would “hinder our ability to continue to market, sell in and invest in the Austin tourism sector,” and it could negatively affect the city’s economic impact, number of hospitality jobs and the amount of savings the industry provides to taxpayers.

Tom Voss, managing director of the Fairmont Austin Hotel, which is slated to be completed at 101 Red River St., Austin, in August 2017, said in an email that tourism and the convention center are “economic engines” for the city.

“A well-funded, focused destination marketing effort is essential to drive our visitor industry,” he said. “The health and vitality of Austin tourism should remain the priority when it comes to legal uses of the hotel tax.”

Troxclair said she is confident the task force—with its broad range of community voices—will offer valid suggestions on what to do with the revenue.

“Regardless of the recommendations that come out of the task force, I don’t see the council taking action that would necessarily cut the budget of any of the beneficiaries of the [hotel] tax. It just might be a re-evaluation of the [hotel tax revenue] percentage [distributed],” she said.

Hotel occupancy tax revenue over the past 5 years This graph shows the distribution of hotel tax revenue among tourism entities, the 2 percent venue tax—approved in 1998 to defray convention center and Waller Creek project costs—revenue distribution and yearly hotel tax revenue growth.[/caption]

Tourism district proposed

The second part of Troxclair’s resolution asks downtown hotel owners about possibly creating a tourism public improvement district, or PID.

In the past, PIDs—such as the Downtown PID—have been used to fund public improvements or municipal services in a defined geographic area. A tourism PID can only be created at the request of more than 60 percent of the hotels in that area, and the additional tax assessed against those hotels pays for the improvement costs.

“The theory is that additional tourism generated [by the PID] will put more heads in beds, bringing more revenue to hotels, more taxes to the city, more money spent on local businesses,” said Michael Searle, Troxclair’s chief of staff.

For example, the city of Dallas’ tourism PID sets a 2 percent assessment rate—in addition to its 13 percent hotel tax rate—on hotels with 100 or more rooms that are subject to the city’s hotel tax, which brings in about $10 million per year.

Dewitt “De” Peart, president of the Downtown Austin Alliance, said the tourism PID could be a “very effective way” to bring in more marketing dollars and more convention business.

“I think the general consensus is that the [Austin] hotel owners are very much in favor of something like this,” he said. 

Convention center expansion

The expansion of the Austin Convention Center is something Director Mark Tester said is necessary in order for the city to meet the demands of visiting conventions and organizations.

Five out of 10 times, he said, he has to turn away conventions because of lack of space or conflicting bookings.

In November, Tester proposed a 321,680-square-foot expansion that would take up three blocks of Third Street, and City Council asked him to tackle 14 concerns, which could be addressed by performing a traffic impact study and reviewing how to create more job opportunities within the Austin Convention Center. He estimates the expansion will take about a year to design and three years to build.

“We’d like to go back to council after the election [in November]” with all the questions answered, Tester said. He expects the traffic study to be completed by early October.

Community input sought

Although the Austin Convention Center caters to tourists, Tester said he also wants to include locals in the expansion conversation.

District 1 Council Member Ora Houston and District 3 Council Member Pio Renteria had similar ideas and hosted a community meeting Aug. 27 to gather citizen feedback on the possible expansion.

“This convention center belongs to all of Austin, not just to people in the industry, in the hotel industry and the tourism industry,” Houston said. “We’re impacted by whatever they do.”

She said traffic was one of the issues brought up during the meeting, with citizens worried about the added congestion the nearby Fairmont Austin Hotel will likely bring.

Kitty McMahon, president of the Rainey Neighbors Association, said she has mixed feelings on the expansion.

“Obviously, it would be potentially an advantage to the whole city because it would bring larger conventions,” she said.

On the other hand, as more developments such as the Fairmont Austin Hotel emerge,  “[the] movement of people, particularly down Cesar Chavez [Street], becomes more and more of a problem,” McMahon said.

Tester said he valued citizen feedback and wanted to find ways to design the expansion with locals in mind.

“Any time we get the opportunity to speak with the communities, you get great ‘aha!’ ideas that you can add to the program,” he said.

Snapshot of Austin tourism market