Canceled events and closed attractions will take a fiscal toll
Events and attractions that drive billions of dollars in economic impact have canceled and shuttered across the nation, which will leave a hole in many government budgets and impact holders of bonds that financed stadiums, convention centers, hotels and arenas.
Every professional sports league has suspended or postponed its season, and events ranging from the Boston Marathon to the Houston Rodeo are off. Disney will shut its California and Florida parks.
“Threat of pandemic is among the most challenging of shocks to analyze,” Kroll Bond Ratings Agency wrote March 6 in one of the earliest reports on impact by rating sector. “By its very nature, it involves fear and uncertainty, and the related risks to credit markets are difficult to dimension. The pace and magnitude to which the coronavirus disease (COVID-19) has undermined global confidence is nothing short of historic.”
So far, other ratings agencies have taken a piecemeal approach to judging the negative implications of COVID-19-related announcements such as the suspension of the National Basketball Association season and cancellation of the NCAA college basketball championships.
“The severity of credit impact will vary by issuer depending on a number of factors,” Moody’s Investors Service said in a Thursday report. “Each issuer has different available liquid reserves and sources of pledged revenues with varying degrees of exposure to day of attendance.”
Texas economist Ray Perryman, principal of the Perryman Group, did a 2017 study on the cost of losing a major event such as the NCAA’s Final Four tournament due to a potential boycott over adversarial social legislation.
“Economic losses (including multiplier effects) from losing a representative large convention could be expected to include $49.6 million in gross product and 550 person-years of employment,” Perryman wrote three years ago. “Relocation of the men's Final Four could be expected to cause losses of $351.6 million in gross product and about 3,830 person-years of employment. Lost tax receipts would also be substantial, including $1.4 million foregone by local government entities due to losing a major convention, with $9.7 million lost if the Final Four were relocated.”
The cancellation of the NCAA men's basketball tournament means no "Sweet 16" regional finals in New York, Los Angeles, Houston and Indianapolis or Final Four in Atlanta April 4-6.
In Oklahoma City, more than 18,000 fans of the Oklahoma Thunder NBA team were waiting for the game to start Wednesday night when it was abruptly canceled after a player for the visiting Utah Jazz was found to have the coronavirus known as COVID-19. Then, the NBA announced its season would be suspended as the playoffs neared.
Houston this week cancelled its annual rodeo that last year attracted 2.5 million people and was estimated to deliver $227 million in total economic impact. That announcement followed Austin’s stunning decision to cancel the 10-day South by Southwest festival that showcases music, entertainment, high-tech and other business ventures.
According to Greyhill Advisors, the 2019 SXSW provided Austin with a total economic benefit worth roughly $356 million.
“Loss of revenue from taxes generated by visitors will likely accelerate budgetary challenges for Austin, which is grappling with rising operational and retiree benefit costs and new limitations on property tax revenue in the upcoming fiscal year,” Moody’s analysts said.
“While the negative outlook on Austin’s rating translates to downward pressure and the possibility of a downgrade in the next 12-18 months, the city retains our highest Aaa rating and its strong economy and governance provide a buffer against the revenue hit,” they added. “In addition, property tax revenue that secures the city's general obligation limited tax bonds offers stability given the time it takes for a decline in the revenue stream to materialize.”
Cancelled events will hit the hotel occupancy tax revenues that support convention centers, stadiums and museums in most cities. Fees on rental cars supporting sports facilities such as the Major League Baseball spring training camps in Arizona and Florida will also be curtailed.
Florida, hub of the cruise ship industry and the Orlando area's multiple destination resorts, exemplified by Walt Disney World, will be particularly hard hit. Orange County, which includes Orlando and Disney World, collected a record $277 million in hotel taxes last year. That amount has increased every year for the past six years, according to the Florida Department of Revenue.
In Austin SXSW patrons booked more than 55,300 hotel room nights last year for the events, generating around $1.9 million in city hotel taxes in March 2019, according to Greyhill. The amount equates to a nominal 2% of fiscal 2018 total hotel tax collections.
In fiscal year 2019, Texas saw a 5.8% increase in hotel occupancy tax, reaching $636 million. Local taxing authorities are authorized to impose an additional hotel tax that is collected at the local level and is used for local governmental purposes.
New York State banned all social gatherings of 500 or more people, and the U.S. Capitol shuttered to the public.
California, one of several states that have declared public emergencies over the outbreak, is facing the loss of much of its tourist season.
The Electronic Entertainment Expo, a gaming convention that generated $75 million for Los Angeles is one of several events in the state to be cancelled. The city collected $326 million in hotel taxes in 2018.
“These changes will cause real stress — especially for families and businesses least equipped financially to deal with them,” said California Gov. Gavin Newsom. “The state of California is working closely with businesses who will feel the economic shock of these changes, and we are mobilizing every level of government to help families as they persevere through this global health crisis.”
In Anaheim, home of Disneyland, the 15% transient occupancy tax on the city's 20,000 hotel rooms generates a significant piece of the city budget.
San Francisco City Controller Ben Rosenfield told the Board of Supervisors Budget and Appropriations Committee Wednesday that the city expects to lose “tens of millions” to CCOVID-19 cancelations.
Rosenfeld said that $500 million the city collects annually from the hotel tax is expected to drop dramatically. In fiscal year 2001-02 after the dot-com bust and the 911 terrorist attacks, San Francisco’s hotel room tax revenue fell by 29.8% from the prior fiscal year, the controller reported.
In Arlington, Texas, a $1 billion stadium financed with $500 million of tax-supported bonds was scheduled to open at the end of March with its first Texas Rangers Major League Baseball game. Major League Baseball announced Thursday that it is halting spring training games and will delay Opening Day by at least two weeks due to the outbreak of coronavirus. Minor League Baseball followed suit.
Adjacent to the Rangers Globe Life Field stadium, the city of Arlington is working with a private developer on a hotel and convention center.
In a Thursday research report, Wells Fargo said, "it seems that recession is increasingly likely. The airline and hotel industries are in free fall, and there will be multiplier effects from cutbacks in those industries."
In Las Vegas, hotel and convention center operators have a long history of facing crises such as the 2008 financial collapse that reduced visitor volume by 4.4% or 1.7 million people.
“While a slight decline in visitor count was reported in both 2017 and 2018, year-end 2019 figures showed a slight uptick over prior-year levels,” Kroll analysts noted. According to the 2018 Las Vegas Visitor Profile Study, international visitors accounted for 20% of all visitors in 2018, which was up from 14% in 2009. In 2018, visitors from China made up about 4% of Las Vegas’ tourism.
— Keeley Webster and Shelly Sigo contributed to this story.