Mixed results have resulted from the two most recent attempts to hike these taxes in the parish. Last December voters in north Baton Rouge approved a two percent levy on rooms only within that area of the city, with proceeds devoted to financing economic development there. On the same day, a parishwide proposition failed that would have done the same to hotels in Baton Rouge not in that district with proceeds devoted to funding the River Center and tourism efforts.
Tourism officials hope to try again later this year. They attribute the narrow defeat of last year to a lack of voter “education,” or a formulation that many in the electorate didn’t realize the tax supposedly affects only tourists. In fact, significantly lower levels of support registered in precisely the areas unaffected by the tax: Baker, Central, Zachary, and north Baton Rouge.
But these special interest backers, who directly would benefit from approval, may have misread the wisdom of opponents. In their rhetoric, advocates of such taxes assume a simple equation that demand remains entirely unaffected by slapping on a tax to room rentals, or at least insignificantly so. Research shows this notion as tenuous at best.
In reality, as basic economics would predict, rates made artificially higher cause a fall in demand, eating into possible collections. Further, negative spillover effects occur, such as a reduction in sales tax revenue from purchases not made by tourists forgoing a stay in the jurisdiction.
The extent of these effects depends upon the elasticity of demand. Essentially, the impact grows larger as the innate attractiveness of the environment decreases and the wealth of the typical tourist for that environment declines (factors also somewhat related). For example, New Orleans’ popularity as a travel destination blunts elasticity, as does New York City’s status as a one of the world’s premier business centers representing great wealth.
So, for locations neither particularly compelling nor likely to attract wealthier visitors, an occupancy tax could have its net costs outweigh the additional revenue gathered by it. Further, no real research has attempted to quantify even more distant indirect effects, such as the loss of jobs that comes from a higher tax that may reduce occupancy rates, leading to layoffs of hotel staff, restaurant employees, and the like.
And, let’s face it, Baton Rouge as a tourist destination in and of itself lights few fires and those that do come probably do not disproportionately come from the wealthier class. Thus, the disincentive posed by higher hotel rates that pass along an increased occupancy tax will have an outsized impact that depresses overall tax revenues.
Instinctively, a number of voters realize this and vote against such measures. That the latest versions targeted special interests as beneficiaries whose activities do not bring unambiguous benefits to the parish as a whole undoubtedly also played a part in last year’s defeat of the geographically wider proposition.
But those beneficiaries hope the oversimplified view they propagate will entice voters who give cursory, if any, analysis to the issue to push the button in their favor. Hopefully, a more complete and comprehensive explanation of the issue will emerge and enjoy publicity prior to any attempt to pass a tax similar to the one previously rejected.