Downtown Baton Rouge has come a long way since the Capitol House Hilton Hotel was renovated in 2006 with the help of tax relief initiatives to kick-start the project.
A decade ago, downtown Baton Rouge was still considered a bit of a ghost town. But these days, with its own local grocery store and the impending IBM development, downtown is bustling and thriving.
Despite the flurry of economic activity, developers are still demanding public subsidies to offset their costs for high-profile downtown projects. The subsidies are often in the form of special taxing districts, which rebate the sales taxes collected by the government back to the property owner to cover construction costs.
This month, the East Baton Rouge Metro Council is expected to vote on whether to approve two more taxing districts — for a Holiday Inn Express in the old Baton Rouge Savings and Loan Building on North Boulevard and a Courtyard by Marriott that will be built in what is now an empty lot at the corner of Third and Florida streets.
Developers of both projects are seeking tax increment financing districts, known as TIFs, which are popular financing tools in which an entity takes out a loan to pay for construction and then uses sales tax rebates to pay down the loan.
The combination of the two new hotels will bring downtown Baton Rouge’s total hotel room count to more than 1,000, which has been a goal of city leaders since a 2008 study showed a market demand for about 1,100 rooms in the area. The Holiday Inn will have 89 rooms, and the Marriott will have about 140.
Members of the Metro Council generally seemed warm to the two new TIFs, but a few admitted that someday they may need to draw the line.
“At some point, we’ll get to a place where those incentives are not necessary,” said Councilwoman Tara Wicker, whose district includes all of the downtown TIFs. “Whether or not we’re there yet, well, the jury is still out. Downtown Baton Rouge has made a lot of progress, but we’re still not at a place where we can say it’s fully developed and got everything we need and functioning on its own.”
Since the adoption of the downtown Hilton TIF in 2005, every downtown hotel has asked for and received one.
The two new hotels are seeking a rebate of the 2 percent sales tax on rooms from East Baton Rouge Parish government. The creation of the taxing districts also allows both hotels to levy an additional 2-cent sales tax on rooms and goods sold that will help offset their costs.
Chris Odinet, a real estate law professor at the Southern University Law Center, said the persistent use of public incentives for private developers creates a “holdout mentality” where private developers and investors are unlikely to do a project unless they can leverage a subsidy.
“They say, ‘I’m not going to do this unless you also give me something,’ ” Odinet said. “That holdout mentality can be difficult to shake the longer the system of public incentives continues.”
He also noted that in the case of hotel TIFs, the government is subsidizing businesses that compete with other businesses nearby, “unlike a TIF for a business that would be new and have no already established local competitors.”
Hotels outside of downtown, with the exception of the Renaissance Hotel on Bluebonnet Boulevard, don’t have TIFs.
Pete Patel, the developer of the Holiday Inn Express who is with Lake Charles-based Super Hospitality, said the TIF is important for his hotel project because redeveloping an old building is more expensive than building something new from the ground up.
“This project will cost well over $15 million,” Patel said. “A typical Holiday Inn Express this size is between $9 and $10 million.”
Charles Landry, an attorney representing Windsor Aughtry Co., which is developing the Marriot hotel, said the public subsidy is an investment in a quality project on what he said is the most prominent corner in downtown Baton Rouge.
“It’s right in the heart of downtown,” Landry said of the corner of Third and Florida streets.
The hotel, which will be built on what is a parking lot, also will have a seating area for the public and a coffeehouse.
Landry noted the developer is opting to offset some of his own costs by imposing the additional 2-cent sales tax and that the precedent already has been set for TIFs for hotel projects located downtown.
“Every new hotel in downtown has asked and received that 2-cent rebate,” he said. “It’s been given to everyone.”
Apart from the two proposed hotel TIFs, which are still subject for council approval, there are six other TIFs approved in East Baton Rouge Parish, four of which are for hotels: the Capitol House Hilton, the Hampton Inn and Suites, Hotel Indigo and Renaissance Baton Rouge Hotel. The other two TIFs are for the River Park Development District, a planned multi-use development on the Mississippi River, and the Dawnadele Economic Development District, which is for infrastructure improvements surrounding Costco.
Another TIF is likely on the way.
The state Legislature in 2014 designated a former state office building on Third Street that was being developed by Mike Wampold for a special tax increment financing district.
Wampold initially planned that the building would be the Marriott, but the hotel chain ultimately chose the Florida and Third location. Wampold has not yet disclosed his plans for his building; however, officials are speculating that it will be another hotel.
In addition to TIFs, downtown projects can apply for a variety of other local and federal subsidies, including historic tax credits and property tax abatements.
Recently, council members said the Capitol House Hilton went too far when it asked for additional property tax relief for a recent $8 million renovation to its lobby.
The Capitol House Hilton has the most generous TIF in the parish — it is allowed to keep sales taxes that would otherwise be collected by the city-parish, the state and the Convention and Visitors Bureau. Of the 13 percent sales taxes collected on a room that are owed to governments, the Capitol House Hilton keeps 10 percent.
The hotel also received a property tax abatement, meaning it pays property taxes based on the pre-renovated status of the structure. In recent years, the hotel did an expensive renovation to the lobby and asked for a second property tax abatement so it wouldn’t have to pay property taxes based on the higher valuation of the building.
The Metro Council balked at the request, which would have saved Hilton an estimated $231,000 a year in property taxes. But some council members are discussing bringing it up for reconsideration.
Councilman Buddy Amoroso voted against the property tax abatement for Hilton.
“I think we need (incentives) to help get the buildings renovated and get the businesses off the ground, but it shouldn’t be in perpetuity,” he said.
Amoroso said he would support the two new hotel TIFs.
Editor’s note: This story was changed after publication to change a reference to the renovation of the Capitol House hotel.