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New Orleans Mayor LaToya Cantrell speaks as City Park hosts the annual Swing In The Oaks free concert with the Louisiana Philharmonic Orchestra in New Orleans, La., Tuesday, April 16, 2019.

Intense negotiations aimed at directing tens of millions of dollars to rebuild New Orleans’ overwhelmed drainage system are floundering, with leaders of the hospitality industry frustrated that Mayor LaToya Cantrell has not accepted what they say is a good deal for both sides.

Optimism three weeks ago that the two sides were close to agreement has given way to fears that the effort may fail, according to several people familiar with the talks, who spoke on the condition of anonymity. The two sides held several meetings at the State Capitol this week that included top aides to Gov. John Bel Edwards.

“The negotiations are volatile,” said one person in Baton Rouge, while another said all parties involved are frustrated. Another source said negotiations will resume next week.

Several people close to the talks said that the hospitality industry has slowly moved towards providing more revenue. But the tourism industry’s offer of additional tax revenues would require a vote of New Orleans residents in a new economic development district to raise taxes, something that sources say Cantrell rejects.

With time beginning to be a factor with the need for legislative approval, some political leaders are urging both sides to find common ground.

“Cooler heads should prevail,” said state Sen. Troy Carter, D-New Orleans. “As goes the city, so goes all the businesses.”

Any agreement will require the approval of Edwards and state lawmakers during the 60-day legislative session that began on April 8. Several New Orleans legislators have filed bills that could become the vehicles to enact the legislation.

If the talks break down completely, Cantrell could try to deflect blame from her administration for the ongoing financial and operational problems at the Sewerage & Water Board by accusing the hospitality industry of not contributing its share of their tax revenues to help solve the problem.

But she also could lose allies whose support she would want if she asks voters later this year to approve a new storm water management fee that would stabilize the S&WB’s finances.

“It may be that the mayor has decided politically not to take the deal,” said one New Orleans business leader familiar with the discussions “A lot of us are getting discouraged. I don’t see what the end game is.”

But another business leader expressed optimism.

“The negotiations are still on track,” he said. “I think there will be a positive solution.”

The mayor’s office declined to answer questions related to the status of the negotiations.

”The administration has remained engaged in talks with the Governor’s office, with our delegation, and with industry leaders,” Cantrell spokesman Beau Tidwell said in an email. “The conversation is still active and ongoing.”

Stephen Perry, the point person for the hospitality industry in negotiations with Cantrell, and the leader of New Orleans & Co., declined to comment, as did state Sen. JP Morrell, D-New Orleans, who is a key mediator between both sides.

Cantrell has been demanding a diversion of millions of tax dollars from tourism to the S&WB since October to address problems that she inherited from her predecessor, Mayor Mitch Landrieu. Flooding caused by an August 2017 rainstorm exposed the agency’s outdated equipment. Landrieu spent nearly all of the S&WB’s reserves to fix immediate problems.

After taking office in May 2018, Cantrell has sought more money to upgrade additional machinery and keep the S&WB from having to borrow money in the face of a cash crunch caused at least in part by customers who haven’t been paying their bills.

She is seeking $75 million in one-time money for the S&WB. Of that $40 million is aimed at upgrading S&WB machinery that might fail in a heavy rainstorm this year and another $35 million for paying contractors.

She is also seeking $40 million in recurring revenue to rebuild city streets and buy better machinery on an ongoing basis.

Her demands for tourism dollars have rattled hospitality industry leaders, who want a peaceful relationship with the mayor, and led to public strife between the two sides.

In recent days, hospitality leaders have agreed to an increase in taxes on hotel guests, something they resisted when Landrieu was mayor, and a small sales tax increase on patrons of bars and restaurants. The governor’s office has agreed to divert at least $20 million in one-time money from the Ernest N. Morial Convention Center. The tax paid by guests at short-term rentals in New Orleans would go up.

In all, the current proposals would provide as much as $55 million in one-time money for the S&WB and $28 million in annual revenue.

“The deal on the table looks awfully good to me,” said a business leader familiar with the talks.

Hospitality leaders have agreed to an increase in taxes on hotel guests of .75 percent of a percentage point in a newly created economic development district that would include most of the city. It would raise $9 million per year.

Sources say the Louisiana Restaurant Association has agreed to a .25 percent tax increase on food and beverages that are consumed at bars and restaurants in the economic development district. This proposal would raise about $3 million per year.

State legislators could approve either proposal, but it would take a two-thirds vote and expose Edwards to Republican attacks that he is tax-happy.

Alternatively, legislators could approve a proposal with a simple majority that would put the hotel tax increase and the food and beverage tax increase on the ballot for approval by New Orleans voters who live in the economic development district.

But that approach has been a deal-killer so far for Cantrell, sources said, since she wants voters to approve a storm water management fee and fears a voter backlash from putting too many tax measures on the ballot.

“You only get so many bites at the tax apple,” said a person familiar with the talks.

The storm water management fee could raise an additional $40 million to $50 million per year with much or all of the increase being paid by nonprofits and government entities that are currently exempt from property taxes, sources said.

The hotel industry is willing to raise the tax on its guests by as much as 1 percentage point if guests at short-term rentals have to begin paying the same tax rate as hotel guests and if some of the additional money collected is used to market New Orleans to visitors. The tax on short-term rental guests is currently 4 percent plus an extra $1.50 in fees while hotel guests pay 16.35 percent in taxes.

Those involved with the negotiations caution that it has a lot of moving parts. One example of that was the request by Convention Center officials on Tuesday that Cantrell support legislation needed to build a proposed 1,200-room hotel on the upriver end of the giant exhibition hall – in exchange for the one-time money from its reserves.


Follow Tyler Bridges on Twitter, @tegbridges.