The tax on Downtown hotel rooms may soon rise to 19% — the highest in the nation — to generate $40 million in new revenue to attract conventions and tourism and fend off competitors bad-mouthing Chicago.
Three years after the Illinois General Assembly authorized the concept, the City Council’s Finance Committee finally took the first major step forward, scheduling a public hearing on the so-called, “Tourism Improvement District” for Feb. 27 in the Council chambers.
The public hearing on the tax, which would generate about $40 million in annual revenue, must precede a Council vote. More than 200 U.S. cities have already created tourism improvement districts.
“We’re in an arms race. We need … to keep up with the Joneses,” said 42nd Ward Ald. Brendan Reilly.
The 1.5 percentage point increase in the city’s 17.5% hotel tax within the boundaries of the proposed district would more than double the marketing budget for the convention and tourism agency known as Choose Chicago.
The Las Vegas Convention and Visitors Authority has an annual operating budget of $457 million, according to a comparison prepared by Choose Chicago. That’s followed by Visit Orlando ($116 million), Discover Los Angeles ($62 million), the San Diego Tourism Authority ($56.9 million) and New York’s NYC & Company ($45 million).
Choose Chicago is dead last among major convention cities at $33 million a year.
“We spend the least of our competitive set, and we also have additional challenges with our reputation that we’re trying to overcome,” Choose Chicago President and CEO Kristen Reynolds told the City Club of Chicago this week.
“A lot of those destinations don’t have the misperceptions of their cities that they’re having to explain away. … We have more work to do with less funding to do it. This would allow us to compete with the big boys,” Reynolds said.
The proposed tax increase would apply only at hotels with 100 or more rooms, within a designated area of the Greater Central Business District, that opt in. Revenue would be used to market the city, bankroll incentives and cover bid fees, such as the $1 million required to enter the competition to host the Democratic National Convention.
Michael Jacobson, president of the Illinois Hotel & Lodging Association, told the Finance Committee there is “strong support from a majority of hotels” within the district. They have agreed to “self-impose” a tax that would remain in place for five years before it would need reauthorization.
“Some of you might think it’s weird because I’ve been up here before many times and we’re usually a, ‘Hell no’ on any sort of tax increase or increase to any fee that relates to the hotel guests. But this is different,” Jacobson told the alderpersons.
“It’s a self-imposed assessment on hotel stays. It’s not a tax. It’s directed entirely by the hotel industry to support tourism sales, marketing and business development. It’s a lockbox fund that can only be used to drive more visitors to the city. Funds can’t be diverted elsewhere,” he said.
Annual audits would be required. Spending would be authorized by a board of 11 hotel operators large and small that would report to the board of Choose Chicago.
“If a convention organizer says, ‘I’m choosing between Nashville or Chicago — my attendees can walk to the convention center in Nashville given the layout of their convention center, but in Chicago we have to pay for buses from the Central Business District to McCormick Place, that’s a $60,000 spend for us.’ We can say we have this fund that can help offset that cost for you to make Chicago more attractive,” Jacobson said.
“For an expenditure like that or any major expenditure, there would have to be a detailed [return on investment] report after the event that shows that it really paid off,” he said.
Reynolds said secondary markets like New Orleans and Nashville are building bigger and better convention centers, and using incentives to portray Chicago as unsafe.
“They’re saying, ‘Chicago [has] got problems. Don’t go there.’ They’re sponsoring transportation. We don’t have those dollars. This would really allow us to compete,” Reynolds said.
Finance Chair and 3rd Ward Ald. Pat Dowell called the new district a “no-brainer” and wondered why it wasn’t implemented sooner. Ald. Bill Conway (34th) called it a “game changer” for a Downtown area that has not yet recovered from the pandemic.
Ald. Brian Hopkins (2nd) applauded hotel operators for “taking one for the team” to put “more heads in beds and add more feet on the street.”
If eventually approved, the tax could be in place by late spring, according to Budget Chair and 28th Ward Ald. Jason Ervin.
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