Fast track: COTA hotel deal could redirect city tax dollars to developer

The developer of a proposed hotel and conference center near Circuit of the Americas would receive payments from the city nearly comparable to the amount it would owe under the city’s hotel tax, under a package of incentives being considered at Austin City Hall.

Austn city council members will discuss the proposal today without the public hearings or staff presentation normally required for such deals, and before a final agreement has been released.

Item 6 on the agenda at today’s Council meeting would authorize the city to negotiate and execute an economic development agreement with the project’s developer, RIDA COTA Hotel LLC, for a hotel and conference facility planned adjacent to the racetrack in southeastern Travis County. Under the proposal, payments to the developer would be capped at an amount equal to 8.25 percent of the hotel’s gross room revenue annually for up to 30 years — if performance and compliance benchmarks are met.

Unlike some past incentive agreements, the council is not being asked to approve a finalized contract at today’s meeting. Instead, the vote would authorize City Manager T.C. Broadnax to continue negotiating the terms and ultimately execute an agreement based on the framework described in the agenda materials, with key details still under development.

The structure of the agreement and its long-term cost to the city remain unclear, however, with key financial projections and final terms still under negotiation and not yet publicly released.

Under the current framework, the city would not make any payments unless the hotel is built, opens, and begins generating Hotel Occupancy Tax revenue, which would then supply the repayment funds under the proposed incentive structure — believed to be a first for the city’s incentive efforts. 

Payments would not begin until after the hotel is operational and remitting taxes to the city, and would require annual approval by Council as part of the budget process.

Analysts who study convention center development say arrangements like this can be difficult to evaluate without detailed financial projections.

“When we’re talking about a public subsidy, a giveaway of public tax revenues ostensibly for economic development purposes, then you want to ask the question: What are we giving away, and how much and what are we getting for it?” said Heywood Sanders, a professor emeritus of public administration at the University of Texas at San Antonio.

Outside of the incentive package, other revenue streams generated by the development — including property and sales taxes — would continue to flow to the city without rebate.

City officials have framed the approach as a way to support a large-scale tourism investment without committing upfront public funds. Council Member Vanessa Fuentes, whose district includes the project site, said the model is intended to ensure that any city participation is tied to actual economic activity.

“This is all going to be based on revenue that the hotel itself collects based on tourists that come in and visit the hotel,” Fuentes told Austin Free Press, adding that the structure avoids the use of general fund dollars.

“The city doesn’t pay out anything until there’s compliance checks and there’s accountability that the entity is fulfilling what they have committed to,” she said.

As proposed, the project would include a roughly 1,000-room hotel and conference facility with about 170,000 square feet of meeting space, designed to serve mid-size events and resort-style gatherings rather than large-scale downtown conventions. That layout is planned to attract a different business audience than the downtown Austin Convention Center, which is being reconstructed through 2029.

According to city documents, the hotel and conference project is expected to total nearly $1 billion in private investment, along with hundreds of millions of dollars in taxable purchases associated with construction and operations. Over the life of the agreement, the development is projected to generate roughly $200 million in property and sales tax revenue for the city, with total tax benefits to all local jurisdictions, including schools, exceeding $600 million.

Fuentes sees the project as a major economic driver for the Del Valle area, which has historically seen less large-scale commercial development than other parts of the city. She pointed to job creation and workforce opportunities as central to the proposal.

The venue is expected to support approximately 900 permanent positions once operational, along with thousands of temporary construction jobs. Permanent staffers would be covered in an agreement with a hospitality workers’ union to support stable working conditions and provide a framework for employee representation.

The incentive framework also includes the dedication of nearly a dozen acres of public parkland, construction of athletic fields and a financial contribution to the city’s Affordable Housing Trust Fund.  

Because the hotel and its associated demand do not currently exist, city economic development staff argued at Tuesday’s work session meeting that any taxes used to support the agreement would be created by the development itself. 

The proposed deal would add to other approved incentives for the project, including state-level programs that allow developers of qualified convention center hotels to retain a portion of certain tax revenues generated on site.

City economic development staff have described the structure as a performance-based model tied to new tourism activity, with payments spread over time and contingent on the hotel’s actual operation. Under that approach, the city would retain all property and sales tax revenue generated by the project, while limiting its participation to revenue tied to hotel activity. 

In an email to Austin Free Press, Circuit of the Americas chairman Bobby Epstein said the project is intended to create a destination-style venue that complements existing attractions at the site.

“It is much more of a conference and event center than a typical convention center,” Epstein said, adding that the development could attract a range of events from sports tournaments to large gatherings and generate significant new economic activity. 

Even with the projections from RIDA and city staff, the long-term public impact of the agreement will depend on assumptions about hotel performance and tourism demand that have not yet been fully detailed in public materials.

“What you’re relying on are projections about the future,” Sanders said. “The question is whether those projections justify committing public resources over that length of time, and what the public is actually getting in return.”

Chad Swiatecki is a 30-year journalist who relocated to Austin from his home state of Michigan in 2008. He most enjoys covering the intersection of arts, business and local/state politics. He has written for Rolling Stone, Spin, New York Daily News, Texas Monthly, Austin Monitor, Austin Business Journal, Austin American-Statesman and many other regional and national outlets.