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.

The Ernest N. Morial Convention Center has presented a proposal to Mayor LaToya Cantrell to settle a yearlong dispute with the Regional Transit Authority over millions in tax dollars split between the two agencies and the New Orleans Tourism Marketing Corporation. The dispute is over recurring tax revenue — $6.9 million in 2018 — that the RTA has had to hand over to the Convention Center and NOTMC every year. The agencies are also fighting over a $31.8 million pot of money that the the Convention Center accumulated from these payments over nearly two decades.

The single biggest funding source for the RTA, which provides public transportation in Orleans Parish, is a citywide one-cent sales tax that brought in $83 million in 2018, according to the agency’s most recent state audit. But the RTA only kept $7 million out of the roughly $14 million that the tax generated from hotel room sales. 

A 20-year old legal settlement has forced the RTA to fork over roughly half of its hotel tax revenue to tourism industry entities — mainly the Convention Center and the New Orleans Tourism Marketing Corporation, or NOTMC, a public body that markets New Orleans to out-of-town tourists. 

The Convention Center’s deal would allow the RTA to keep roughly 75 percent of the annual funding instead of 50 percent. The Convention Center’s collections would stay roughly the same. The NOTMC, whose board recently voted to change its makeup and its mission, would stop receiving any of the money. 

It’s unclear where Mayor LaToya Cantrell stands on the proposal. Her office did not respond to requests for comment.

In February 2019, RTA board Chairman Flozell Daniels Jr. wrote a letter to the NOTMC announcing the RTA would stop making payments to the tourism industry and keep all the hotel tax revenue for itself. It also demanded the Convention Center return the $31.8 million it has accumulated from the RTA payments.

According to Daniels’ letter, the revenue sharing agreement had taken a total of $62 million from the RTA since it began in 2001. 

“This is $62,000,000 that has been unavailable to the RTA for investments in transit services, improvements to infrastructure, amenities for our riders, and the replacement of aging vehicles,” the letter said. “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.”

In April 2019, the City Council passed a resolution supporting the RTAs decision. Soon after that, the boards of the Convention Center, RTA and NOTMC all started entering executive sessions at their meetings to discuss potential litigation over the money. 

At a Convention Center board meeting last month, Chairman Melvin Rodrigue said that he had met with Cantrell and pitched a potential settlement he hoped would resolve the yearlong dispute. 

The Convention Center initially withheld the proposal from The Lens after the publication submitted a public records request last month. The Convention Center is a public body with a board appointed by the Governor of Louisiana and the Mayor of New Orleans, and is subject to the state’s Public Records Law. After failing to cite an exemption that would shield the records from disclosure, the Convention Center provided the settlement proposal on Thursday. 

The settlement does not include any reallocation of the $31.8 million the Convention Center has accumulated over the years. It would, however, reduce the amount the RTA has to give up going forward, down to $3 million to $4 million instead of $7 million. The portion the Convention Center receives would stay roughly the same. 

The savings for the RTA would primarily come from the pot of money that has traditionally gone to the NOTMC. But soon, the NOTMC plans to end its mission as a tourism marketing body. 

In December, the NOTMC transferred the majority of its annual funding to New Orleans and Co., a private nonprofit that was formerly known as the New Orleans Convention and Visitors Bureau. The merger was part of Cantrell’s ‘fair share deal’ that she brokered with the tourism industry and state officials. The goal of the deal was to give the city a larger share of tourism tax revenues. 

The NOTMC still retains a relatively smaller budget — roughly $5.7 million. This month, at what was likely the NOTMC’s last board meeting, the board voted to broadly change the organization’s name and mission. If the changes are approved by the City Council, the NOTMC would become the “New Orleans Tourism and Cultural Fund,” which would use its funds to support New Orleans’ “cultural economy and culture-bearers.”

The City Council hasn’t approved the changes yet, but they’re expected to pass without much resistance since three council members sit on the NOTMC board and already voted in favor. It’s unclear what happens if the council approves the changes to NOTMC before the hotel tax settlement is signed. The settlement proposal requires the signature of the NOTMC board chair. The NOTMC’s December vote included a provision calling for the appointment of a new board. 

“It is my understanding that this matter will be taken up by the successor board members of this redefined entity,” current NOTMC board chair Darryl Berger told The Lens. 

The Convention Center did not respond to questions from The Lens, but a spokesperson noted that the settlement was only a draft and that “no agreement has been reached at this time.” 

Under the original RTA tax sharing agreement, the City of New Orleans also received a minor portion specifically to be used for tourism promotion. The settlement proposal from the Convention Center appears to put an end to those payments as well.

The RTA did not respond to requests for comment.

From 1985 to today

The origins of the dispute go back to 1985, when Orleans Parish voters approved a new one percent sales tax to fund the RTA. The ballot initiative specified that the revenue would be “dedicated to transit and transit-related purposes.” The initiative also specified, however, that the tax wouldn’t apply to hotel room sales. 

But in 1999, the RTA sued the city, arguing that the exemption for hotels was invalid and that the city should collect those taxes on the RTA’s behalf. A coalition of hospitality industry groups intervened in a case and were able to settle with the RTA before the case went to trial.

A cooperative endeavor agreement was signed between the RTA and NOTMC: The sales tax would apply to hotel rooms, but the RTA would only keep roughly half of what was collected. For sales taxes collected from hotel room sales, the RTA would keep 60 percent of the first $7.2 million collected and 40 percent of everything above $7.2 million.

The rest would be sent to NOTMC. Then, in 2002, the parties signed a second agreement called the Phase IV Escrow Fund Agreement, which set up a special account controlled by the Convention Center. The NOTMC was required to put half the money it collected from the RTA into that account. 

According to the agreement, that fund was supposed to be used “solely for the benefit of the Phase IV Convention Center Expansion Project.” That fund has since accumulated $31.8 million, according to the February 2019 letter from Daniels. 

The Phase IV expansion, however, was nixed in 2007. 

“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 redevelopment plan. 

“The RTA has not consented to use of our revenue to support such a project and hereby requests NOTMC refund the balance.”

The letter specifically requested an arbitration with Mayor Cantrell. 

The letter came at a time of increased scrutiny on where hotel tax dollars in New Orleans go. A month before Daniels sent the letter, the Bureau of Governmental Research published a report criticizing the distribution of hotel tax revenue. 

According to the report, hotel taxes in New Orleans generate $200 million a year, or roughly one-sixth of all local tax revenue in Orleans Parish. Of that, $150 million, or 75 percent, goes back to tourism industry entities including the Convention Center, New Orleans and Co. and the Louisiana Stadium and Exposition District, which includes the Superdome and Smoothie King Center. Meanwhile, the report found that only $18.9 million was going to non-tourism related municipal services. 

The portion of hotel taxes going to tourism industry entities was higher in New Orleans than in all 12 peer cities studied in the report. By comparison, only 30 percent of Atlanta’s hotel taxes are fed back into tourism, according to the report. Seattle was the second-highest, with 72 percent.

Cantrell wrapped up her “fair share deal” in May 2019. She and Governor John Bel Edwards claimed the deal would give the city an additional $17.5 million a year for infrastructure improvements, as well as an upfront influx of $50 million. 

Although the deal was finalized after the RTA’s dispute with the tourism industry had begun, the RTA funding was not included in the deal. It remains unclear where Cantrell stands on the current settlement proposal. 

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...