City Council raises hotel tax to back PFD

Supporters of the $65 million project expanding the Spokane Convention Center and Spokane Veterans Memorial Arena used bold print and an exclamation point for one of their main selling points: “It does not raise or create any new taxes!”

The statement and five similar no-new-tax pledges were made in a political ad mailed to thousands of Spokane households leading to an April vote approving the extension of sales and lodging taxes from 2033 to 2043 to pay for the construction.

On Monday night, the Spokane City Council did something that was unadvertised leading to the vote: Members raised the hotel tax to financially back the Spokane Public Facilities District’s expansion plans.

The tax, which affects hotels with 40 or more units, will increase from 2 percent to 3.3 percent and raise about $900,000 a year.

The purpose of the tax, city leaders say, is to create a reserve fund in case an economic downturn causes a shortfall in existing tax revenue needed to make payments on the Public Facilities District’s debt. Since officials say they don’t expect a shortfall, however, most of the money likely will be used for marketing hotels and tourism in Spokane.

“The tax is intended to support the indebtedness, but only under an unlikely event,” said Gavin Cooley, Spokane’s chief financial officer.

The Spokane Hotel Motel Association endorsed the increase earlier this year. The group will nominate three of the five members of a committee that will decide how to spend tax money not needed to back the debt.

Most council members said they strongly support the expansion plans and that increasing the tax could help the facilities district get a lower interest rate when selling $50 million worth of bonds for the project in November. Spokane County has agreed to sell the remaining $15 million of debt.

“We’re just trying to get the most bang for your buck,” Councilman Jon Snyder said.

But Councilman Mike Fagan, who cast the lone vote against the increase, said voters were “sold a bill of goods” since they were never warned about a possible tax increase.

“The action here sure sounds like a new tax and a tax increase to me,” he said.

Kevin Twohig, chief executive officer of the facilities district, said the district’s original plan was for the city to agree to pay any shortfall. Cooley said such a scenario is unlikely because current sales and hotel taxes used to pay debt raise about 20 percent more than what the new debt will be after borrowing the additional $65 million.

Even so, city administrators, following a downgrading of the district’s credit rating, told the district in January that they were uncomfortable guaranteeing the district’s debt. Cooley said the decision by Moody’s to downgrade the district’s rating largely resulted from renewed scrutiny credit agencies gave facilities districts after the Greater Wenatchee Regional Public Facilities District defaulted on debt on its arena in December.

City Councilwoman Nancy McLaughlin said administrators were right to be extra cautious about guaranteeing the district’s debt given the financial fallout Spokane experienced from its controversial deal with River Park Square, a deal that unraveled more than a decade ago. Increasing the hotel tax is less risky, she said.

“It just to me felt a little bit too close to the possibility of a River Park Square,” McLaughlin said. The downtown mall is owned by the Cowles Co., which also owns The Spokesman-Review.

Council President Ben Stuckart said a recent study indicated that the community does not spend enough on tourism marketing, an issue that will be addressed by the portion of the tax increase not used to cover debt. He stressed that the tax will be paid mostly by non-Spokane residents.

“It creates jobs and it creates long-term benefits for our community,” he said.