Hoover hoteliers negotiate substitute for lodging tax increase

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The Hoover City Council once again plans to amend its proposal for tax increases, following pleas from the hotel and apartment industries to rethink increases in the city’s lodging and residential lease taxes.

Hoover Mayor Frank Brocato had recommended raising Hoover’s lodging tax from 3 percent to 6 percent, which would push the overall lodging tax rate in the city from 14 percent to 17 percent, including state and county taxes.

But the hotel industry this week came forward with an alternate plan to charge a $2 per night room fee instead of the lodging tax increase. Tonight, at the City Council’s work session, the mayor and council negotiated that fee to $2.50 per night for the council to consider on July 10.

Matt Sterley, general manager of the Hyatt Regency Birmingham — The Wynfrey Hotel and a representative for numerous hotel operators in the city, tonight told the council that a lodging tax increase would put hoteliers in Hoover at a competitive disadvantage with hotels in other metropolitan areas in the Southeast, including Nashville, Atlanta, New Orleans, Baton Rouge, Huntsville, Jackson (Mississippi) and the entire state of Florida.

Hoover’s lodging tax would still be half a percentage point less than Birmingham’s lodging tax, but Sterley said Hoover hotels also compete against hotels in those other metropolitan areas, whose tax rates are below 17 percent, when it comes to booking conventions and meetings.

The proposed $2 per night room fee would likely generate only $1.23 million a year for Hoover instead of the expected $2 million from the increase in lodging tax, but the room fee would be much easier to swallow, Sterley said.

Councilman Casey Middlebrooks said he was concerned that $2 per night would not generate the amount of revenue the city needs to help prevent future budget deficits and cover routine capital expenditures. He suggested the council consider $2.50 per night, which would generate an estimated $1.53 million a year, or $3 per night, which would generate an estimated $1.84 million a year. Or, perhaps, the city could gradually raise the rate over several years, from $2 per night to $3 per night, Middlebrooks said.

Councilman John Greene said it’s important to remember that, at some point, there’s a point of diminishing return when it comes to tax or fee increases. If the hoteliers end up losing too much business because the taxes or fees are too high, raising the rates becomes ineffective, he said.

Brocato said the hoteliers made some compelling arguments to help keep them competitive. He initially said he supported the $2 per night fee but later, in the lobby, negotiated a $2.50 per night fee, which he said the hoteliers agreed to as a compromise.

The proposed fee would not go into effect until Jan. 1, 2019. Smith asked the city attorney to draft a new ordinance for a first reading on July 2, with plans for the council to vote on the fee on July 10.

Real estate rental/lease tax

The council also tonight heard from Frank Barefield, a Hoover apartment complex owner who said he was speaking on behalf of the Greater Birmingham Apartment Association, Alabama Apartment Association, Home Builders Association of Alabama and Greater Birmingham Association of Home Builders.

Barefield asked the council to rethink its proposal to raise the city’s real estate rental and lease tax from 1 percent to 2 percent, generating an estimated $1 million additional revenue.

He argued that such a tax increase, as written, would have to be absorbed by the owners of apartments and other rental properties and could not be passed onto renters.

“Expenses are what they are, and revenues are determined by the market,” Barefield said. “It’s really impossible to pass something on like that.”

If apartment owners could simply raise rates whenever they wanted, none of them would ever go out of business, he said.

Barefield asked the council, if it planned to proceed with the tax increase, to change the wording so the tax is explicitly to be paid by the renter, not the property owner. That would help property owners better maintain their property values, he said.

Barefield also asked the council to consider charging a rental and lease tax for non-residential properties as well, which would include businesses that rent or lease space in shopping centers or office complexes.

His requests did not seem to generate much support from the council. No council member suggested drafting an amended or new ordinance to address Barefield’s concerns.

After the work session, Councilman Curt Posey said he thinks owners of apartment complexes and rental properties would indeed pass the tax increase on to residents. Posey also said the idea of a rental and lease tax for commercial property is a totally separate idea, and he doesn’t believe he would be willing to consider it.

Smith said he doesn’t blame Barefield for requesting the change. “If I were in his shoes, I would try to make an adjustment, too,” Smith said.

He also wants to make sure people know the real estate rental and lease tax proposal being considered would remove an exemption for properties that create revenue less than $2,500 per quarter. It would make all residential rental or lease properties subject to the tax, including apartments and houses, he said.

Sales tax increase

The third tax or fee increase to be considered on July 10 is an increase in the city sales tax from 3 percent to 3.5 percent, raising the overall sales tax rate in Hoover to 8.5 percent in Shelby County and 9.5 percent in Jefferson County. City officials estimated that proposal would generate an additional $10 million a year for the city.

Posey said it’s worth noting that, in most other cities in the area, residents didn’t get to see negotiations between the business community and city leaders in public. “I’m proud that we did that,” he said.

It lets residents know that city leaders didn’t just force something down the throat of the business community without taking time to listen and compromise, he said.

Posey also said the proposed tax increases and new hotel room night fee, if passed, only help the city gain the bare minimum of revenue needed to keep the city operating at its current level of operations.

Brocato had sought a full 1 percentage-point increase in the sales tax, which he estimated would have brought in enough revenue to give Hoover schools an extra $4 million a year and tackle numerous new projects such as a new Interstate 459 interchange near South Shades Crest Road, a performing arts center and a library branch in eastern Hoover. But a majority of Hoover council members were not ready to raise sales taxes that much and came out with a counterproposal.

The council still is going to have to heavily scrutinize spending and look at every penny, Posey said. “There’s no room for margin there now.”