Honorable Dennis Bonnen, Chair, House Committee on Ways & Means
FROM:
Ursula Parks, Director, Legislative Budget Board
IN RE:
HB1742 by Márquez (Relating to certain convention center hotel projects.), Committee Report 1st House, Substituted
Estimated Two-year Net Impact to General Revenue Related Funds for HB1742, Committee Report 1st House, Substituted: an impact of $0 through the biennium ending August 31, 2017.
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2016
$0
2017
$0
2018
$0
2019
($720,000)
2020
($760,000)
Fiscal Year
Probable Revenue Gain/(Loss) from General Revenue Fund 1
2016
$0
2017
$0
2018
$0
2019
($720,000)
2020
($760,000)
Fiscal Analysis
The bill would amend Section 351.001(7), Tax Code to include within the definition of "eligible central municipality" a municipality with a population of 640,000 or more that is located on an international border and that has adopted a capital improvement plan for the construction or expansion of a convention center facility.
The bill would amend Section 351.1065, Tax Code to provide that an eligible central municipality as specified above that uses municipal hotel tax revenues or certain state and local tax revenues received under Section 351.102(c) may not reduce the percentage of municipal hotel tax used for advertising and promotional programs to attract tourists to a percentage below the average percentage allocated for that purpose during the 36 month period preceding the use of revenues for the hotel project.
The bill would amend Section 2303.003(8), Government Code, to delete from the definition of "qualified hotel project" a certain hotel in a municipality with population of more than 500,000 that borders the United Mexican States. Other conforming amendments to the Government Code and the Tax Code would be made in view of this deletion.
Methodology
The City of El Paso would be subject to the provisions of the bill.
There are two consequences to being defined as an eligible central municipality: 1) a higher authorized municipal hotel tax rate than the seven percent rate provided by Section 351.003(a); and 2) entitlement to receive certain state and local tax revenues for a convention center hotel project.
Currently, the combined total hotel occupancy tax rate in El Paso is 17.5 percent (6.0 percent state, 2.5 percent county, 7.0 percent city, and 2.0 percent city sports venue). Classification as an eligible central municipality will provide authority, under Sec. 351.003(b), for the city tax rate to rise from 7.0 to 9.0 percent; the total combined hotel tax rate could reach 19.5 percent.
The city could be entitled to state sales tax and state hotel tax associated with a qualified hotel project under Section 151.429(h) of the Tax Code via Section 351.102(b) and (c) of the Tax Code. Such funds must be deposited in a suspense account outside the state treasury to be paid to the owner of the qualified hotel project.
In fiscal 2014, a total of $11,308,406 in state tax revenue was allocated for qualified hotel projects. Currently the cities of Dallas, Fort Worth and San Antonio receive allocations of state sales and use tax and state hotel tax associated with qualified hotel projects.
The City of El Paso owns convention center facilities, and in 2014 issued a Request for Proposals (RFP) for a convention center hotel to include 250 or more rooms. No response was received by the deadline, and a subsequent RFP has not yet been issued. In view of the time required to enter a development agreement and complete a hotel project, the City of El Paso would not be expected to be entitled to receive state hotel tax and state sales tax revenue under Section 151.429(h), Tax Code, until sometime in fiscal 2019.
This estimate is based on the expected room size for the prospective convention center hotel, an assumed average nightly room rate and annual average occupancy rate, an incremental gain in room nights sold in the state, and the ratio of state sales tax to state hotel tax revenues paid to the owners of the extant qualified hotel projects.
Local Government Impact
The city of El Paso would be entitled to state sales tax and state hotel tax associated with a qualified hotel project. Such funds must be deposited in a suspense account outside the state treasury to be paid to the owner of the qualified hotel project.