Tax incremental financing allows future tax revenue anticipated from a project to be directed into paying off the debt incurred to build the project.
Downtown’s Capitol House, for years an abandoned eyesore, was transformed into a four-star, 290-room Hilton with help from a TIF and reopened in 2006. The Hotel King, across Lafayette Street, received a similar—albeit less generous—deal and reopened in February as Hotel Indigo. Hotels proposed for the Bluebonnet Boulevard corridor went after TIFs in 2009.
The newest contender is a planned 137-room Hampton Inn & Suites at Lafayette and Main streets. Developers of the $16 million to $17 million project are hoping for a little taxpayer help of their own. They are expected to go before the Metro Council on April 13 and ask for a portion of the city’s 13-cent hotel-motel tax.
“[A TIF has] been critical to other projects that have received the same benefit in the past,” says Bo Aughtry, president of the commercial division of Greenville, S.C.-based Windsor/Aughtry. “So it’s critical going forward, and there’s certainly a precedent there for it.”
There certainly is a precedent, but is there ever a limit? Should every new hotel receive a boost from taxpayers?
The Baton Rouge Lodging Association, which says it represents properties with more than half the city’s rooms, has come out against previous TIFs, including one for developer Mike Wampold’s Renaissance Hotel on Bluebonnet. The group also opposes the Hampton TIF.
Association President Garrett Kruithof, in a letter to the Metro Council, says TIFs might be needed to spur development in economically depressed areas, but “the negative effects and impact on the lodging industry far outweigh any potential benefits.”
“We’re not against TIFs if there’s a good reason to have it,” says Ralph Ney, general manager of Embassy Suites on Constitution Avenue and an association board member.
Ney says a TIF for the Capitol House might have been appropriate. The landmark hotel had been sitting empty and abandoned since 1985, seemingly mocking the city’s efforts to revitalize downtown, and most developers wouldn’t touch it. But in hindsight, he says, given the Hilton’s success, perhaps even that project wasn’t so risky.
“It seems like every new hotel that’s going to be built has a TIF,” Ney says. “It’s unfair competition for hotels that have been here for years and years.”
Business travel dropped off during the recession, and some hotels are experiencing their lowest occupancy rates in decades. So it’s not surprising hoteliers would be concerned about public funding for a new competitor that might siphon away even more business.
The typical case for public support of private projects is that sometimes a boost is needed to jump-start a worthy project. If the project has a public benefit, like revitalizing a downtrodden area of the city, and spurs further private development, then the cost to taxpayers is worthwhile. But if it’s feasible without public help, or does little for the overall economy while poaching from existing businesses, that argument falls apart.
The 256-room Renaissance Hotel is being built at the site of an unfinished dormitory that once belonged to Jimmy Swaggart Ministries. Like the Capitol House, the dorm was abandoned, although skeptics question whether a public boost is really needed on bustling Bluebonnet Boulevard.
The Renaissance TIF is unusual in that it diverts most of the hotel-motel tax, as well as most of the future sales taxes on food and beverages sold and meeting rooms leased.
The Legislature approved the Renaissance TIF in 2009, the same year it rejected doing the same for a new hotel in Perkins Rowe, perhaps reflecting a view that redeveloping an empty building is a better use of a TIF than a new project.
The Hampton Inn & Suites also is in line to receive new market tax credits through the East Baton Rouge Redevelopment Authority that could be worth about $3 million.
At the risk of being too literal, a person might ask how downtown’s fourth hotel qualifies for anything that’s new market. It’s a question with implications beyond one project; if the city is serious about redeveloping its core neighborhoods with public help, as leaders say they are, decisions will have to be made about when the public sector should step in and when it should back off.
There remains a significant disparity between the cost of downtown development and the market for it, Redevelopment Authority CEO Walter Monsour says, adding that the families that own downtown real estate typically don’t need to sell, and expect a premium price for their properties.
Baton Rouge has a number of reasons for promoting downtown development. With hotels, it’s the drive to accumulate 1,000 or more rooms within walking distance of the River Center and attractions, which theoretically would help the city land more events and boost the overall economy. With the Hampton, downtown would still have fewer than 850 rooms.
“I don’t know right now when enough is going to be enough,” Monsour says. “You don’t do it for everyone, but when do you stop? I don’t know that answer.”
Aughtry says 5 or 6 cents from the 13-cent bed tax over a 20-year period might be enough to make his project work. And if he doesn’t receive a TIF?
“I don’t want to answer that because there’s so many variables,” he says. “We would certainly have to reassess.”
Staff writer Steve Sanoski contributed to this story.
