On Wednesday, April 28, the governing board of the New Orleans Ernest N. Morial Convention Center (MCCNO) voted in favor of suing the New Orleans Regional Transit Authority (NORTA) over millions of dollars in contested recurring tax revenue. The board voted unanimously to file the lawsuit following a 30-minute executive session that was closed to the public.
The lawsuit is a result of a decades-old feud between the two organizations, dating back to 1985 when Orleans Parish voters approved a ballot proposition that created a 1% sales tax “dedicated to transit and transit-related purposes.” The proposition specified that the tax would not apply to hotel room sales.
For many years after the ballot measure, hotel rooms remained untaxed. However, in 1999, NORTA sued the city’s director of finance arguing that the hotel exemption should be invalid. NORTA settled with a coalition of hospitality industry groups, accepting keeping 60% of the first $7.2 million collected from a 1% hotel room sales tax, and 40% of everything after that marker. The rest of the money would go to MCCNO and the New Orleans Tourism Marketing Corporation (NOTMC).
In 2002, the organizations signed the Phase IV Escrow Fund Agreement, setting up a special account controlled by MCCNO. According to this agreement, the NOTMC would deposit half of the NORTA payments into the special account to be used “solely for the benefit of the Phase IV Convention Center Expansion Project.”
“This Fund was created for the express purpose of supporting the development of Phase IV of the Convention Center’s expansion, a project that was placed on indefinite hold in 2007 and has since been replaced by a private hotel development generally referred to as ‘Phase V,’” Wrote RTA board Chair Flozell Daniels in a letter to NOTMC “The RTA has not consented to use of our revenue to support such a project.”
In February 2019, NORTA announced it would no longer honor its agreement to give half of the money it makes from hotel tax revenue to the tourism industry, declaring that the agreement was unconstitutional.
The letter explained that NORTA had given up to $7 million a year to these tourism organizations since the agreement went into effect in 2001, which amounted to a total cost of $62 million. In his letter, Daniels cited this large amount of money as a hindrance to progress for the New Orleans’ public transportation system.
“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,” he wrote. “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 went on to demand that MCCNO refund the $31,823,875.40 that had been collected from NORTA to fund the since-stalled Phase IV project.
In response, Convention Center board Chair Jerry Reyes commented that according to the 2002 agreement that stipulated the payments, NORTA has to continue them as long as the Convention Center had outstanding debts related to Phase IV.
In 2012 and 2014, MCCNO used NORTA payments to refinance old loans with bonds that aren’t set to expire until 2027 and 2025. This means that the RTA is legally on the hook to continue with payments through 2027 despite the fact that Phase IV will not happen.
“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 canceled 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 bondholder to pursue this tax stream.”
Reyes has painted NORTA as uncooperative, citing an agreement that MCCNO leaders proposed last year which would have allowed NORTA to keep 75% of the hotel room sales tax money, while MCCNO would have gotten 25%. NORTA did not respond to the proposal.
Reyes commented, “We have engaged them in discussion to resolve this matter, but the RTA board simply has not engaged us on this.”
NORTA spokesperson Arian Rudolph said on Thursday that the agency needs every available dollar to match crucial federal grant awards that will fund public transit projects like bus shelters, new buses, and a downtown bus hub. NORTA also currently has a plan to make changes to 40 bus and streetcar routes, which will make New Orleans public transport more efficient and equitable. “These enhancements not only improve the rider experience but also contribute to the community and economic growth of our region,” said Randolph.
In September 2019, the New Orleans City Council voted to formally support the RTA’s decision to halt payments and demand reimbursement. Mayor Latoya Cantrell has not issued a statement on where she stands on the matter.
