Mythbusters: Austin can support live music with hotel taxes NOW!

July 8th 2019

Last week a couple of press outlets in town reported that convention center expansion is the only way to unlock well-deserved hotel tax revenues for live music venues and musicians. Those articles were based on two myths. These two related myths—that the only way to increase funding for live music is by expanding the convention center, and that expanding the convention center will generate new money for live music—are addressed in this brief report.

In short, the Austin City Council can increase funding for live music, and heritage tourism more broadly, at their next meeting by simply reallocating a portion of the fixed percentage of hotel occupancy tax that is accumulating, unused, in a convention center account.

The convention center does not need these funds to meet current debt service requirements, and the City could spend that money today to benefit what visitors and residents love most about Austin, including live music, local small business, the arts, parks, and pools.

Expanding the convention center, as currently proposed, would tie up well over $2 billion in hotel occupancy tax (HOT) revenue collected over the next 30-years of expansion debt financing. That would mean that tens of millions of HOT revenues every year for 30 years that we should invest in our local music and heritage would be lost.

MYTH #1: The only way to support live music is by growing the Cultural Arts fund via convention center expansion.

This year, despite self-reported operating losses of $43 million, the convention center has $26 million on hand not needed for operations, improvements, or debt service. Those funds are in those accounts as the City’s allocations to the Convention Center are not tied to its performance. Instead, the Convention Center receives a fixed percentage of overall hotel occupancy tax (HOT) revenue. So even as Austin’s Convention Center business has been in decline since 2015 (from 445k hotel room nights generated to 380k in 2018), and generates less than 3.8% of overall hotel visitors, its allocation, fixed at 72% of total HOT, has jumped from $44.6 million in 2013 to $71.6 million in 2018. Thus, even though Austin’s tourism boom has been driven largely driven by our authentic cultural heritage, the resulting hotel tax bonanza has gone toward subsidizing the declining convention industry. (1)

City Council could choose at their very next meeting to reallocate $25 million from the convention center’s excess subsidies to robustly fund a Heritage Marketing program that vastly increases the existing promotion budgets for film, music and small business, as well as fund programs to shuttle tourists to attractions. Texas Tax Code §351.101(a)(3) provides a provision for “advertising and conducting solicitations and promotional programs to attract tourists and convention delegates or registrants to the municipality or its vicinity” that allows the City to both provide marketing support to film and TV productions shot and set in Austin. That provision also provides for paying musicians and artists to promote Austin as a tourism destination. Texas Tax Code §351.110 also allows for HOT spending on transportation from hotels to “tourist attractions in or near the municipality.”

Under these provisions, we could aggressively grow the business for live music venues and local musicians, as Nashville and New Orleans have successfully done. We do this by putting live music and musicians at the Center of a Heritage Tourism strategy with robust resources.

Specifically, we could have Red River and South Austin trolley buses that make a circuit of hotels around town then drop people off at 9th and Red River and at clubs in the 04; we could give musicians Sprinter vans for touring emblazoned with skins marketing Austin as a music destination, creating a national network of rolling billboards; we could pay musicians on tour to act as spokespeople for Austin tourism, training them to promote Austin as a destination when doing media appearances like radio on-airs, in-stores and interviews on tour; we could also pay artists to promote Austin on their social media; we could allocate robust marketing funding for music venues to grow their tourist business; for the Red River Cultural District to market itself as a regional destination, like New Orleans’ Frenchman Street; to Six Square, cultural events and festivals (as Houston and other cities do); we can directly fund export programs like ATX6 and House of Songs, which grow awareness of Austin around the world; and we can have a television advertising campaign that focuses on what’s authentically Austin, especially live music.

We should remember where we started: a TV and music production called Austin City Limits put us on the global stage. These types of programs, which utilize musicians, artists, small businesses, music venues, and other cultural assets to grow our overall tourism economy, can be funded under the “promotional programs” provision, separate from the Cultural arts grants programs. Under the law, Austin can use hotel tax revenues to grow live music tourism now!

MYTH #2: Expanding the convention center will create new money for live music.

Texas Tax Code Section 351.1065, which is the mechanism the convention center expansion advocates have proposed for funding the convention center expansion and providing funding for live music, reads: “(a) An eligible central municipality shall use the amount of revenue from the tax that is derived from the application of the tax at a rate of more than seven percent of the cost of a room only for: (1) the construction of an expansion of an existing Convention Center facility…” (emphasis added). That means that the revenue generated from the increase of the tax from 7 to 9 cents can only be used for expansion. Therefore, if the City intends to allocate any money for other uses, such as live music, we must reduce the current fixed percentage that goes to operate the Convention Center under City Code §11-2-7 (B) (1).

Reducing that fixed percentage will not be likely if we expand the convention facility, which will possibly have higher operating losses and will certainly need greater financing capacity for the staggering $1.2 billion expansion—a figure that does not take into account the inevitable construction cost overruns, or whether the Center will reach its attendance projections. The current center has reached only about 50% of the business projected for it in 1996. (6) There is little evidence for believing that an expanded convention center would do significantly better.

Under our current system, the City of Austin is literally transferring tourism wealth—created by live music, arts, parks, restaurants, and local business—to multinational hotel chains.

When we look at how other cities in Texas spend their HOT revenue, we realize that no other city is as over-invested in the outdated convention model as Austin. According to the Texas Comptroller, in 2017 Austin allocated $67,422,346 in unearned revenue to our convention center, over $25 million more than the next highest, San Antonio at $41,725,710. (7) That unearned revenue is primarily spent purchasing convention services from huge multinational hotels. The return on investment is terrible for our community. As Professor Steven Pearlstein of George Mason University observes, “Convention center subsidies tend to generate meager public returns and generous private ones.” (8)

Austin doesn’t need a staggeringly expensive convention center expansion to generate more money for music; we need to focus resources, currently available, on aggressively growing the live music tourism market—now.


In short, the Austin City Council can increase funding for live music, and heritage tourism more broadly, at their next meeting by simply reallocating a portion of the fixed percentage of hotel occupancy tax that is accumulating, unused, in a convention center account.

The convention center does not need these funds to meet current debt service requirements, and the City could spend that money today to benefit what visitors and residents love most about Austin, including live music, local small business, the arts, parks, and pools.

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