State and local hotel tax revenue expected to fall by $16.8 billion in 2020

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State and local hotel tax revenue, some of which supports bonds for convention centers and related lodging, is expected to drop $16.8 billion this year, according to a survey released by the American Hotel & Lodging Association.

“With the impact to the travel sector nine times worse than 9/11, hotels need support to keep our doors open and retain employees as we work toward recovery,” said Chip Rogers, chief executive of the trade group. “We expect it will be years before demand returns to peak 2019 levels.”

The survey, conducted by Oxford Economics, projected losses in taxes levied on hotel occupancy, sales, gaming, income and unemployment. The nation’s hotels also account for about $9 billion of property tax, but the report does not project losses in that category.

Hotels generate $186 billion in local, state, and federal taxes each year, according to the report.

The largest states will see the greatest losses in dollar terms, along with tourism dependent Nevada, which is likely to see $1.1 billion in lost tax revenue, per the report.

California tops the list at $1.9 billion, followed by New York and Florida with $1.3 billion each, and Texas at $940 million.

In 2018, the hotel industry directly generated nearly $40 billion in state and local tax revenue across the country.

With roughly a tenth of Texas’ population, Nevada’s losses are expected to run higher than the Lone Star State's. In May, Texas hotel tax revenues were down 86%, according to state Comptroller Glenn Hegar.

Moody's Investors Service lowered its outlook on Nevada's Aa1 rating to negative from stable on June 2, citing the “severe economic and financial impact of the coronavirus on Nevada's tourism-based economy.”

Florida’s tourism industry has been devastated by the coronavirus shutdown. In entertainment-centric Orange County, which includes Orlando and Disney World, tourism development taxes fell 97% in April compared to the same month last year.

More than 70% of hotel employees across the nation have been laid off or furloughed due to the pandemic, and this year is projected to be the worst on record for hotel occupancy.

“While leisure travel is slowly starting to resume, six in ten hotel rooms remain empty, with business travel is not expected to fully rebound until 2022,” the report said.

“Prior to the pandemic, hotels were proud to support one in 25 American jobs — 8.3 million in total — and contribute $660 billion to U.S. GDP,” the association said. "A representative hotel with 100 occupied rooms per night supports nearly 250 jobs in the community and generates $18.4 million in guest spending at neighborhood shops and restaurants."

Illinois, where its largest city, Chicago, serves as a major convention and business hub, expects to lose $691 million in hotel taxes.

Louisiana anticipates $499 million of losses, followed by Michigan with $498.8 million and Maryland with $497 million. New Jersey can expect to lose $434 million.

Among tourism-oriented states, Hawaii expects $390.7 million of losses, Arizona expects $312.5 million, and Colorado is projected to lose $253 million.

S&P Global Ratings in an April 23 report projected a recovery period of up to three years for the hotel market.

“Moreover, as the COVID-19 pandemic continues and growth falls sharply amid volatile markets, S&P Global Ratings now forecasts an even worse global recession than we predicted in March, with U.S. GDP poised to contract 5.2% in 2020 versus a decline of 1.3%,” analysts said.

Fitch Ratings predicted in a June 15 report that U.S. lodging revenue would reach 80% of 2019 levels in 2021. “However, the improvement is partly due to the exclusion of hotels that have been closed for 30 days or longer, which boosts occupancy statistics,” analysts noted.

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