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Group of Hoteliers File Lawsuit Challenging the Legality of 5%
 hotel-room Tax Used to Fund a Competing, Publicy
 Owned Convention Hotel
By George Miller, Erie Times-News, Pa.
Knight Ridder/Tribune Business News

Jun. 8, 2005 - A group of Erie County hoteliers filed a lawsuit Tuesday that challenges the legality of the county's 5 percent hotel-room tax.

The hoteliers questioned the constitutionality of a tax they say they must collect to help pay for the proposed convention center hotel.

"The existing hotels have been unfairly burdened with a tax that is being used to fund a competing new, publicly owned and subsidized hotel," the lawsuit said.

The lawsuit, filed in Erie County Court, seeks a ruling that the tax is unconstitutional and an order halting further collection.

It also seeks a refund of the estimated $6 million in tax that has gone to the Erie County Convention Center Authority since the tax's inception in mid-2001. The $6 million will go toward building and operating the hotel and convention center.

Authority officials said the project will move forward, despite the lawsuit.

"I have every reason to believe the project will proceed on schedule,"said Roger Richards, who heads the authority's development committee.

The authority hopes to close on $48 million in bonds this month for construction of the 203-room Sheraton hotel. Groundbreaking for the convention center and hotel project has been targeted for early August.

Richards said the authority has already researched the tax issue and found that similar litigation in three other areas in the state has been unsuccessful.

"Based on all the research we've done, we're optimistic we should go forward," he said.

But he said he was disappointed by the hoteliers' decision, noting the lawsuit jeopardizes a $100 million project that will create more than 400 permanent jobs.

Erie County's room tax went into effect May 1, 2001. Eighty percent goes to the authority, while 20 percent goes to the Erie Area Convention & Visitors Bureau.

Tuesday's lawsuit listed 16 hotels as plaintiffs. Among them are the Avalon Hotel, El Patio Motel, Best Western, the Bel-Aire Clarion Hotel and Conference Center, and the Golden Triangle Motel, as well as facilities owned by Erie hotelier Nick Scott Sr., the county's largest hotelier.

Named as defendants were Erie County; the city of Erie; the Convention Center Authority; and PNC Bank, which loaned the authority $5 million for the convention center project.

The lawsuit called the proposed convention center hotel "grandiose" and "the largest and most luxurious hotel ever built in Erie County," questioning the need for it.

"We are challenging the notion that the headquarters hotel must be publicly financed, must have more than 200 rooms and must have a four-star rating," said Kent Maynard Jr. of Chicago, Ill., Scott's son-in-law and the lead counsel for the hoteliers.

The complaint pointed to a study done on behalf of local hoteliers that concluded that a 200-room hotel would not be profitable and should be reduced in size. The lawsuit also cited a report by an urban-affairs expert who questioned the success of publicly financed convention center hotel projects.

The lawsuit also criticized a report by the authority's consultant that concluded the hotel would be profitable.

The authority has originally negotiated with Scott to build a 131-room headquarters hotel, but those talks fell through in the fall of 2003 over financing commitments.

Maynard said the new hotel will siphon business from local hoteliers even as they collect the tax to build it with public financing. The authority will issue the bonds to build the hotel and will repay the debt with hotel revenue. Erie County is guaranteeing the bonds.

"That's not competing on a level playing field," said Maynard.

He said the authority is already seeking corporate commitments for the Sheraton from firms who use existing hotels.

"To the extent the room tax is being utilized in support of the project, it is unconstitutional in that it burdens (the hoteliers) without conferring any benefit," he said in the lawsuit.

Authority officials said they believe the convention center will generate more business for local hotels.

Richards said the hotel tax money does not go toward the hotel project. "It's completely segregated in our accounting," he said.

The lawsuit was filed by local counsel Michael Agresti.


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Copyright (c) 2005, Erie Times-News, Pa.

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