City council remains optimistic as tourism and revenue decline

The latest figures from the City of Sedona and the Sedona Chamber of Commerce indicate that the post-pandemic economic boom is over and that tourism will decline steadily through 2024.

“The levels of growth that we’ve seen are not expected to continue,” Michelle Conway, president of the Sedona Chamber of Commerce, told the Sedona City Council on Nov. 9.

Hotel occupancy rates, which fell to around 15% in April 2020, recovered to 80% or more in April 2021 and April 2022, comparable to 2019 levels. However, according to the city report for September 2022 sales and bed tax, hotel occupancy in August 2022 was just over 50%, comparable to January 2019 and 2020 levels and representing a decline of more than 10% from August 2018 and by about 15% from August 2019.

While the city’s hotel occupancy rate increased to more than 60% in September, this remains almost 10% below September 2018/2019 levels. The annual average occupancy rate for the year to date is 58%, the lowest level for the previous 16 years, which is also 8% to 10% lower than it was for 2013 to 2020.

Through June 2023, the chamber expects employment to grow by just 3.4% from June 2019 data and forecast it will fall below June 2019 levels in 2024. While for fiscal 2023, employment grew by 2.6% for the United States as a whole and 9.6% for Coconino County, compared to 2022, they are down 7.4% in Yavapai County and 9% in Sedona.

The September sales tax report also shows the city’s year-to-date collections are 6 percent behind last year. July 2022 sales tax revenue was 9.4% lower than July 2021, August revenue was down 1.8% compared to August 2021, and September revenue was down 7% from September 2021.

Conway pointed out that art gallery owners have experienced some of the sharpest declines in business: “Several of them said they had their worst October since 2009. For October, their traffic was down 19% from 2020 and by 34% compared to 2021. Sales fell by 60% and 78%, respectively.”

Meanwhile, business costs continue to rise. Conway reminded the City Council that payroll costs have increased more than 10 percent since last year. A survey of chamber members conducted between Nov. 4 and 8 revealed that 88 percent of member businesses described labor cost increases as one of their top three cost increases over the past three years, far outstripping the 51 percent who list rent increases as the main change.

The majority of chamber members “said they’ve seen costs increase between 11 percent and 30 percent,” Conway told the council, and “83 percent said lower tourist traffic is affecting the bottom line, and roughly half of our members attribute lack of destination marketing as impacting their bottom line, followed by inflation and lack of consumer spending. What worries me is that only 23% are predicting a profit this winter.”

Council members explored alternative explanations for these figures.

“Can you think of anything other than a lack of customers?” Deputy Mayor Scott Jablow asked Nena Barlow of tour company Barlow Adventures Jeep, who spoke at the meeting about the downturn her business has experienced. “Is there a reason? Fuel was high, but around August it was starting to taper off.”

“I think it’s a number of factors,” Barlow said politely, adding that election years are “always a little bit lower.”

“I don’t agree with those numbers,” Jablow said earlier during the Oct. 6 Sedona mayoral debate when reminded that the chamber projected tourism would fall below 2019 levels through at least early 2024 “I don’t know that tourism is really going to drop … There are still people coming here,” he said of the influx of visitors from Phoenix.

“What I’m hearing in the comments today is that we need people who are insulated from inflation and have the money to spend,” noted Councilman Tom Lamkin. “We need people who spend a lot of money and don’t care that there’s inflation, because they can go up and have to meet the needs that other people are slowing down, who are worried about their jobs, etc.” .”

If destination marketing were to start again, Lamkin commented, “then I would say, well, it looks like we should be marketing to people who make over $150,000 a year, take 4 trips a year, whatever that demographic is.”

Multiple council members also disputed both the accuracy of the hall’s attendance count and the usefulness of year-to-year comparisons.

“We don’t even know how many tourists come here. In 10 years, I heard 3 million people come here,” Lamkin said. “Well, why wasn’t that 3.2 million and 3.7 million, 4.1 million? I’m not sure how we’re going to handle this.

“That’s the average,” Conway said.

“But how do we know that’s the average?” Lamkin asked.

“Because I know the annual visit,” Conway replied.

“The number we’re hearing now about visitors, annual visitors — 3 million? Three and a half million?” Mayor Sandy Moriarty asked.

“Last year was the highest I’ve seen in 10 years at 3.7 [million]Conway said.

“And where do you get that number?” Moriarty asked.

“It’s a calculation we’ve been working with for the last 10 years,” Conway explained. “We’ve been using the same methodology for a long time … so we know we calculate it in a similar way.”

“I’ve been here 50 years and I swear when I came here 50 years ago I heard there were 2 to 3 million visitors, maybe even 4 [million]Moriarty objected. “I don’t know how we count day trippers or how we get a gauge.”

Lamkin, as well as Council members Kathy Kinsella, Holly Plug and Jessica Williamson, expressed concern about the numbers the chamber used as a baseline for comparison.

“I see concern. I see a 9% drop. But my question – is this 9% from a 40% increase the previous year? I’m having trouble getting the context,” Lamkin said.

“I don’t know where these predictions come from,” Kinsella said.

“If something goes up 40% and goes down 5%, is that a crisis?” Williamson asked. “I would say no.”

Plugg referred to an email sent to the council by city CFO Cheri White, which she said shows that for August, “hotel/motel occupancy is down 11%, but is 48% higher than pre-Covid levels. Restaurants and bars [were] down 9% but was 10% higher than pre-COVID levels. Retail trade is down 2% but is 49% higher than pre-Covid levels.”

“If you look at the numbers … they are out of step with what the chamber is providing us,” Plug said, adding that inflation is not significant enough to account for the entire difference. “They don’t show as severe an economic impact as what we’ve heard presented by the House.”

“These two narratives are contradictory,” Kinsella agreed.

“While the stories don’t exactly line up and our numbers are a little behind, there is some indication even in our reports that things are not as rosy in terms of the overall economic picture as they have been in the last few years,” Sedona City Manager Karen Osborne advises the advice. “We’re downsizing. If we continue at the same pace through the end of the fiscal year, the sales and bed tax will be $8.4 million less than budgeted.”

The apparent disparity between the city’s numbers and the chamber’s numbers stems in part from the difference between room occupancy rates and the revenue generated by those rooms. Although occupancy rates are down, the average daily rate for a hotel room in Sedona is still unusually high, resulting in increased revenue and tax collections. Between June 2021 and July 2022, ADR for a hotel room in Sedona was more than 35% above 2019 levels, peaking at 57.9% above baseline in March 2022. After that, ADRs declined somewhat to 33.2% above the baseline in August 2022, before rebounding to 42.3% in September. Increased ADR levels are currently offsetting reduced occupancy, but this situation may not last long. The chamber forecasts that by June 2023, ADR will fall to 9.9% above 2019 levels.

In addition, the city’s monthly sales and bed tax revenue figures can vary greatly depending on whether there are four or five Mondays in a given month, as the city receives an allocation of revenue each Monday.

To put these numbers into context, during the Great Recession, city sales and bed tax revenues fell from $14,254,478 in fiscal 2008 to $13,532,679 in 2009 and $12,134,503 in 2010 before recovering, for a decline of 5% for one year and 14.9% for two years.

In fiscal year 2008, sales and bed tax revenues accounted for 23.5% of the city’s budget, while in fiscal year 2022 they accounted for 66.5% of the budget.

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