Hotel tax could increase to boost tourism budget

Chicago’s hotel tax — already the highest among convention cities — may soon rise to 18.9% at downtown hotels to generate more than $50 million in annual revenue to help market the city.

One year after the Illinois General Assembly authorized the concept, Choose Chicago is laying the groundwork to create a so-called Tourism Improvement District that would more than double the marketing agency's annual budget by increasing the tax from the current 17.4%.

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 ($57 million) and New York’s NYC & Company ($45 million).

Choose Chicago is dead last among major convention cities at $29 million a year.

Michael Jacobson, president of the Illinois Hotel & Lodging Association, traced the funding crisis to the marathon budget stand-off that dominated Bruce Rauner’s only term as governor.

“Choose Chicago used to have about a dozen or so international representatives in foreign countries that worked to promote tourism in Chicago. We had them all throughout Europe and China and Japan,” Jacobson recalled.

"During the Rauner budget stalemate, Choose Chicago’s budget got frozen. They shut down international offices that never reopened. Every other major market has an international marketing program with ads and people who are strictly there to sell their cities. We don’t have that in Chicago," Jacobson said.

A higher tax and budget, he added, "would allow us to have a bigger international presence and create a dedicated funding source so we could continue convincing domestic travelers to come to Chicago.”

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. The estimated $50 million increase in annual revenue would be used to market the city as a center for conventions and tourism.

It also would cover incentives and "bid fees" — there was, for instance, a $1 million fee just to enter the competition for the Democratic National Convention. Chicago's handling of that event was widely-acclaimed.

"Luckily, we have a billionaire governor who was willing to front the money. Not all of it. ... We had all of these people fundraising. But we don’t have that for your normal, run-of-the-mill convention,” Jacobson said.

“When the governor floated the idea of doing it again in 2023, the first reaction was, 'How are we gonna find the money to do that?'"

When the National Restaurant Association’s contract expired, organizers of that event were being offered cash incentives by a host of other cities. Chicago had no way to compete, Jacobson said.

“It’s not unusual for a city to offer $1 million in cash to a show organizer because they know the economic impact. We don’t have any sort of capability or funding to pay for these bid fees or incentives. This would go a long way toward winning new business,” he said.

Mayor Brandon Johnson campaigned on a promise to raise the hotel tax to well over 20%. Hotel operators were opposed.

Why, then, are they talking about raising the tax on themselves one-and-a-half percentage points, 18.9%?

Rich Gamble, interim CEO of Choose Chicago, told the Sun-Times he doesn't see it as a tax.

"This is an assessment that would go against the room rate and it would be used specifically to drive sales and marketing initiatives that would drive tourism," Gamble told the Sun-Times.

"We worked with hotels on the development of this, and they're in favor of the numbers we've set. They are supportive of this initiative that helps drive more tourists to stay in hotels."

Jacobson noted the people most likely to "balk" at the increase are meeting planners.

"We’ll quiet down their hesitation or dissatisfaction by being able to give them new incentives that we’ve never been able to give them,” Jacobson said.

Over 200 cities already have Tourism Improvement Districts. Chicago needs to get in the game, Gamble said.

"Our entire budget is what Los Angeles gets in their tourism improvement district alone. ... We're a little behind and, in some cases, way behind other similar convention and tourism bureaus," Gamble said.

John Rutledge, chairman and CEO of Oxford Hotels & Resorts, calls himself a "strong advocate" for the higher tax.

"We need to promote Chicago now more than ever to keep it competitive given some of the challenges we have," said Rutledge, whose company owns the LondonHouse, Godfrey and Le Meridien Essex hotels in Chicago.

"It's still the most beautiful big city. ... It's still the most livable big city in America," Rutledge said.

"But with taxes, real estate taxes, crime challenges and population leakage, we've got some real challenges. So we've got to get out aggressively promoting Chicago more than ever — globally, nationally, regionally. This will allow us to do so much more effectively."