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Its fate could be decided this week.

The agreement brokered by Morial in February called for the city's hotels and motels to start paying a 1 percent sales tax to cover a portion of the Regional Transit Authority's costs for the streetcar project.

The RTA, controlled by Morial appointees, voted last year to lift an exemption for hotels and motels that had been written into the tax law when it was passed by referendum in 1985.

The revenue was to be used for the 20 percent local match required for federally financed capital projects, notably the $153 million Canal streetcar line, a top priority for Morial. The RTA has a June 30 deadline to tell federal officials where the local match for that project will come from.

Hotel executives who had been fighting the tax agreed in February to drop their opposition in exchange for a large share of the $7 million a year the tax is expected to generate. The RTA in turn would drop its lawsuit to force collection to begin.

But in recent weeks, some leaders of the city's hospitality industry have expressed doubt about the legality of several aspects of the "agreement in principle" announced by Morial and industry leaders Feb. 11.

The legal issues include:

• Whether the RTA can distribute part of the tax receipts to agencies that do not provide transit services. Under the proposed agreement, 20 percent of the tax proceeds would go to the New Orleans Tourism Marketing Corp. to expand its advertising for New Orleans, and another 20 percent would be placed in a trust fund for New Orleans' share of the cost of a fourth phase of the state-owned Ernest N. Morial Convention Center. If, as expected, revenue from the tax exceeds $7 million in a few years, 60 percent of the additional revenue would be divided between the Tourism Marketing Corp. and the Convention Center trust fund.
• Whether the exemption on hotels can be lifted while other exemptions approved by voters in 1985, such as for groceries, prescription drugs and prosthetic devices, remain in effect.
• Whether the convention center could use the money in the trust fund to sell bonds for the expansion, so long as there are questions about the tax's legality.

Some industry figures also have questioned the lack of a sunset provision on the hotel tax.

Despite their legal qualms, many hotel operators are prepared to start collecting the tax and "see what happens," such as whether anyone files a suit challenging its legality, said Bill Langkopp, executive vice president of the Greater New Orleans Hotel-Motel Association.

But other tourism leaders, including several board members of the New Orleans Metropolitan Convention and Visitors Bureau, want to get the legal issues resolved first.

Steve Ferran, general manager of the Omni Royal Orleans Hotel and chairman of the Convention and Visitors Bureau, said attorneys "are trying to confect wording both sides would be comfortable with" but that "some components currently are unacceptable to all parties."

"All of us want to see the streetcar happen," Ferran said. "We're working very hard to come up with a way to make that happen."

Although the debate has taken place largely outside of public view, restaurateur Ralph Brennan, president of the board that runs the convention center, went public with his concerns at a meeting of his board last week.

While he supports the streetcar project, Brennan said, "We have to be sure we can accept this money." If the agreement is challenged, he said, the board doesn't want to be forced to return money.

Brennan said his board's legal advisers received a draft of the final agreement from the RTA's attorneys about three weeks ago. They recommended that it undergo a judicial review, possibly as high as the state Supreme Court, before the RTA starts collecting the tax.

Brennan said the board's legal concerns have been presented to Salvador Anzelmo, the RTA's legal counsel on the case, and RTA Chairman Robert Tucker.

Although the Convention and Visitors Bureau would not share in the proceeds from the tax, it must sign off on any agreement because it intervened in the RTA's lawsuit along with the Hotel Association and 16 individual hotels. In court documents, attorneys for the bureau contended that the RTA lacks the legal authority to revoke a tax exemption that was granted by New Orleans voters.

The Visitors Bureau board was scheduled to meet Friday to discuss the agreement but postponed the meeting until Tuesday. Sources said board members will meet with Morial on Monday to discuss their concerns.

Morial said he was surprised to hear that anyone is concerned about the agreement.

"We made a deal, and I expect that all parties will live up to the deal," he said. "No one who is a party to the deal has expressed even a scintilla of a problem. And I think it's pretty disrespectful of the office I hold that all of a sudden there's a problem and no one has come to talk to me about it."

Sources in the hospitality industry said they have tried to schedule meetings with Morial but he has been unavailable.

Despite the tourism leaders' concerns, the RTA's legal advisers said they expect the issue to be resolved soon.

"It's almost a done deal," said Anzelmo, who was city attorney under Mayor Dutch Morial, Marc Morial's father. "We just have a few minor considerations to overcome. ... We don't believe there is solid opposition to going forward with implementing the settlement in principle."

In seeking to levy the tax on hotels and motels, the RTA is relying on a legal opinion written by Anzelmo.

In 1985, New Orleans voters approved levying the penny sales tax, the RTA's primary source of income, in a referendum that specifically exempted hotels and motels from the tax. But according to Anzelmo's opinion, the exemption was unconstitutional.

Anzelmo's analysis focuses on the 1966 constitutional amendment establishing a hotel-motel tax in Jefferson and Orleans parishes to finance construction of the Superdome. The amendment, approved by voters statewide, said hotels and motels would be exempt from all local sales taxes in effect prior to 1966, he said.

Because the RTA's 1-cent tax was not in effect in 1966, Anzelmo said, it is unconstitutional to subject it to the restrictions outlined in the amendment that created the Superdome tax. "The Superdome tax abatement was never intended to apply to the RTA tax because (the RTA tax) didn't even exist," he said.

As a result, he said, the exemption from the RTA tax for hotel rooms amounts to an illegal "grant or donation by the RTA" to hotel guests.

A document prepared by Anzelmo and his staff spelling out the details of February's agreement in principle calls for state Attorney General Richard Ieyoub to issue an opinion on the legality of the settlement. Anzelmo said he thinks Ieyoub could rule as early as this week.

Ieyoub could not be reached for comment.

In February, hotel executives said they expected to begin collecting the tax by May, enabling the RTA to assure the federal government that the agency could provide matching dollars for the Canal streetcar line and other planned rail projects.

Facing a "drop-dead date" of June 30 to find the matching money, RTA officials have said they need to begin collecting the tax in June, or at least to have all sides sign off on the final agreement by then.

One tourism leader said Morial recently was given a list of other possible sources of money for the project, but that Morial said he remains committed to the plan announced in February.

In a talk to tourism leaders in March, Morial said he is confident the plan is legal and will be upheld by Ieyoub's office and the courts.