Hotel Deals Leave Louisville Taxpayers With $ 5 Million Tab Amid Pandemic Crisis | In depth
LOUISVILLE, Ky. (WDRB) – In a bizarre consequence of the travel industry shutdown in 2020, Louisville metro taxpayers find themselves sacked for roughly $ 5 million in unexpected costs from old contracts years to publicly subsidize the construction of two private downtown hotels, according to Mayor Greg Fischer’s administration.
The $ 5 million represents debt payments on bonds issued by the Metro government to help finance the construction of the Louisville Marriott Downtown in the early 2000s and the Omni Hotel in 2018.
Normally, debt payments are offset by state tax revenue from hotel activity – such as sales taxes on purchases and taxes on the income of hotel employees.
But as hotels were closed or operated at reduced capacity for most of 2020, those state taxes failed to materialize, leaving Metro taxpayers to pay for the obligations.
Metro CFO Daniel Frockt told the council’s budget committee last week that Metro’s additional costs for bond payments were an estimate incorporated into the city’s proposed budget for the fiscal year beginning July 1. , and that the exact amount of the deficit is not yet known.
The $ 5 million in unanticipated costs is negligible compared to Metro’s planned general fund budget of $ 704 million for the fiscal year beginning July 1, but roughly equal to what Metro spends to operate Air Pollution Control. District or Metro Animal Services.
“We could put $ 5 million to good use, and I would never, ever say it’s insignificant,” said Bill Hollander, Metro Council member, Democrat and chair of the council’s budget committee.
City officials are hoping the federal government will allow Metro to use some of its estimated $ 388 million transportation from the Biden COVID relief bill to cover bond payments.
“If the American Rescue Plan’s revenue recovery guidelines allow it, Metro will pursue federal recovery of this shortfall,” Frockt said in an email.
Frockt said on Tuesday that city officials are still looking at federal guidelines released on Monday on how the influx of cash can be used.
But even if federal money can be spent on hotel debt payments, it would mean less federal money available for other needs, Hollander noted.
Frockt told the council’s budget committee that city officials believe the $ 5 million hit will be a one-time phenomenon, as hotel business rebounds in 2021.
“I think they will probably come back,” he said.
Metro taxpayers are at risk because of the deals in which city officials were eager to start construction of large hotels meant to serve larger conventions and attract more tourists to the city center.
The city borrowed about $ 30 million to help build the Marriott, which was completed in 2005; and about $ 112 million for the Omni Hotel, which opened in 2018.
Like a mortgage, the metropolitan government owes payments on this bond debt every year. But under an economic development program called tax increase financing, the payments are supposed to be covered by tax revenues generated by hotels, money that would otherwise go to the state government.
When the WDRB first highlighted the potential government exposure of Metro in April 2020, a spokeswoman for Fischer said the hotel subsidies had paid off in the long run nonetheless.
“TIF (Tax Increase Funding) is used to spur development, and there is no doubt that the downtown area encompassed by the Marriott and Omni has been transformed, as evidenced by record levels of jobs, d ‘capital and tourist investment,’ Fischer spokesman Jean Porter said last year. “The benefits of these projects will ultimately far outweigh the difficulties of the current recession.”
By the time the hotel deals were signed, it would have been difficult to foresee a situation in which tax revenues would drop so dramatically, Hollander said.
“If we had known that there would be a global pandemic that would effectively shut down hotels for a good part of the year, maybe we would have done something differently,” he said. “But it was quite difficult to predict.”