The governing board of the New Orleans Ernest N. Morial Convention Center on Wednesday voted in favor of filing a lawsuit against the New Orleans Regional Transit Authority over millions of dollars in contested recurring tax revenue. The vote was unanimous and taken without any public debate following a 30 minute executive session that was closed to the public.
The dispute is over a 20-year-old agreement that has forced the RTA to fork over $6 million to $7 million a year to the tourism industry every year, about half of which has traditionally gone to the Convention Center.
The majority of the RTA’s funding comes from a one percent sales tax that brought in over $80 million in 2018. A legal settlement in 1999 forced the RTA to give up roughly half of the sales tax revenue levied on hotel room sales (about $14 million a year in recent, pre-pandemic years).
But in February 2019, the RTA announced it would stop honoring the agreement and keep all the hotel tax revenues. A letter from RTA board Chair Flozell Daniels said that the RTA had given up $62 million to the Convention Center and the New Orleans Tourism Marketing Corporation in total since the agreement first went into effect 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.”
The letter also demanded that the Convention Center return nearly $32 million, representing the portion of the taxes it had collected from the RTA since 2001. In September 2019, the City Council voted to formally support the RTA’s decision.
Both the Convention Center and the RTA discussed potential litigation throughout 2019 in executive sessions, which are closed to the public. But there hadn’t been any public action taken until Wednesday.
There was no public discussion on Wednesday regarding the lawsuit aside from a brief statement from Convention Center board Chair Jerry Reyes. Ryes noted that in 2020, the Convention Center proposed a settlement agreement for the dispute that would allow the RTA to keep 75 percent of the hotel taxes instead of 50 percent.
“The authority has made repeated efforts to resolve this without litigation, but the RTA has not wanted to come to the table,” he said. “Therefore I’m left with no choice but to offer this resolution to you all today and pursue the RTA in litigation.”
The RTA did not respond to a request for comment. Neither did New Orleans Mayor LaToya Cantrell’s office.
1985 Ballot Measure
The current dispute can be traced back to 1985, when Orleans Parish voters approved a ballot proposition to create a one percent sales tax “dedicated to transit and transit-related purposes.” The initiative also specified, however, that the tax wouldn’t apply to hotel room sales.
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. The settlement, memorialized in a cooperative endeavor agreement, stated that the tax would be applied to hotel rooms sales, but the RTA would only keep roughly half of that revenue.
More specifically, the settlement dictated that the RTA would keep 60 percent of the first $7.2 million collected and 40 percent of everything above $7.2 million. The rest of the money would be primarily split between the Convention Center and the New Orleans Tourism Marketing Corporation.
The NOTMC was a public marketing agency for the city’s tourism industry. But in 2019, the NOTMC as originally designed was dissolved. The majority of its mission and funding were folded into New Orleans and Company, a private, publicly-funded marketing agency for New Orleans’ tourism industry. The state-created body that used to be the NOTMC was renamed the “New Orleans Tourism and Cultural Fund” in 2020.
A 2002 escrow fund agreement dictates that the funds collected by the Convention Center could be used “solely for the benefit of the Phase IV Convention Center Expansion Project.” The Phase IV plan would have greatly expanded the current Convention Center facility, but the plan was scrapped shortly after Hurricane Katrina. The fund accumulated $31.8 million since the agreement was first signed, according to the 2019 letter from Daniels.
Daniels argued in his letter that because the Phase IV project was scrapped, the RTA shouldn’t be obligated to continue those payments. But on Wednesday, Reyes said that according to the 2002 agreement, the RTA has to continue those payments as long as the Convention Center still has outstanding debt related to Phase IV.
“The authority issued bonds for the Phase IV project using this tax stream to secure bonds,” he said. “While the phase IV expansion of the convention center was canceled, bonds were sold to purchase the land and that debt exists until 2027.”
“Included in the settlement CEA is a provision that as long as the debt exists related to the Phase IV expansion, the CEA cannot be cancelled and is legally binding,” Reyes said. “As part of the bond covenant the authority signed when it sold the bonds, it has an obligation to enforce all taxes and pledges to the bonds and to defend and protect the pledge of tax revenues. In short, the authority has an obligation to its bond holder to pursue this tax stream.”