Austin considers how to make up for millions in lost hotel tax revenue

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Bastrop City Council moves to use reserve funds after its hotel revenue gap was even larger than expected

AUSTIN (KXAN) — City governments are starting to prepare their budgets for the next fiscal year, and some are expecting a big hit because of the pandemic — specifically because people didn’t decide to come visit.

Austin’s budget office is expected to provide a financial forecast report to council members on Friday that will include a shortfall in money from hotel occupancy tax, thanks to 2020’s drop in tourism.

“Revenues were down 90% in April of 2020,” said Vijay Patel, CEO of Humble Origins Hospitality Management.

Patel owns and manages several hotels in Austin and is also the director of the Austin Hotel and Lodging Association.

He said although traffic isn’t back to normal, it’s better.

“We probably are about 67% of our revenue of our highs of 2019, so we still got a long slow climb to get back to 100%,” Patel said.

The city expects to close out the year nearly $41 million short of Hotel Occupancy Tax, or HOT, revenue compared to last fiscal year.

It’s meant funding cuts to services like the Cultural Arts Fund, Historic Preservation Fund, Live Music Fund and the Austin Convention Center Department.

It’s also meant Visit Austin’s budget has gone from $14.5 million to $4.5 million, said its president and CEO, Tom Noonan.

“That’s concerning to me because we need to get out there and tell people that were open that, you know, ‘Come see our musicians, you know, come eat in our restaurants, stay in our hotels, fly into our airport, etc.’ And we don’t have much of a budget to do that,” Noonan said.

In a memo to the mayor and city council members this week, Austin’s city manager said they may be able to use funds from the American Rescue Plan to offset some of that loss.

“The City Council is currently engaged in an ongoing discussion about how to allocate ARP funding across many competing priorities,” a city spokesperson told KXAN News on Thursday.

In Bastrop, shortfall even worse than expected

City officials in Bastrop this week said their hotel tax brought in even less than they had initially projected, with a shortfall of about $543,000.

“I think we thought we would bounce back a little bit quicker and we just didn’t,” chief financial officer Tracy Waldron told council members on Tuesday.

City council members considered cutting budgets to HOT-funded programs.

“City council asked us to go back to those organizations that are HOT-funded to see — to see if there were any things in their budgets that they could cut,” said Rebecca Gleason, Bastrop assistant city manager for community engagement.

She said the art center came back with about $6,000, the historical society with $4,700 and Visit Bastrop about $236,000.

Ultimately, council decided to dip into savings.

“They said, ‘If we don’t use reserves in a once-in-a-lifetime pandemic for HOT funds, when will we use reserves?” Gleason said.

She said official vote to amend the budget and use those funds will happen on April 27th.

Hotel occupancy outlook

Gleason said Bastrop city officials have been working with the Texas Hotel & Lodging Association to monitor trends. They expect 2023 to be as strong as 2019, which Gleason said broke a lot of records.

She said if that plays out, their HOT fund balance is expected to replenish over the next five years.

“We feel like we’re kind of right on the cusp of having a really busy summer,” she said.

Patel and Noonan say weekends in Austin hotels are starting to see 70-80% occupancy. Now, they’re hoping weekday rates catch up. Those days are typically filled with business travelers.

“We’ve got to get that Monday-through-Thursday back or we’re not going to see a recovery for hotel tax in the near future,” Noonan said.

Patel is hopeful as innoculations increase.

“We definitely see the light at the end of the tunnel with all the vaccination efforts,” he said.

A spokesperson for the City of Austin said Hotel Occupancy Tax revenue has been severely affected by the pandemic but is expected to start picking back up next year.

They say fiscal year 2019 collections totaled $108.3 million. Fiscal Year 2020 fell to $88.8 million. The current fiscal year, which ends in September, is estimated at only $47.9 million. They expect next fiscal year to bring in $71.8 million.

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