City Hall has decided to get more aggressive about collecting taxes from some of the city’s hotels and properties that benefit from certain tax credits — a decision that could mean several million more dollars to spend on city services next year and into the future.
New Orleans City Council President Stacy Head, who has been trying for years to broaden the city’s tax base, released a statement Thursday saying the extra money might even “blunt” the need for future tax hikes.
For now, rising property values and growing sales tax collections have bolstered the city’s budget by millions of dollars, leading Mayor Mitch Landrieu to introduce a spending plan for 2015 on Wednesday that includes pay raises for police officers and other enhancements.
But costs, especially for pension obligations and court-ordered reforms at the Police Department and Orleans Parish Prison, are on the rise, as well. A ballot measure going before voters on Nov. 4 would allow the City Council the option of asking parish voters later to raise tax rates for police and fire protection.
For now, it remains unclear exactly how much more money the city stands to collect in property taxes next year.
The prospect of wringing more from the city’s hotels and other properties came up Thursday during a meeting of the New Orleans Board of Revenue. The board — made up of the seven City Council members — is tasked with resolving disputes between the city’s tax assessor and property owners arguing for smaller tax bills.
It typically receives hundreds of appeals — 867 of them this year — so it hires consultants to hear the individual cases and make recommendations that the board generally approves en masse.
On Thursday, however, the Board of Review, backed by the Landrieu administration, voted unanimously to side with Assessor Erroll Williams on two broad categories of assessments rather than accept compromise deals recommended by its consultants, HGI Catastrophe Services LLC. Those exceptions are hotels that have recently changed hands and properties financed with low-income-housing tax credits.
On the hotels, Williams based his assessments on the amounts the properties sold for recently. The Royal Sonesta Hotel on Bourbon Street, for instance, sold last year for more than $120 million, although the hotel’s owners argued its value is only $45 million. Williams subtracted only $5 million for the value of movable property in the building and set the value at $115 million.
In all, the assessor valued 10 hotels based on recent sales prices.
Every $1 million of extra value equals about $20,000 a year in taxes, which would be split among the city, the Orleans Parish School Board and various other entities that levy a property tax.
Figuring out exactly how much money the Board of Review’s decision will produce is nearly impossible at this point, however.
First, all of the property owners in question can appeal the board’s vote to the Louisiana Tax Commission, which probably would not make a decision until next year. And even the commission’s decisions can be appealed to the courts. In the meantime, the extra property taxes those entities would have to pay in January would be held in escrow.
Also, some property owners might be able to cut their assessments simply by submitting more information. Williams said that in some cases, hotel owners simply have not produced paperwork that might show recent sale prices included some “goodwill” value, intangibles such as a brand name or reputation that typically would be subtracted from the property’s assessment.
Properties financed with low-income-housing tax credits represent a still murkier area. In those cases, property owners have received the credits in exchange for offering apartments at below-market rents.
The assessor argues the value of those properties should be based not just on the revenue from those artificially low rents but also on the income produced by the credits. Again, in some cases, it is unclear what that income is. Property owners can typically either sell the tax credits on the open market or use them to cut their own tax bill.
Still, Head and the Mayor’s Office are apparently intent on collecting as much as possible.
“Tax equity is critical for New Orleans,” Head said. “With every turn, the council has looked to spread the burden more fairly.”