For years, the tourism industry received a cut of the RTA's hotel taxes. The transit agency says the arrangement has impeded its efforts to improve service.

For nearly two decades, the New Orleans Regional Transit Authority transferred millions of tax dollars to the tourism industry every year, the result of a deal brokered between the transit agency, tourism officials and the city nearly 20 years ago. But the RTA recently decided to stop handing that money over. And on Tuesday, the New Orleans City Council’s transportation committee advanced a resolution to back the RTA in that fight.

The resolution, which is not legally binding, urges an end to the arrangement between the RTA, the New Orleans Tourism Marketing Corporation and the city’s convention center.  It also supports the RTA’s request that the convention center refund $31.8 million it has collected from the RTA since 2001.

A one percent local sales tax, approved through a local ballot initiative in 1985, makes up the majority of the RTA’s funding — $78 million in 2017, according to the RTA’s most recent annual audit. That included about $6.4 million in hotel sales taxes.

The original ballot initiative stated that the money would “be dedicated to transit and transit related purposes.”

But that $6.4 million only represents about half of the money produced by taxing hotel sales. The rest goes to the New Orleans Tourism and Marketing Corp. (NOTMC). The NOTMC then gives half of its portion to the Morial Convention Center and a small portion — 3.45 percent— to the City of New Orleans, which it uses for tourism promotion.

RTA Executive Director Jared Munster said the arrangement will force the RTA to give up $6.8 million in 2019.

In February, RTA Chairman Flozell Daniels Jr. sent a letter to NOTMC CEO Mark Romig, informing him that the RTA would stop delivering the quarterly payments.

“For two decades our service has been impacted by limitations on financial resources, while the resources available to the tourism and hospitality marketing agencies have steadily increased,” he wrote.

According to the letter, the RTA has surrendered $62 million since the revenue sharing agreement was established in 2001.

It also said that $31.8 million of that was never spent. It’s sitting in a special account controlled by the convention center. As created, the fund was connected to the development of the convention center’s so-called “Phase IV” expansion project. That project was scrapped in 2007, but the RTA payments continued.

“This Fund was created for the express purpose of supporting the development of Phase IV of the Convention Center’s expansion, a project that was placed on indefinite hold in 2007 and has since been replaced by a private hotel development generally referred to as ‘Phase V,’” Daniels wrote, referring to the convention center’s current development plans. “The RTA has not consented to use of our revenue to support such a project and hereby requests NOTMC refund the balance.”

The current arrangement

In 1985, New Orleans voters approved a ballot initiative that established a one percent sales tax to fund public transit. The initiative explicitly exempted hotel room occupancy from the tax.

But in 1999, the RTA sued the city, arguing that the hotel tax exemption was invalid and demanding the city collect the extra hotel room sales tax on its behalf.

A coalition of hotels and tourism entities, including the Tourism Marketing Corporation, quickly intervened to oppose the demands. Before the case went to trial, the RTA settled with the coalition: The sales tax would apply to hotels. The RTA would get 60 percent of the first $7.2 million in annual hotel tax revenues, and 40 percent of anything above that.

The RTA would give the rest primarily to the NOTMC and the Convention Center, with a small portion also going to the city for tourism promotion.

The day after the agreement was signed, on June 2, 2000, Civil District Court Judge Terri Love accepted the terms of the settlement, ruling that the hotel exemption was unlawful.

Then, in 2002, the parties signed the Phase IV Escrow Fund Agreement, which set up a special account controlled by the Convention Center. The NOTMC would deposit half of the RTA payments into the fund to be used “solely for the benefit of the Phase IV Convention Center Expansion Project.”

Since the Phase IV project was nixed, the RTA wants the money back. But according to the 2002 agreement, the end of Phase IV meant the money should have gone to the NOTMC, not the RTA.

The RTA’s legal strategy for getting the money back remains unclear. Munster did not comment, citing potential future litigation. But Daniel’s letter gave some clues.

“We prevail upon the Mayor to exercise her discretion as the arbitrator of disagreements arising from the CEA and Escrow Agreement to terminate these agreements,” Daniel’s letter said.

Both agreements stipulate that disputes can be settled through mediation by the mayor. But it’s also unclear where Mayor LaToya Cantrell stands on the issue.

“We’ve had a number of conversations with City Hall, but I’m not sure exactly where the mayor stands on this,” Munster said.

However, even if the Mayor were to with the RTA, that wouldn’t preclude the tourism entities from bringing the matter to Civil District Court to force the RTA to resume payments.

“Our attorneys are looking at it and we weren’t going to say much else until we get a clearer picture as to what we should do,” Romig said.

He said that their strategy going forward will become clearer after a board of directors meeting next month.

RTA wants to update fleet, add hours

At Tuesday’s transportation committee meeting, Munster said that the RTA’s buses are rapidly aging and that the city would soon have to replace many of them. He said that most of the fleet is nine years old and that by federal standards, the useful life of a bus is 12 years.

He also noted that the fleet is still much smaller than pre-Katrina levels. He said that before the storm, there were roughly 350 buses, many of which were wiped out. Today it has 132 fixed-route buses, he said.

The one-time payment of $31.8 million could be used to grow the fleet and invest in new diesel and electric buses. Keeping the annual hotel tax revenue going forward could be used to bolster operations and services. He said that an additional $6.8 million a year would allow the RTA to add 98,000 hours of new bus service — a 20 percent increase from current levels.

“I understand we have infrastructure needs,” Romig told The Lens on Tuesday. “I’ve lived here most of my life, so it’s not that I don’t have empathy. It’s just that in this case, the use was planned for with this money and we created programing around it, so it’s a tough spot for us to be in.”

The council resolution comes amidst a wider debate over how hotel tax revenue should be fairly split between the tourism industry versus general municipal services. Mayor Latoya Cantrell has been sparring with tourism industry officials for months now, and her administration has been lobbying the Louisiana Legislature to divert some tourism dollars to infrastructure projects, mainly at the cash-strapped Sewerage and Water Board.

On Monday, The Advocate reported that the administration struck a tentative deal with the governor and tourism officials that would yield $48 million in a one-time payment and $27 million in recurring annual funding. The upfront payment would largely come from the Convention Center and its $235 million in cash reserves. The annual payments would derive from a new one percent hotel tax and a new 6.75 percent tax on short term rentals.

The RTA-tourism industry arrangement was apparently not part of the deal. John Pourciau, Cantrell’s chief of staff, told NOLA.com/Times-Picayune last week that the mayor wanted to keep the RTA funding talks separate from her infrastructure negotiations. Her office did not respond to requests for comment.

This story was produced in partnership with WWNO-FM.

Michael Isaac Stein

Michael Isaac Stein covers New Orleans' cultural economy and local government for The Lens. Before joining the staff, he freelanced for The Lens as well as The Intercept, CityLab, The New Republic, and Pacific Standard. He was recently awarded a fellowship from the Heinrich Boll Foundation, which he used to report on water scarcity, division, and colonialism in Cyprus.