Proposed tax would add $2 to average hotel room cost

Philadelphia hotel guests may soon pay more in taxes to sleep over than visitors to all but three other major U.S. cities.

A measure pending in Harrisburg would allow City Council in the fall to impose a "hospitality promotion tax" of up to 1.5 percent. If approved by both legislative bodies, overnight guests in Philadelphia would face total room taxes of 15.5 percent.

As of now, 14 other cities charge at least 14 percent, the current rate in Philadelphia. The proposed increase would leave only hotel guests in Houston, San Antonio and Seattle paying higher taxes.

The increase, which would tack on $2 to the average daily rate of a Philadelphia hotel room, would generate an estimated $9 million next year.

The money would be used to market the city and help resolve a new and growing problem: a shortfall of cash needed to expand the Convention Center.

Sources told The Inquirer last week that initial construction costs were at least $20 million over budget. The entire $700 million project is to be funded with state gambling revenue from two still-unbuilt Philadelphia casinos.

"We're not asking Harrisburg for any additional dollars. We're asking the General Assembly for authorization at the local level," Mayor Nutter said, noting that the city could not levy the proposed tax without state approval. "The important decision at the moment is making sure the authorization is there."

The bill authorizing City Council's power to raise the tax passed in the House by a vote of 123-73. It will now go to the Senate.

City tourism officials have been pushing for two years for a boost in the hotel tax as a way to generate extra marketing revenue.

They supported a 1 percent increase, with the estimated $6 million in revenue it would raise reserved for tourism promotion. The money was to be evenly split between the Philadelphia Convention and Visitors Bureau and the Greater Philadelphia Tourism Marketing Corp.

The legislation was amended in the Finance Committee last week, raising the tax increase to 1.5 percent and adding a third and far more general use for the money: "Revenues shall be used to further support the expanded Pennsylvania Convention Center."

The new bill does not indicate how much money would go to the tourism agencies or to the Convention Center. However, whatever money does go to the center would be used to pay costs associated with issuing a state bond to cover the shortfall, according to people familiar with the legislation.

The bill also suggested there was urgency, making the proposed increase effective immediately, rather than 60 days after the bill became law.

Rep. Jewell Williams, a Philadelphia Democrat who sponsored the amendment, said: "We are leaving it up to the City Council and the Mayor's Office to make a determination of how it should be used."

Rep. Dwight Evans (D., Phila.), chairman of the Appropriations Committee and a driving force in the Convention Center's 15-year history, did not return a call yesterday.

However, the vague language has elicited some opposition from at least one unlikely source - a Montgomery County Democrat who emphasized his support of Philadelphia's tourism efforts.

"Until someone makes the case to me as to why this money is needed and where it is going, I'm not comfortable increasing the hotel tax," Rep. Josh Shapiro said. He said he asked that question during a Finance Committee hearing last Monday. "No one was able to answer."

Nutter, former board chairman of the Convention Center, made a direct plea for the increased tax Thursday to the Greater Philadelphia Hotel Association, which heard from other city officials as well.

"The cost overruns of the Convention Center were brought to us, and we were asked whether we'd support going above the 1 percent to ensure the expansion," said Bill Fitzgerald, president of the hotel association and general manager of the Doubletree Hotel in Center City.

"Once we thought it through, we said, 'Absolutely,' " he said. "We need to get it built . . . and we need the marketing dollars."

The association was not concerned that the increase would hurt hotel occupancy.

Data the association supplied showed that Philadelphia's total average room costs with the tax hike would be $137, less than costs in downtown Boston and Washington, two of Philadelphia's top competitors for conventions. The total average cost in Boston is $230; in Washington it is $233.

"With regard to the level of the hotel tax," Nutter said, "the larger issue is making sure we have the finest convention center on the East Coast, if not the United States."