Recently, the Convention Center sued the New Orleans Regional Transit Authority (RTA) to try to force the agency to turn over part of the sales tax revenue collected on hotel/motel room purchases in New Orleans. We oppose this decision because we think it will hurt transit riders – especially transit-reliant hospitality sector workers. Please read on below for further background on the issue and why we are asking the Convention Center to drop their lawsuit. If you agree with us, please consider signing our petition.
Quality transit needs funding
Money is at the heart of what makes transit work or not work. Money is what it takes to pay the people who operate and maintain our transit vehicles, buy the fuel to run the vehicles, and purchase the parts needed to keep the vehicles running.
The lack of money – or the lack of sufficient funds – is at the root of many RTA problems in recent years. Yes, there have been poor decisions and miscalculations as well. But it’s hard to operate world-class transit service if you don’t have the funding to pay for it.
It’s in this context that the issue of the hotel/motel occupancy sales tax becomes important for the RTA. This sales tax – which generated around $14 million in 2019 – has been contested for at least the last 30 years. For the last 20 years, the RTA and the tourism industry – have split this tax roughly 50/50. But the RTA has always maintained they are the rightful home of the revenue and over the last two years have taken more deliberate action to make that case.
The RTA was established by the Louisiana Legislature in the early 1980s. It was intended to be a regional body and each parish that wanted to participate was supposed to dedicate sufficient revenue to pay for transit service. For Orleans Parish, that revenue was secured with a 1985 ballot proposition that created a one percent sales tax on all purchases in Orleans Parish that would be dedicated to the RTA.
Due to state law at the time the ballot proposition excluded hotel room purchases from the sales tax. However, when that state law was changed in the early 1990s, the RTA maintained that the intent of the sales tax initiative was that all purchases in Orleans Parish should be subject to the tax. The tourism and hospitality industry disagreed and pushed back. Unable to get anywhere with advocacy, the RTA filed suit to force the City of New Orleans to collect and turn over the one percent tax on hotel rooms.
From everything we’ve heard, it looked likely that the RTA had a strong legal case – they actually won an initial court decision on the issue. But before the issue could be finalized, then-Mayor Marc Morial brought the RTA and representatives of the tourism industry to the table and hammered out a settlement in 2000.
At the heart of the settlement was that the one percent sales tax on hotel room purchases would now be collected, but that the revenues would be split, with the RTA receiving half and the Convention Center and the New Orleans Tourism and Marketing Corporation (a semi-independent city agency charged with tourism promotion that was merged into the industry group New Orleans & Company in 2019) receiving the other half*.
RTA leaders were never completely satisfied with that arrangement, but the compromise held for 20 years. But in 2018, with a new RTA board taking control, new Chair Flozell Daniels determined that the time was right to renew the issue. By that point, the total revenue for the hotel/motel portion of the sales tax had grown to around $14 million annually, meaning the ½ the RTA had to turn over had grown to $7 million – or a potential 7 percent increase in the RTA’s annual operating budget.
As part of a quirk in how the funding is passed down to the various entities, the City passes the total sales tax funding to the RTA, which then, according to the 2000 agreement, passes earmarked hotel/motel half on to the tourism entities. With that system, it made it relatively simple for Chair Daniels and the RTA board to just stop the remittance of the other half of the hotel/motel tax.
And that’s where we are today. The RTA has not touched the disputed portion of the sales tax – it’s secure in a separate account until an agreement is reached. (And over the last year not much has been added to it, due to the pandemic-related decline in tourism). No settlement has been reached in the meantime and, last month the Convention Center voted to move ahead with a lawsuit to force the issue.
From our viewpoint, the RTA’s case seems pretty good.
But we don’t have any particular legal expertise. So, instead of venturing into the details of whether the tourism industry has held up their end of the original bargain or the variances of state law – areas where RIDE doesn’t have expertise – we’ll leave you with just two reasons why the RTA should win this debate – and why decision makers should push to make sure the RTA does win this debate.
1. The initial intent of the sales tax was to pay for transit.
Yes, hotel occupancy was left out of the original tax. But to our understanding, that is only because of a legal technicality that was changed soon after the proposition. The only reason why the Convention Center even got to see some of this money over the last 20 years is because the RTA aggressively lobbied to make sure the hotel tax was retroactively included in the sales tax. The intent of the voters was that this tax should go to transit. And with hotel occupancy now considered subject to the tax that means the hotel/motel funds should go to transit.
2. It’s the right – and urgent – thing to do.
This last point is most important to us.
Transit riders – especially lower income transit riders working in the hospitality industry – have had a really rough time over the last year. The pandemic has meant illness and fear, greatly reduced or eliminated hours, and reductions in transit service. Even before the pandemic, pay wasn’t great and transit service – as most of us know all too well – wasn’t either, with the average New Orleanian only able to reach 12 percent of the region’s jobs via transit in 30 minutes or less.
But it’s these New Orleanians – our friends, family members, and neighbors – who work every day in hotels, restaurants, event spaces, etc. to make the New Orleans experience something that keeps millions of people from all over the world coming back to our city every year. And those millions of visitors have helped to make many individuals and institutions very wealthy and provide the funds for a lot of our local government operations. Yet, collectively as a region we have accepted the status quo of subpar transportation options for the workforce that makes this all possible. Collectively, the region has accepted long trips, late buses, poor late night service, and crowded vehicles for the hospitality workforce.
An additional $7 million won’t completely change that – but it could help a lot. Simply put, the transit riders of the New Orleans region and especially the transit reliant members of the New Orleans tourism industry NEED this funding a lot more than the Convention Center does. With the New Links network redesign about to be implemented and transit service ready to take a huge step forward, an additional $7 million annually can make an enormous difference in the daily lives of transit riders in a way it just wouldn’t for the bottom line of the Convention Center.
*Technically, the revenues aren’t split 50/50, but according to a formula where the RTA keep 60 percent of the first $7.2 million in hotel/motel sales tax received each year and 40 percent of any revenue received after that. This formula currently works out to about 50/50, but will be increasingly disadvantageous to the RTA as the total pool grows in the years to come.