The El Paso voters recently increased the Hotel Occupancy Tax (HOT) from 15.5% to 17.5%. According to the city’s documents the new tax rate, the two percent increase, will be used to fund the new baseball arena. The same documentation adds that the revenues collected, including the increase, will be a little under $112 million annually. In comparison, Houston generates $80 million while Austin only generates $49 million from their respective hotel taxes.
Why does the City of El Paso think it can generate more revenue than Austin or Houston?
Austin and Houston have a much more vibrant hospitality economy than El Paso; therefore the city’s numbers do not make any sense.
According to the city’s own analysis, El Paso now has one of the highest hotel occupancy rates in the State of Texas. In other words, the city with the least ability to attract out of town hotel occupants has now made it even more unattractive to visitors to the city to stay at the local hotels. With the New Mexico cities’ of Las Cruces and Sunland Park, visitors driving through the region will have an even harder time justifying their stay in El Paso.
Gimmicks such as hidden taxes imposed upon visitors to a community were easier to impose before the Internet as travelers were not conditioned to compare rates on the Internet and the information was not readily available. Travelers, today plan their vacation itineraries online.
Those travelers to the region will make their decisions on the cost involved in lodging. There is no economic reason for them to stay in El Paso on the way to a vacation destination.
The city, of course, will point out that the occupant’s of hotel rooms are businessmen visiting maquilas across the border or businessmen involved in local government-related industries. As the economic pressures on government-based industries continue and the flexibility of online meeting technologies continues to improve, the trend will be to reduce travel expenses rather than increase them.
The issue though, that the city glosses over is that the numbers that the city is basing their revenues on are based on hotel occupancy rates. The more people that stay in the hotel rooms the more money the HOT tax will generate.
So what are the El Paso occupancy rates?
El Paso has 95 hotels with about 9,000 rooms, according to the Texas Comptroller’s office. In 2012, the occupancy rates were 65.5%, fueled by business travelers. The 2011 rate was 67.6%. The trend is lower occupancy rates, not higher. The city has, of course, glossed over this and instead focused on the fact that hotel revenues were up during the same period.
The problem is that revenues can be artificially inflated by the higher rates sustained by unusual travel activity. During the period that room rates increased in El Paso, there was an active influx of Mexican travelers escaping the drug war fighting in Mexico and increased construction and other activity at Fort Bliss and the other military installations.
These were temporary activities that are unsustainable. The rates will go down as the activity decreases.
Even more disturbing is that the El Paso International Airport is reporting a 15% decline in passenger traffic since 2010. The first few months of 2013, traffic at the airport is down three percent. El Paso is not a vacation destination therefore any drop in air traffic will directly impact the hotel occupancy rates.
According to the city’s fact sheet, the city expects to fund 72% of the baseball stadium with the HOT tax increase. As is normal with the city, they have glossed over how the rest of the 28% will be paid.
But even more important is that the city has committed to paying for the stadium, even if the HOT tax does not generate the revenues needed to meet the debt service. Therefore the city will use other taxpayer monies to meet its obligations. If the hotel occupancy rate continues to drop the city will shore up the deficit with other taxpayer funds.
It is easy for the city to state that “property taxes are not to be used” to fund the project because that is a commitment made on existing forecast models, even though the models may not be accurate. The city can, and will likely come back in the near future and state that “unforeseen circumstances have decreased the expected revenues” and therefore other sources must be used. After all, the city is committed; therefore you, the taxpayers are committed as well.