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 2015-16—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. 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.

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.

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. 

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.