California’s response to COVID-19 has left hotels mostly vacant and has cost hotel workers their jobs. It’s also costing the city of Sacramento millions of dollars in hotel-room taxes.
Before the crisis, through February, the Sacramento was on pace to match last year’s total of $35 million raised through its Transient Occupancy Tax, or TOT, a 12% levy on hotel rooms.
But that was before Gov. Gavin Newsom advised that non-essential businesses shut down and hotels could only provide rooms to essential workers.
Mike Testa with Visit Sacramento says a recent survey showed hotel bookings are down by about 70 percent on average, but for many it’s worse.
“The challenge for some of the hotels is it’s more cost-effective to close than it is to remain open for such a low occupancy,” Testa said. “One of the side effects unfortunately has been employees being furloughed or hotel employees being laid off.”
Hotel tax revenue is used to pay for city projects and events that attract tourists to local businesses. The tax is also used as the backbone to pay off the $283 million in bonds used to remodel and upgrade the convention center, Community Center Theater and Memorial Auditorium.
In the past, the city's worst-case scenario for a hotel tax shortfall was 10%. This year, officials estimate it could reach 28%, but they won't know for sure until July.
“There’s a lag of approximately 50-60 days after the month closes in order to determine what the true collections were,” city debt manager Brian Wong said of revenues.
Even if hotels are allowed to reopen by mid-June, City Treasurer John Colville says the tax will come up $9 million short for the calendar year. There is money related, and the city is saving operated expenses due to the convention center being closed. But some projects will be deferred, such as the Old Sacramento riverfront upgrade.
The city forecasts a full recovery for monthly hotel tax revenue by next July, but only 40 percent of normal by December.
The city has yet to pay off its previous tab for the Sacramento Convention Center, which dates back to 1993. It has hotel tax money from this year to make a final payment on those bonds.
The city also owes on the Golden 1 Center. Those bonds aren't paid with hotel tax revenue, though; it's funded from parking tickets and fees, which are also down. The city owes $19 million in payments this year.
Coleville says the city hopes to use Measure U sales tax dollars to pay off the arena bill. If that doesn't work, it may turn to the general fund.
As of April 30, the city forecast a $90 million shortfall over the next 18 months, and its budget proposal hopes to use some $89 million federal stimulus dollars to help. City Council will learn whether that is legal at its May 26 meeting.
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