A quarter-cent sales tax in the French Quarter, approved by residents of the historic neighborhood earlier this year through a ballot measure, was meant to go into effect on July 1. But that date has come and gone. And now, it won’t be in place until October at the earliest as a result of a legal dispute over whether hotel room sales can be exempted from the tax.
“It’s disappointing that the French Quarter won’t get more resources to address those issues until October 2021 at the earliest,” a statement from Mayor LaToya Cantrell’s office said.
The tax was approved in the April election and was primarily intended to pay for extra police patrols in the neighborhood, replacing a similar tax that was approved by voters in 2015 and expired at the end of last year.
The French Quarter Economic Development District, or FQEDD — the agency that would technically levy the tax and is governed by the New Orleans City Council — had scheduled a meeting on July 1 to start levying the tax. But it was canceled at the last minute.
The primary reason for the cancellation appears to be a demand that French Quarter hotels be exempted from the tax.
That demand was made by the French Quarter Management District, or FQMD, a state board made up of representatives of the hospitality industry, French Quarter residents and city government. Under the language in the April ballot initiative, the FQMD is responsible for oversight of the new funds. And the group has been very influential in the decisions made by the FQEDD since it was approved.
The April ballot initiative didn’t include an exemption for hotel room sales. Neither did the 2015 ballot initiative. But the FQEDD ended up exempting hotel rooms from the previous tax anyway. (The tax did apply to sales at hotels other than room rentals, such as meals.)
Councilwoman Kristin Palmer, who chairs the FQEDD, said that the decision to cancel the meeting was made at the urging of the FQMD.
“It was requested by FQMD,” Palmer said. “It really came from them.”
When asked, Palmer wouldn’t directly say whether she supported the hotel exemption or not. Instead, she focused on her role as a facilitator between the city and French Quarter businesses and residents.
“It’s very rare that you have all the different business interests, all the different resident interests, all the different groups — there’s a lot of groups in the French Quarter — all saying the same thing and agreeing to the same thing. And they did on this. They all came together on how this tax was structured and what the ballot language would be and how it would pass. That’s why I’m at the table trying to make this work, out of respect for all the different groups that are working together.”
FQMD board chair Christian Pendleton confirmed to The Lens that the FQMD requested the meeting cancellation, and that their request was largely due to the hotel exemption issue. Pendleton is the general manager of Brennan’s Restaurant and was appointed to the FQMD board by the Louisiana Restaurant Association.
“The exemption for the hotel is a significant piece,” he told The Lens. “We needed to get to a point where the FQEDD, aka the City Council, said that they had the legal precedent necessary to truly exempt the hotel rooms. And they didn’t feel like they had it.”
Pendleton said that new sales taxes must be introduced at the beginning of a fiscal quarter. July 1 was the beginning of the third quarter. And now the tax won’t go into place until Oct. 1 at the earliest — the beginning of the fourth quarter.
If and when the tax is implemented, it’s projected to bring in $2 million a year if hotel room sales are exempted. That jumps to $2.5 million if hotel sales are included, according to a report put out in advance of the April 24 election from the nonpartisan research group The Bureau of Governmental Research, or BGR.
In the report, BGR came out against the tax. One reason they cited was the hotel exemption. The report pointed out that the first $2 million raised by the tax each year has to be dedicated just to police patrols. Anything above that amount can be used on other public safety initiatives, like homeless assistance and other quality of life issues.
BGR pointed out that given the current projections, the hotel exemption would mean there wouldn’t be any money for those other, non-police expenses.
Pendleton and Palmer both said that the main reason the FQMD was fighting for the exemption was that it was the status quo — hotels had been exempted from a previous quarter cent sales tax in the French Quarter that was in place from 2016 through 2020.
“Since we started having that conversation last February of 2020, we’ve been talking all along as if the hotel exemption was going to remain in place,” Pendelton said. “We have certainly been working under the guise that the hotel exemption was going to remain in place, because it was what was done before.”
The 2016 exemption
The tax, sometimes called the “quarter for the Quarter,” was first approved by French Quarter residents in 2015 and went into effect the following year. Until it expired at the end of 2020, the tax applied to all sales in the French Quarter, aside from hotel room rentals.
The hotel room exemption wasn’t included on the ballot proposition in 2015. Instead, a few months after voters approved the new tax, the FQEDD added the hotel exemption through a resolution.
The legal justification for that decision wasn’t mentioned at that meeting, nor any other FQEDD meeting in 2015 or 2016. The only explanation The Lens was able to find for how the exemption was legally justified was a footnote in a 2015 BGR report on the ballot initiative.
“In correspondence with BGR, the city pointed out that economic development districts, by statute, may levy ‘up to two percent of sales taxes, or up to two percent of hotel occupancy taxes.’ (La. R.S. 33:9038.39.) It indicated that, because the language implies a choice between two options, the sales tax should not apply to hotel occupancy.”
The proceeds from the original tax were used to fund extra Louisiana State Police patrols in the French Quarter and some surrounding areas. In 2020, as the coronavirus pandemic was wreaking havoc on local government budgets, the city stopped those additional State Police patrols, which have at times been criticized for being too expensive and for alleged civil rights abuses.
The FQEDD tried to renew the existing tax in a ballot measure in December 2020. Under a plan from the Cantrell administration, the money would have been split between paying for local police patrols and civilian “grounds patrol” units that could help with quality of life issues. The ballot measure failed with 595 no votes to 297 yes votes, in large part due to campaigning from the FQMD, who wanted a larger oversight role and more money dedicated to police patrols.
After that defeat, the FQMD began working with Palmer and the FQEDD on a new renewal ballot initiative that would dedicate more money to police patrols and give FQMD explicit oversight powers.
That ballot initiative as originally written was also going to explicitly exempt hotel room sales from the tax. But before the ballot language was finalized, it had to be approved by the State Bond Commission. According to Palmer, Pendelton and spokesperson for Mayor LaToya Cantrell, lawyers for the bond commission, in consultation with the Attorney General’s office, recommended that the hotel exemption be removed because it may not have conformed to state law.
The hotel exemption was removed from the ballot language in February by the FQEDD and the bond commission approved the ballot language. After that, according to board meeting minutes, the FQMD still planned on exempting hotel rooms through a Cooperative Endeavor Agreement, or CEA, between the FQEDD, FQMD and the city.
“Everybody agreed the hotels would be exempted as it was historically,” Palmer said. “The spirit of it was that it could be addresssed through a CEA after the collection and that would establish the exemption.”
But in June, as CEA negotiations between FQMD and the city continued, the city removed the hotel exemption from the draft document. On June 11, assistant city attorney Austin Wiley added a note to the draft CEA that said, “The CEA cannot provide for an exemption for hotels even if the City Council passes a Resolution.”
FQMD board chair Christian Pendelton told The Lens that was why the FQMD wasn’t ready to move forward with the tax yet. He said he found out about the issues with the CEA on June 30, the day before the scheduled FQEDD vote. Pendelton said that, on top of other smaller pieces of the CEA that hadn’t been finalized, caused the delay.
“There were just too many unknowns,” he said.
‘A business dominated board’
The decision to delay the meeting was not made by the full FQMD board. In an email announcing the decision to the full board, FQMD Executive Director Karley Frankic said the decision was reached “after discussing with the Executive Committee.”
There is no mention of an “executive committee” in the FQMD bylaws. And one FQMD board member, Bob Simms, said that a decision like that should have gone to the full board.
“It’s very unusual,” he told The Lens. “Particularly going forward, if we’re going to do oversight, we can’t do it in a back room.”
Simms opposed the decision to delay the collection of the tax. He told The Lens that delaying until October will mean giving up $400,000 to $500,000 for public safety programs that would have been collected in the interim. He also pointed out that the authority to implement the tax only lasts for five years starting on July 1, regardless of when the FQEDD actually gets around to collecting it.
“Instead of a five-year agreement, we’ve got a four-year and nine month agreement. We can never recapture this money.”
He also questioned why the FQMD or the FQEDD would be fighting for a hotel exemption at the expense of public funds.
“Right now it’s a business dominated board. You know, residents, we can’t swing anything, we have to hope we can get an ally or two out of the hotels or the business organizations if you want to do anything.”
The FQMD board has heavy representation from the hospitality industry, including appointees from the Greater New Orleans Hotel and Lodging Association, Louisiana Restaurant Association, New Orleans and Company, the French Quarter Business Association and the French Quarter Business League.
Three out of the 12 FQMD board members are hotel executives, including New Orleans Marriott Manager Frank Zumbo, Omni Royal Orleans Hotel General Manager David Bilbe and Hotel Monteleone Manager Steve Caputo.
The FQMD is holding a meeting on Monday afternoon at 2 p.m. at Le Petit Theatre at 616 Saint Peter Street. The meeting will include discussions on the future of the FQEDD tax.