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The "agreement in principle," brokered by Mayor Marc Morial in closed-door talks over the past two months, calls for the Regional Transit Authority to drop its lawsuit to force the city's hotels and motels to charge a one-cent sales tax from which they were exempted when voters passed the tax in 1985.

The RTA has been seeking to impose the tax to provide the 20 percent local match required for federally financed capital projects such as the $153 million Canal streetcar line.

The hotels have been fighting the effort, saying the RTA has no legal right to lift their exemption and that adding the tax to hotel bills would hurt the city's thriving tourism industry.

But in exchange for a share of the $7 million a year the tax is expected to generate its first year, the hotels agreed to begin adding the charge to guests' bills, probably by May. It will take that long to put Friday's settlement into written form and for hotels and motels to adjust their computers, a hotel executive said.

"I think this settlement is a big, big, big win for the people of this city," Morial said in announcing the agreement. Rather than watch the two sides fight it out in court, he said, he brought them together to talk about striking a deal all could live with.

Under the settlement, the first $7 million a year in revenue from the tax will be split this way:

• 60 percent to the RTA to pay its share of projects including the Canal streetcar line and, later, a new North Rampart Street-St. Claude Avenue "Streetcar Named Desire" line and a light-rail line from the Central Business District to New Orleans International Airport.
• 20 percent to the New Orleans Tourism Marketing Corp. to expand its advertising budget to market New Orleans to potential visitors in cities such as New York, Chicago and Los Angeles.
• 20 percent to a trust fund for New Orleans' share of the cost of a fourth phase of the state-owned Convention Center, a facility that one tourism executive Friday described as the engine driving the city's tourist economy.

The center has commissioned a $167,000 study of the feasibility and best site for a fourth phase and is expected to ask the Legislature this spring to put up part of the cost, expected to be at least $150 million. The center's staff and board have been looking at two primary expansion sites for the already 10-block-long convention hall. One is across Julia Street at the center's downriver end, the other across Convention Center Boulevard near its upriver end.

If, as expected, annual revenue from the tax rises above $7 million as hotel room rates rise and more rooms are built, the additional revenue will be divided this way:

• 40 percent to the RTA for capital needs.
• 30 percent to the Tourism Marketing Corp.
• 30 percent to the Convention Center trust fund.

The dispute that led to the RTA lawsuit erupted last summer when the cash-strapped transit agency, seeking a way to pay its share of the Canal streetcar project, decided to try to lift the exemption granted to hotels and motels when the 1985 tax was imposed.

Arguing that the exemption was invalid to begin with, the RTA went to court seeking a judgment that it could legally impose the tax on hotel and motel bills. The case was scheduled to go to trial next week in Civil District Court.

"I think this settlement has come about," Morial said, "because the leaders in the hospitality community in this city ... have a lot of vision and understand that what the RTA wants to do with its Canal Street streetcar line and its other rail lines" will benefit the tourism industry. "One of the reasons people visit New Orleans is because of the historic streetcars," he said.

The extra $1.4 million or more a year the Tourism Marketing Corp. will get will give the agency "the largest advertising budget in its history," Morial said.

The like amount of money for the Convention Center expansion should demonstrate the city's commitment to expanding the center when approaching state officials for the rest of the money, he said.

With the settlement, Morial said, the RTA can tell the Federal Transit Administration it has found the local share of the streetcar project. The RTA had a "drop dead date" of June 30 to find the matching money.

RTA Chairman Bob Tucker said the settlement "might well be characterized as the settlement of the millennium, because it effectively thrusts New Orleans into a prime role as a city that is making the return to rail real."

Construction on the Canal streetcar line, expected to take three years, will restore service that was replaced with buses in the 1960s.

Leland Lewis, president of the Greater New Orleans Hotel-Motel Association, lauded Morial for having "opened up the lines of communication to the hotel association like they've not been open in the past, to my knowledge."

The Canal streetcar, he said, will help "bring downtown New Orleans back, for sure."

"This agreement not only helps the city from an overall amenities standpoint, it helps our employees," said Lewis, who is general manager of the Hotel Inter-Continental. "We're going to have a better ability to get our employees to and from work and our tourists to and from different venues."