On September 6, 2019, Mayor Tim Keller submitted his $29 million infrastructure bond tax package to the Albuquerque City Council to be financed by the City’s Lodger’s Tax. The Keller Administration labeled the lodger tax bond package as a “Sports – Tourism Lodger Tax ” because it will be used for a number of projects around the city labeled as “sports tourism opportunities.”
Originally, the Keller Administration said all the projects would be funded through savings achieved by refinancing existing lodgers’ tax bonds. The Keller Administration then backtracked and said the city would issue $29 million in new bonds and use lodgers tax revenue to make the payments on the bond debt.
Mayor Keller’s “Sports Tourism Lodger Tax” proposal came just a few months after the city hosted the National Senior Games. According to the Keller Administration, the National Senior Games featured nearly 14,000 athletes competing at 21 venues and had an estimated $34 million economic impact. Further, the lodger tax proposal came after New Mexico United professional soccer team expressed the desire for a permanent soccer stadium.
https://www.abqjournal.com/1363274/mayor-sends-28-million-proposal-to-city-council.html
On October 7, the City Council approved a $30.5 million “Sports -Tourism” lodger tax package on a unanimous vote to upgrade and build sports facilities throughout the city. Revenue gemnerated by the lodgers tax will be used to pay off the $30.5 million bond debt.
https://www.abqjournal.com/1375946/city-council-approves-new-lodgers-tax-bonds.html
LODGER TAX ADDED TO GROSS RECEIPTS TAX
New Mexico imposes a gross receipts tax on goods and service providers, which is passed on to the purchaser of goods or services. The gross receipts tax rate varies throughout the state from 5.125% up to 8.6875% depending on the city or county tax. It varies because the state rate is combined with the additional tax incremental tax rates imposed by counties and municipalities. In Albuquerque, the gross receipts tax is now at 7.875%.
The New Mexico Legislature enacted a “Lodgers Tax Act” that allows cities to impose an occupancy tax, or lodgers tax, on hotels, motels and overnight lodging accommodations. (3-38-13 to 3-38-24 NMSA 1978). Under the state law, a city may use the proceeds of the lodger’s tax to defray costs of:
“(1) collecting and otherwise administering the occupancy tax, including the performance of audits required by the Lodgers’ Tax Act …
(2) establishing, operating, purchasing, constructing, otherwise acquiring, reconstructing, extending, improving, equipping, furnishing or acquiring real property or any interest in real property for the site or grounds for tourist-related facilities and attractions or tourist-related transportation systems of the municipality, the county in which the municipality is located or the county;
(3) …
(4) advertising, publicizing and promoting tourist-related attractions, facilities and events of the municipality or county and tourist-related facilities, attractions and events within the area;
(5) providing police and fire protection and sanitation service for tourist-related facilities, attractions and events located in the respective municipality or county;
(6) …
(7)”
Under the authority given to it by the legislature, Albuquerque enacted its own lodger’s tax ordinance. Albuquerque’s lodger’s tax is 5% which added to the gross receipts tax brings the total gross receipts tax for lodging to 12.875%.
Albuquerque’s lodger tax ordinance adopted the identical language of the state lodgers’ tax. However, the city ordinance added one major requirement: one-half of the proceeds of the tax collected must be used for the purpose of “advertising, advertising, publicizing and promoting tourist-related attractions, facilities and events.”
The Albuquerque Lodger’s Tax ordinance reads as follows:
“Not less than one-half of the proceeds [of the lodger’s tax] shall be used for the purpose of advertising, advertising, publicizing and promoting tourist-related attractions, facilities and events. … .
… any balance of the [lodger tax] proceeds not used for [advertising, publicizing and promoting] may be used to defray the cost of …
(1) Collecting and otherwise administrating the tax …
(2) … lodger tax audits …
(3) Establishing, operating, purchasing constructing otherwise acquiring, reconstructing, extending, improving, equipping, furnishing or acquiring real property or any interest in real property for the site or grounds for tourist-related facilities, attractions or transportation systems of the municipality is located or the county.
…
(5) Advertising, publicizing, and promoting tourist related-facilities and attractions and events of the municipality or county and tourist facilities or attractions …
(6) Providing police or fire protection and sanitation services for tourist related events, facilities and attractions …
… “
The city’s lodger tax ordinance also establishes a “lodger tax advisory board”, a 7-member volunteer board appointed by the Mayor and approved by the city council. According to the ordinance, the Lodgers Tax Advisory Board “shall advise the Mayor and City Council on the expenditures of funds authorized … .”
City of Albuquerque Lodgers Tax Ordinance, ARTICLE 4 LOGERS TAX, 4-4-1 to 4-4-14.
You can read the lodgers tax ordinance here:
https://www.cabq.gov/dfa/documents/treasury-documents/lodgers-tax-ordinance.pdf
The city’s lodgers’ tax generated upwards $14.5 million in fiscal year 2019. According to a state-funded analysis by Tourism Economics, visitors to the Bernalillo county and Albuquerque area spent $2.1 billion in 2016, and in addition to lodging, they spent $523 million on food and drinks and $396 million on retail purchases. Visitors generated $77.7 million in local taxes, according to the study.
THE “SPORTS-TOURISM LODGER” TAX BOND FUNDING
The final lodger tax bond funding enacted by the Albuquerque City Council on a unanimous vote was increased from $29 million to $31 and includes $4.8 million in surplus funding for the projects. The additional funds come from the sale of vehicles and other city property.
Keller’s Chief Financial Officer Sanjay Bhakta said that growing lodgers tax collections and issuing bonds allows the money to have a greater impact than working with small annual surpluses. CFO Bhakta argued that favorable market conditions mandated that the city needed to move quickly. The city’s bond counsel also urged a quick bond sale due to favorable market conditions.
The City Council voted unanimously to issue the new lodgers tax bonds. The funding will be used to upgrade or build recreational facilities around Albuquerque.
Following are the projects to be funded by the lodger tax revenues:
• $10 million to improve Los Altos Park, including new softball fields, a BMX pump track and concession improvements. Los Altos Park is the busiest park in the city and the Keller Administration argues that improvements will help attract tournaments.
• $3.5 million for a soccer complex at an unidentified site with locker rooms that could host tournaments. According to the Keller Administration, the multi-use soccer facility would be available for use by Albuquerque Public Schools, the New Mexico Activities Association championships and other tournaments, and would serve as a practice field for New Mexico United.
• $3.5 million for the Jennifer Riordan Spark Kindness Complex (a West Side baseball venue formerly known as the Albuquerque Regional Sports Complex).
• $4.5 million to upgrade the Albuquerque Convention Center, including adding outdoor message boards, and potentially having the Kiva Auditorium host a larger range of events. The city council increased the amount by $1.5 million. There have been recent reports that the convention center roof is leaking, but no money is being set aside for roof repair.
• $2.5 million to buy property for balloon landing sites.
• $2.5 million to replace the city’s 16-year-old indoor track currently used by the University of New Mexico and for track and field competitions.
• $2 million for a “multiuse trail” linking East Downtown to Downtown.
• $1 million for the forthcoming Route 66 Visitors Center at Central and 136th Street. The visitors center will be for both tourists and locals and plans include a museum, taproom and large event space for social and event gatherings.
• $1 million for Isotopes Park upgrades, such as netting and field improvements. The Isotopes Park upgrades include nets to protect young children and families during games and field improvements to provide for an easier transition from baseball to other uses including concerts. The professional soccer team United New Mexico currently uses Isotopes Park for their professional games.
• $500,000 for a “Northwest Mesa gateway.”
The city’s finance officials and bond counsel urged a quick bond sale due to favorable market conditions, and the City Council voted unanimously to issue the new lodgers tax bonds.
https://www.abqjournal.com/1375946/city-council-approves-new-lodgers-tax-bonds.html
MAYOR KELLER BLINDSIDES LODGER INDUSTRY AND LODGER TAX ADVISORY BOARD
The unanimous city council vote was done over the objections of the Greater Albuquerque Hotel and Lodging Association (GAHLA) and the Lodgers Tax Advisory Board (LTAB). The local hotel industry generates and collects the taxes that will be used to pay off the $30.5 million bond debt that will pay for the projects. GAHLA requested additional time to evaluate the merits of the program as did the city’s Lodgers Tax Advisory Board.
Charlie Gray, the executive director of the Greater Albuquerque Hotel & Lodging Association (GAHLA), said the 120-member hotel association were only told of the $30 million lodger tax proposal when Mayor Tim Keller issued a news release about it to the public. GAHLA questioned devoting millions of dollars in lodgers tax revenue to a “sports – tourism” package that includes projects like new playing fields at Los Altos Park, netting at Isotopes Park, a new indoor track and a visitor center on West Central.
GAHLA said the city did not make it clear just how the spending would increase tourism. The organization demanded the Keller administration provide a “business case” for the projects before the city proceeded with the plan to issue the new lodgers tax bonds to pay for them. GAHLA wanted the council to delay the October 7 vote, but the council declined.
Rebecca Plutino, general manager of the Best Western Plus Rio Grande Inn told the city council before enactment of the lodger tax bonds:
“I certainly understand all the projects, and they all have benefit to our community at large, but what we’re talking about here is how to use lodgers’ tax to increase the pot. … When we get more overnight stays, gross receipts (tax) goes up.”
Members of the city’s Lodgers Tax Advisory Board (LTBA) said they knew absolutely nothing about the lodger’s tax plan until Mayor Tim Keller announced it on Sept. 7 in a press release. Board members complained they learned about it through media reports and were not requested to provide input. The proposal went to the City Council’s Finance and Government Operations Committee two days after the Keller announcement and the final City Council vote occurred on Oct. 7.
In an interview before the city council meeting approving the lodger’s tax bonds, Mayor Keller said the city “needed to move fast” due to advice from the city’s bond experts to secure lower interest rates to repay the funding. Keller shrugged off the complaints and claimed that Lodgers Tax Advisory Board still had time to offer input. According to Keller:
“… we’re going through the right process. They’re getting a chance to chime in before council , and that’s fine. … No, we didn’t have nine months to go over this.”
For more on vote and delay request see:
On October 14th, the Albuquerque Journal published a guest column written by written by Michelle Dressler, President of the Greater Albuquerque Hotel & Lodging Association and entitled “Industry rates voice in where lodger tax goes; Will sports infrastructure plan boost tourism?” The guest column outlines and explains the hotel and lodger’s industry objections. The column can be read in the postscript to this article or at this link:
https://www.abqjournal.com/1377927/industry-rates-voice-in-where-lodger-tax-goes.htm
NEW MEXICO UNITED SOCCER TEAM SEEKS PERMANENT STADIUM
On Jun 27, 2019, it was reported that the highly successful New Mexico United professional soccer team is seeking a permanent home in Albuquerque after one year of existence in the city. The United Soccer League team said its top pick for a location for its stadium is Downtown. The team’s management is scouting locations for a new stadium in the Downtown corridor around from the Rail Yards to Sawmill districts.
United owner Peter Trevisani said United will not support a stadium where people don’t want to have it. United is in the midst of surveying neighborhoods and businesses on their feelings towards a new stadium popping up in their local community.
United clearly has momentum with its winning success and games getting over 12,000 attendance a game, the very kind of momentum needed to justify building a stadium. The United team currently plays at Isotopes Park under a two-year deal. Isotopes Park has a seating capacity of about 13,000 which include stadium seats and berm area seating. The Isotopes’ construction cost was $25 million and it completed construction in 2003.
During the October monthly meeting of Albuquerque Bar Association Luncheon, Mayor Tim Keller revealed that the city is looking at a minimum of 3 locations for a sports and event arena that can be used by the United New Mexico soccer team. Two inquiries have been made by the city with the United States Post Office to purchase the Post Office Main Office on Broadway, there is land available where the PIT arena, UNM Football Stadium and Isotopes Park are located and property on the Westside is under consideration.
USE OF LODGERS TAX FOR GENERAL POPULATION PROJECTS USE SNEAKY TACTIC LIKE USING REVENUE BONDS FOR “PET PROJECTS”
In January, 2017, it was reported that the former Republican Mayor and the Albuquerque City Council borrowed over $63 million dollars over two years to build pickle ball courts, baseball fields and the ART bus project down central by bypassing the voters. The $65 million dollars was borrowed with the Albuquerque City Councilors voting to use revenue bonds as the financing mechanism to pay for big capital projects.
Revenue bonds are repaid with gross receipts tax revenues. The City Council authorized $18 million dollars in revenue bonds for financing a variety of their pet projects and the city will be making annual payments for 22 years until 2038, which is beyond the useful life of many of the projects funded.
For full story see January 2, 2017 Albuquerque Journal “BYPASSING the Voters” at this link:
https://www.abqjournal.com/919263/revenue-bonds-find-favor-in-abq.html
With the use of revenue bonds, the previous Republican Administration and the then City Council were literally able to pick and choose what projects they want to fund and build without any public input or vote whatsoever, so long as they had seven votes on the city council.
AVOIDING COMPLICATED GENERAL OBLIGATION BOND REQUIREMENTS IN FAVOR OF REVENUE BONDS
Normally, capital projects such as stadiums, sports complexes are funded by using general obligation bonds which require voter approval or revenue bonds approved by the city council. This is how the renovation and the reconstruction of the Isotopes Baseball Park Occurred.
There are complicated requirements associated with general obligation bonds and general obligation bonds (GO Bonds) must be voted on by the public.
General obligation bonds have major safeguards to protect the public with restrictions in place on how the bond funding must be dedicated and used. General obligation bonds also include public budget hearings while revenue bonds do not. General obligation bonds usually have shorter payoff period than revenue bonds.
Using revenue bonds for major capital projects that are repaid with gross receipts tax revenue cuts into revenues that should be used for essential services such as police protection, fire protection and government operations and personnel.
“ORPHAN MONTH” WINDFALL CLAIMED
In April of this years after the enactment of the city budget, the City’s Chief Financial Officer (CFO) Sanjay Bhaka revealed that the city would be collecting a $34.3 million windfall in gross receipts and property tax revenue created by a city accounting policy change. The fiscal year runs July 1 to June 30, but the city has traditionally applied June’s taxes to the following fiscal year because they do not arrive until August. CFO Bhaka referred to applying June’s revenues to the following year with the revenues received in August as an “orphan month”. The accounting policy shift extended the window in which the city can recognize the revenue and the accounting reset resulted in an extra $34.3 million in revenues.
According to CFO Bhakta, the accounting policy change was a “correction” of current practices and it aligns the city finances and accounting practices with state government financing and nearly all other governmental entities around the country. The $34.3 million according CFO Bhakta is a “one-time, lifetime” boost in revenues that the city cannot apply toward recurring costs. According to CFO Bhakta the $34.3 million windfall will be applied to numerous one-time investments the Keller Administration feels were important.
An option the city has is to divert all of the “orphan month” onetime $34.3 million windfall in gross receipts and property tax revenue created by the city accounting policy change to all of the proposed projects. The city’s fiscal year began on July 1, and the funding can be used for one-time projects.
COMMENTARY AND ANALYSIS
To be perfectly blunt, 7 of the 10 projects are not tourism related and are used overwhelming by the general public and not the tourist industry nor by the hotel or lodger tax industry. It is a real stretch of the imagination to say the projects will attract tourism. No amount of smiling and public relations and saying “we’re going through the right process” is going to change that fact. Without any financial analysis or actual proof to back him up, Mayor Keller and his administration simply argue that the projects will attract conventions or other sports-related tourism and events to Albuquerque.
It is a really big stretch and downright misleading to say that most of the projects are “tourist” and “tourism promotion” when they are obviously for general public use and not for tourism or promotion of tourism.
The projects and expenditures that are hard to justify as being tourist related are:
$10 million to improve Los Altos Park, including new softball fields, a BMX pump track and concession improvements.
$3.5 million for a soccer complex at an unidentified site with locker rooms that could host tournaments.
$3.5 million for the Jennifer Riordan Spark Kindness Complex, a West Side baseball venue.
$2.5 million to replace the city’s 16-year-old indoor track
$2 million for a “multiuse trail” linking East Downtown to Downtown.
$1 million for Isotopes Park upgrades, such as netting and field improvements. The Isotopes Park upgrades include
$500,000 for a “Northwest Mesa gateway.”
The projects and expenditures that can be legitimately argued as being tourist related are:
$4.5 million to upgrade the Albuquerque Convention and Visitors Center
$2.5 million to buy property for balloon landing sites.
$1 million for the forthcoming Route 66 Visitors Center at Central and 136th Street. The visitors center will be for both tourists and locals and plans include a museum, taproom and large event space for social and event gatherings.
$500,000 for a “Northwest Mesa gateway.”
LODGERS TAX CAN ONLY BE USED FOR ADVERTISING, PUBLICIZING AND PROMOTING” TOURISM
When you examine all the projects that will be finance by the “Sports Tourism Lodger” tax bonds, it is no doubt the projects are for the building of facilities and infrastructure. The glaring problem is the plain language of the lodger tax ordinance. It provides that at least one half of revenue generated from the lodger’s tax must be used “for the purpose of advertising, publicizing and promoting tourist-related attractions, facilities and events.”
The operable words in the city ordinance are “advertising, publicizing and promoting”. The debt of $31.5 million generated by the bonds will be paid by tax revenues that should be first applied to advertising, publicizing and promoting tourist-related attractions, facilities and events. Only after that is done can the funding be used to build, upgrade or make improvements to infrastructure and acquire or build facilities related to tourism.
It appears that Mayor Tim Keller and his administration became excited thinking that they found a revenue source with favorable bond market conditions and low interest rates to build sports facilities. It also appears they did not read or did not understand that the city’s lodger’s tax function should first be used for “advertising, publicizing and promoting” tourism.
KELLER’S INTENTIONAL SNUB
Mayor Keller intentionally ignored the Lodgers Tax Advisory Board and the Greater Albuquerque Hotel & Lodging Association. Instead, Keller and his administration came up with the sneaky title “Sports Tourism Lodger” tax bonds ostensibly thinking that using the term “tourism” would enable them to sell it to the public and city council and use the funding raised by the tax to build facilities to be promoted. No doubt Keller is surprised by the push back.
The Albuquerque City Council bought into the Keller argument of “Sports Tourism Lodger” tax. The city council unanimous vote really amounts to nothing more than just another money grab to finance construction projects and infrastructure they want without public input. This is identical to what they did when they voted $63 million dollars to build pickle ball courts, baseball fields and the ART bus project down central by bypassing the voters.
DO IT THE RIGHT WAY
Albuquerque is clearly carving out a major and significant niche in sports-related events and tourism. The huge success of the National Senior Games had an estimated $34 million impact on the local economy. The impressive championship success of the New Mexico United professional soccer team in its first year of existence attracting 12,000 fans a game and breaking attendance records cannot be overlooked. Attendance records are leading to discussion of building a permanent soccer stadium for the United Team.
If Mayor Tim Keller and the City Council truly want to proceed with the building a sport and event venue or stadium they needed to do it the right way with a ballot measure, use revenue bonds tied to ticket sales as was done with Isotopes Park renovations, or use the $34 million from the “orphan month” funding. Instead of being upfront, they were “sneaks”, raided the lodger tax fund and did a rush job to get what they wanted without any public input nor input from the industry that will be affected the most or input from the Lodgers Tax Advisory Board.
CONCLUSION
Mayor Tim Keller and the City Council would be wise to seek out further clarification if they had the authority and if it was legal to issue “Sports Tourism Lodger” tax bonds to build capital improvement projects and facilities for general public use contrary to the language, intent and purpose of the lodger’s tax ordinance. But then again, wisdom at city hall, especially when you get all excited for legacy projects, is in short supply these days.
What is in order is that New Mexico State Auditor Brian Colon should be asked to give an advisory opinion on the “Sports Tourism Lodger” tax bonds and how the money can be spent before the city issues the bonds and spends the money on all the projects in the first place.
Otherwise, Mayor Tim Keller and the Albuquerque City Council are inviting a lawsuit by the hotel and lodger industry to stop the issuance of the bonds and perhaps even scrutiny from New Mexico Attorney General Hector Balderas for waste, fraud and abuse of taxing authority by the city.
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POSTSCRIPT
On October 14th, the Albuquerque Journal published an opinion guest column entitled “Industry rates voice in where lodger tax goes” written by Michelle Dressler, President of the Greater Albuquerque Hotel & Lodging Association. Below is the guest column followed by the Journal link to it:
The Greater Albuquerque Hotel & Lodging Association (GAHLA) is concerned about the process for selecting projects and the manner in which the Lodgers Tax fund is spent. GAHLA represents over 100 lodging organizations and allied members with 7,480 guest rooms contributing to the fund.
As the generators of Lodgers Tax, we are troubled that the industry is not afforded the opportunity to provide advice and counsel on the use of the tax. Recently we have been blindsided by approved Lodgers Tax expenditures with no opportunity as stakeholders to be part of the conversation. The Lodgers Tax Advisory Board is also too often left out of the process. The mayor’s refinancing proposal to enhance “sports tourism infrastructure” and the One Albuquerque sculpture are just the latest examples of industry exclusion in the process.
GAHLA is committed to working with the administration and City Council to provide recommendations and suggestions on how best to use the tax to generate new room nights to grow city occupancy and increase revenues. Our objective is to set standards that will appropriately evaluate these projects for return on investment. When Lodgers Tax collections increase, so do gross-receipts taxes and employment.
We are currently studying the mayor’s proposal to refinance $9 million and purchase a new bond for $29 million using Lodgers Tax for improving infrastructure for sports tourism. We request time to study the proposals in the mayor’s package. We are requesting the data collected by the city when determining these projects. And we ask that a business case be developed for industry review and comment. What are the specifics of each project and how do they tie back to increasing overnight stays? We are currently creating a list of industry priorities for consideration. We appeal for an active voice in the process.
The Lodgers Tax Advisory Board was also not aware of the mayor’s sports-related tourism infrastructure package or the One Albuquerque sculpture purchase until they were announced in the press. This is simply not a good way to conduct city business and exemplifies why the ordinance regarding Lodgers Tax needs reform. We propose a formula for “level of impact” on the investment, and confirmation that occupancy tax expenditures clearly align with the intent of the law.
GAHLA will put forth a proposal for an amendment to change the Lodgers Tax ordinance to redefine the composition, roles and responsibilities, and the review and approval process for the Lodgers Tax Advisory Board. Expenditures must directly promote tourism and enhance the convention and lodging industry. Without strong industry oversight, the expectations and outcomes for the Lodgers Tax will continue to stray from the intent of the law by allowing for a broad and lax view of allowable uses. Redesigning the Lodgers Tax Advisory Board will address the issue of perceived misuse of the tax and strengthen accountability in spending. A strong and inclusive board with the ability to influence proposed uses of the tax is required.
Tourism is a bright spot in Albuquerque’s economy. Lodgers Tax collections have grown by over 10% in the past 12 months. The hospitality industry employs 44,000 citizens in Albuquerque. If we are to continue to grow tourism and expand our marketing efforts to help our destination become more vibrant, the fund must be protected. Making calculated and well-thought-out decisions, with guidance from the industry about the best possible use of this money, is paramount to our continued success.
GAHLA looks forward to working in conjunction with the hospitality industry at large, the city’s marketing agencies, the administration and City Council to use the occupancy tax responsibly and to keep our local economy growing.
https://www.abqjournal.com/1377927/industry-rates-voice-in-where-lodger-tax-goes.html