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saintz08 06-09-2004 09:59 AM

N.O. hotel operators fear tax increase
N.O. hotel operators fear tax increase

The idea of raising the hotel-motel tax to pay for the Saints football team incentive package is hotly debated within the hospitality industry.

No specific figure has been discussed, but several hotel operators say raising the 13 percent tax would be dangerous for a fragile industry that the city depends on.

"The tourism industry is really the pack mule of the local economy, and you can only put so much weight on that pack mule before it wears out," said Gary Froeba, area director of operations for the Wyndham New Orleans Canal Place. "We're struggling as an industry as it is."

Even a small increase in the hotel tax could add up to large additional expenses for convention groups. With the convention business more competitive than ever and many cities giving away or subsidizing their convention space, he said, New Orleans can't risk pushing customers away.

"I find it hard to believe that in a budget of $16.8 billion, that the state can't find $7 million to keep the Saints here in town," added Froeba, who also is chairman of the Greater New Orleans Sports Foundation. "We've got to come up with more a creative, better way to find that money that's needed."

There is no firm proposal to raise the hotel tax. However, state officials and Mayor Ray Nagin have proposed boosting taxes on cigarettes, tickets and car rentals in addition to the hotel tax. The money would help pay for the shortfall that the state owes the Saints. The state owes the football team $15 million by July 5, but the state is more than $7 million short in tax revenue earmarked to make that payment. If the state defaults, the Saints could move.

The Greater New Orleans Hotel & Lodging Association said it opposes any increase in the hotel tax to pay for the Saints. The American Hotel & Lodging Association said that according to its research, a 2 percentage-point increase in hotel taxes results in a 2.4 percent decrease in room sales and related visitor spending in a city.

On the other hand, Tommy Morel, Southeast regional director of sales and marketing for Starwood Hotels & Resorts Worldwide Inc., concedes that raising the hotel tax by a small amount, such as one-half of a percentage point, might be the best way to ensure that the Saints stay and that New Orleans stays in the running for future Super Bowls.

"I'd like to see them explore other options," Morel said, but "if it came down to a last resort, I think adding another half-percentage point wouldn't make all that much difference (to the tourism business)."

New Orleans assesses a 13 percent tax on hotel rooms, plus a $1-, $2-, or $3-per-room, per-night charge depending on the size of the hotel.

Morel said those charges aren't as big a deal as they used to be because more cities have raised their occupancy taxes over the years. Morel said he doesn't want to "gouge" conventioneers, and the tax may still matter in tough economic times, but most customers don't bat an eye at the current tax rate.

"It has not been on our radar screen for years," he said.

New Orleans has built thousands of hotel rooms in recent years, which should, in theory, create more potential for generating new tax revenue. But with the tourism business soft since the past recession and terrorist attacks of 2001, hotel tax collections began falling in 2003 and have not met projections for the Saints incentive package since 2002.

If more hotel rooms are booked online, tax collections may fall further because the tax is calculated on the wholesale price Internet hotel brokers pay the hotel, not the price that the customer actually pays to stay in the room.

Although 2004 is expected to be the turnaround year for the hotel industry, during the first quarter of this year, New Orleans hotel room revenue continued to fall. Room revenue was down 3.4 percent in the first three months of 2004 compared to the same period of 2003, according to Smith Travel Research in Hendersonville, Tenn.

After Houston lost the Oilers football team to Tennessee, where it has been renamed the Titans, the city passed a 2 percentage-point increase in its hotel tax in the late 1990s to pay for football, basketball and baseball incentives. With a hotel tax of 17 percent, Houston has one of the highest hotel tax rates in the country.

Jordy Tollett, president of the Greater Houston Convention and Visitors Bureau , said visitors to Houston did not balk at the increase enough that it became a problem.

"Any time you raise taxes, it's not good, but it did not seem to raise the flag so high that anyone got nervous. But I think that's as high as you can go," Tollett said.

"If you lost the New Orleans Saints, you have no idea what a negative effect it has on a community's pride," he said.

But Tollett acknowledged that hotel room rates are often cheaper in Houston, and the city has more flexibility than New Orleans does on what to charge for convention center space. Even with a higher hotel tax in Houston, the total cost of holding a meeting may still be cheaper than in New Orleans. "You have to look at the big picture. It's a puzzle," he said.

Hans Wandfluh, general manager of the Royal Sonesta hotel on Bourbon Street, said he is opposed to any increase in the hotel tax.

Wandfluh said that years ago when he worked in Montreal, the city levied a dramatic increase in the hotel tax -- raising it from about 6 percent or 7 percent to about 13 percent or 14 percent -- and it had such a negative impact that the city was forced to repeal the increase.

While times have changed since then, Wandfluh said, New Orleans must think carefully about any changes in the tax. New Orleans doesn't have the corporate travel business that other cities have as a stable base for bookings, so any potential harm to the tourism industry at a time when the convention business is already down could be disastrous.

"We have to be extremely careful. If we lose tourism and conventions, what are we going to have?" Wandfluh asked. "We are living off of tourism in this city at this time. There is a tipping point, and no one knows where that tipping point is."

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