Austin City Council to consider new fundraising tool using hotel revenues

The creation of the Austin Tourism Public Improvement District – an agreement that would require hotels in the city of Austin with 100 rooms or more to pay 2% of their nightly revenue to the city in exchange for marketing and sales incentives – is back on the Austin City Council's agenda.

The City Council will vote Thursday on whether or not to approve the draft service plan language and draft petition language for the creation of the proposed agreement – a major step in initiating the process.

"It's a tool that allows not just for the benefit of the tourism industry, but the city is able to gain funds through the use of that," Austin Mayor Kirk Watson said about the proposed agreement during a city council work session on Tuesday.

If approved by the city council, 60% of the hotel ownership groups in the city must also approve the plans before further actions like public hearings can be taken on the matter.

As proposed, the service plan outlines the goals and functions of the proposed Tourism Public Improvement District (TPID), including the creation of an 11-person Austin TPID Management Corporation Board of Directors.

The primary plan for revenue generated from the TPID would be to allocate a minimum of 20% for convention center sales and group business incentives, a minimum of 60% for marketing and sales, 10% for hotel activity incentive program and 10% for research and ATPID administration, according to the city.

The revenue generated from the TPID would provide "critical funding for tourism in Austin during years of Convention Center closure," according to a presentation given to the city council on Tuesday.

The current project timeline of the Austin Convention Center estimates that "closure, demolition, and construction activities will begin in 2025 with the new, larger facility reopening in 2029," according to a May 2023 news release from the Convention Center. Construction on the convention center is estimated to cost $1.6 billion and is to be funded by revenue from the convention center and the Hotel Occupancy Tax.

During the years the convention center is closed, TPID revenue allocation will vary from the primary plan.

The assessment is projected to generate around $27 million total in its first year (October 2023-Septmeber 2024) and continue increasing in the following fiscal years.

The agreement would be in effect for 10 years, upon which the council could renew or dissolve.

During a city council work session on Tuesday, District 2 Council Member Vanessa Fuentes said that while she supports the creation of a TPID, she has concerns about the length of the agreement.

"We've had changes in the market, we're going to have a change with our convention center being fully closed. There's a lot of uncertainty coming out in the next few years," Fuentes said, adding that she would like the council to consider a shorter term for the agreement.

District 7 Council Member Leslie Pool said on Tuesday that she supports the longer term for a number of reasons.

"I wouldn't want to shortchange that and then realize that we need to continue it and have go back to square one and ask everybody to sign up again," Pool said.

TPIDS currently exist in seven Texas cities: Dallas, San Antonio, Arlington, Fort Worth, Waco, Corpus Christi and Frisco, according to a city staff memo.

The Austin Tourism Public Improvement District plans have been years in the making.

In May 2019, the Austin City Council voted 11-0 to direct then City Manager Spencer Cronk to engage with hotel and tourism groups and homelessness service providers to prepare for establishing the new tourism district. At that same meeting, the council gave preliminary approval to the expansion of the convention center.

A vote on the creation of the Austin Tourism Public Improvement District was scheduled in 2020, however, members of the local hotel community were granted a delay to further review the plan.And, in July 2023, city staff asked for the postponement of the item to allow for "additional time to address questions," according to the public memo sent from Trisha Tatro, director of the Austin Convention Center Department.

"We believe that the TPID is in the best interest of the city of Austin," Watson said on Tuesday.