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Crumbling expectations: Plummeting tourism means lower lodging revenue for Alabama cities

Alabama’s U.S. Space & Rocket Center needed a fundraising push to avoid permanent closure. Birmingham’s Civil Rights Institute and museums in cities throughout the state have been shuttered since March. The hotel industry is shedding jobs, and its national association is calling the coronavirus crisis the “worst the industry has ever faced” amid a wave of foreclosures.

A study by the U.S. Travel Association shows that leisure and hospitality industries – which includes bars, restaurants and hotels – endured over one-third of the U.S. job losses since the pandemic began, even though it comprises just 11% of the country’s workforce.

The coronavirus pandemic continues to ravage Alabama’s tourism economy, even after a strong summer in which beach rentals filled up and outdoor activities in socially distant state and federal parks became popular destinations. But as the summer tourism season ends – and uncertainty continues into the quieter fall and winter months — officials are worried about the revenue hit from plummeting lodging tax revenues.

“We were headed into a great 2020 following a wonderful 2019, and so that was just devastating when (coronavirus) hit and to see the numbers crumble from what the expectations were,” said Grey Brennan, deputy director at the Alabama Tourism Department.

‘Disastrous’

In Alabama, one report pegs the lodging tax loss at $105.2 million from diminished travel during the coronavirus pandemic. The state’s portion of the lodging tax is down over 16% this year, according to the July monthly abstracts provided by the Alabama Department of Revenue, from $63.8 million to $53.3 million. The state’s overall sales tax revenues – which, by far, carry a more powerful economic punch than the lodging tax for local and state governments — are up by 2.7% from a year ago.

Another data set also illustrates the hard times for the lodging industry. According to lodging tax data by the Alabama League of Municipalities, 38 cities in Alabama were a combined $14.3 million behind in their 2020 lodging tax revenue projections from March to June. The lodging tax in Alabama is levied on the cost of an overnight stay at a hotel, rental house or apartment, campgrounds and any other place where an accommodation is made available for travelers, tourists and transients who are staying for 180 days or less.

The data shows that tourist-rich cities like Gulf Shores and Orange Beach suffered during the pandemic, even as occupancy rates have soared in May and have since been largely on par with some of its record-breaking years of late. The data shows that Orange Beach was $2.3 million off 2020 projections, while Gulf Shores was $1.5 million behind expectations.

Alabama’s beaches were shut down from March 20 to April 30, and occupancy rates plummeted to the single digits. Since then, the occupancy rates rebounded into the 80 to 90 percent ranges.

“The first two months of dealing with the pandemic were disastrous,” said Gulf Shores Mayor Robert Craft in a statement. “While we have seen business pick back up, there will be no way to recoup the revenue we have lost this year.”

Other cities that generate revenue from the lodging tax are also fallen back on their 2020 projections. According to the League of Municipalities: Huntsville ($1.4 million), Montgomery ($1.3 million), Tuscaloosa ($1.3 million) and Mobile ($3.7 million) have been hit the hardest.

Birmingham, according to the League’s data, was only $56,849 off its 2020 projections.

County data during the month of June, supplied to AL.com, showed the lodging tax revenues lagging 18% behind June 2019 data. Baldwin County’s revenue was off 1%, and outdoors-rich Dekalb County was 6% off June 2019 figures. Larger counties were hit hardest in June compared to the year before: Jefferson County saw a 50% drop, Madison County was off 47%, Montgomery County by 47%, Shelby County by 35%, Tuscaloosa County by 32% and Mobile County by 23%.

In Alabama, the lodging tax differs from city to city. The state rate is 4%, except for in 16 North Alabama “Mountain” region counties where the levy is 5%. Some counties levy a lodging tax as well, such as Baldwin County where it is 2%.

Municipal tax rates vary, and some have increased in recent years. Orange Beach and Gulf Shores city officials adopted 2% increases in their portion of the lodging tax in 2017, pushing their respective municipal taxes to 7%. The total combined lodging tax in the two cities is 13%.

Birmingham has among the highest lodging taxes in the U.S., and it got even higher in 2019 after the city adopted a $3 per room, per night surcharge. The surcharge is added to the current 17.5% lodging tax rate that is comprised of the state’s 4%, Jefferson County’s 7% and Birmingham’s rate of 6.5%. For a hotel room that costs $100 in Birmingham, the current lodging tax rate and surcharge would make it $120.50.

Birmingham’s 17.5% lodging tax rate places the city as the sixth highest in the country, according to an analysis in the HVS Lodging Tax report for 2019.

As the HVS report indicates, the lodging tax is often easier to impose than other taxes because visitors that use the lodging accommodations are not constituents. But what happens when the tourists stop showing up in certain places?

“What we know from our reports from the lodging tax is that our city centers – Birmingham, Huntsville and Montgomery – are basically seeing revenues from the lodging tax that are half of what they probably would be expecting as this time of the year,” said Brennan. “Our outdoor areas – the beaches and the mountains – are doing much better.”

Outdoors surge

Indeed, the beach rentals in Gulf Shores and Orange Beach continue to see occupancy rates that would make the rest of Alabama envious. At Liquid Life Vacation Rentals, occupancy rates were around 90% or “essentially full,” according to Randy Hall, president, and owner of the firm.

Brett Robinson Rentals saw its overall occupancy rates just under 90%, according to company spokesman Robert Kennedy Jr. He said that August tourism has also being “on fire,” with rentals up 3-1/2 percentage points over August 2019.

In Dekalb County, where lodging taxes dropped 6% between June of this year compared to last year – representing one of the lowest dips in the state – a vast amount of outdoor activities kept travelers coming, said John Dersham, president/CEO with Dekalb Tourism Inc.

“March and April were a killer statewide … there were no bright spots,” said Dersham. “But after that, we promoted the fact that we are sort of a low population area with 30,000 acres of public lands with a national park and state parks and a lot of space to roam and social distance.”

He said the promotion worked. “The lodging has been pretty full much of all the last several months. The people coming were literally getting out of the cities and looking for something to do.”

The biggest worry for the outdoor destinations in North and South Alabama is the cancellation of festivals. The fall festival season is a draw for the coastal area, where the National Shrimp Festival can draw up to 300,000 people in early October.

On the outskirts of the charming little town of Mentone, Alabama, the West Fork of the Little River plunges off a 100-foot Lookout Mountain cliff to create one of the most beautiful waterfalls in the South. DeSoto Falls is part of DeSoto State Park and is one of the tallest and most visited waterfalls in Alabama. It is also one of the easiest to visit. Dekalb County has been a popular vacation spot in 2020 as vacationers flock to to the outdoors to seek destinations that are easy to abide by strict social distancing requirements.

In Fort Payne, the annual Boom Days heritage celebration is canceled, as is the Mentone Colorfest.

Dersham said he thinks people will still come to North Alabama for a vacation.

“I think people will still come as they did this summer to get away from it all and to get away from it all and to enjoy our fall foliage,” he said.

‘Multi-faceted problem’

But just because some parts of the state are holding steady, doesn’t mean the rest of Alabama has been shielded from the collapsed tourism economy.

“Just because one area of the state is doing well during the summertime doesn’t mean tourism is doing well in the state,” said Brennan, with the Alabama Tourism Department.

Indeed, that was the message echoed by Democratic U.S. Senator Doug Jones and Samuel Addy, senior research economist and associate dean for economic development at the University of Alabama. The two spoke about their concerns over the tourism industry during a recent video conference with the media broadcast on Facebook.

“This is a multi-faceted problem,” said Jones. “While we are so happy folks are helping the tourist industry in the Gulf Coast, Alabama is a big state and there is a lot going on.”

Said Addy, “We really don’t see Baldwin or coastal activity making up for some of the shortfalls.”

Jones said his concerns focused over the declining attendance and revenues at the Space and Rocket Center, the Civil Rights Museum, and the limited opening at the Equal Justice Initiative in Montgomery. He also cited lagging numbers at the Birmingham Zoo, and the lack of minor league baseball in cities like Madison, Birmingham, and Montgomery.

“Those are important tourist attractions,” said Jones.

‘Big uncertainty’

Auburn fans tailgate on Saturday, Nov. 25, 2017, before the Iron Bowl in Auburn, Ala. The university announced it will ban tailgating on campus during the 2020 season. (file photo)

Addy said he was worried about the lack of clarity over what could happen in the coming months with college football. Though the Southeastern Conference is poised to start its season late next month, teams could be hosting games in front of fewer fans who are socially distant.

The ability to tailgate will be left up to individual schools, but face coverings will be required inside the stadiums. Auburn University, on Wednesday, announced it will ban tailgating on campus.

Said Addy, “There is a big uncertainty there.”

College football is a money-making machine for the cities of Tuscaloosa and Auburn, which host hundreds of thousands of fans during Saturday SEC games.

According to a 2017-2018 University of Alabama study, football has a $137.2 million direct economic impact on Tuscaloosa and the direct tax revenue loss to the city – if the football season had been canceled – was around $2.5 million.

Tuscaloosa Mayor Walt Maddox has warned that the loss of football this fall would “jeopardize hundreds of businesses and thousands of jobs” in the city. Still, he said that if the season moves forward, “the priority will be safety” and maintaining state health guidelines. He said that expanding open-air dining and the “implementation of other innovative ideas,” can help Tuscaloosa in creating a “fun football experience for those who still want to be part of the Alabama football game day.”

In Auburn, the absence of college football would lead to an average loss of $1.8 million to $2 million in sales taxes and up to $300,000 in losses from the lodging tax.

“Fortunately for us, we have a very diverse economy,” said Auburn City Manager James Buston, touting the addition of manufacturing businesses in the automotive, aerospace, and pharmaceutical industries “making it less vulnerable to downturns in the market.”

Optimism

Football season aside, tourism officials in cities around the state are looking ahead for optimistic signs.

In Mobile, the prospects of recouping business tourism and travelers in 2021 as well as the expected return of the cruising industry with the Carnival Sensation’s arrival has Visit Mobile CEO David Clark feeling optimistic. He said corporate travelers have been non-existent during the Covid-19 pandemic, and that once the health concerns surrounding the pandemic subsides, the business traveler will help fuel a rebound.

“We lost 75% of our convention business,” said Clark. “The good news is we rebooked 70% of those to future years starting next March.”

Clark said that Mobile’s year-to-date occupancy rate is just above 50%, which is on par with cities around the Southeast even if it is below the elevated rates in Gulf Shores and Orange Beach. Tourist-rich cities like New Orleans and Nashville have seen their hotel occupancy rates plummet, with the Big Easy’s rate struggling to eclipse 30%.

The overall hotel industry isn’t expected to recover from the pandemic until 2023, or later. Revenue per available room (RevPAR) – a key metric to determine a hotel’s performance – has fallen to $41.31 this year, down from $86.64 in 2019, according to travel data by STR and consultant Tourism Economics.

“This has nine times the amount of impact than the recession in 2009,” said Clark, referring to the devastation the pandemic has had on the hotel industry.

Crowds gather along the parade route for the MAMGA Mammoth Parade on Fat Tuesday, Feb. 25, 2020, in Mobile, Ala. (Mike Kittrell/AL.com)

For Mobile, the worry is what will come with Mardi Gras. The annual pre-Lenten festival routinely draws close to 1 million to Alabama’s Port City for more than two weeks of colorful parades and elaborate balls.

Clark said the hope is that some sort of vaccine surfaces by spring, and that people continue to wear face coverings to help limit the virus’ spread so that Mardi Gras – even if it’s a socially distant event in 2021 – can proceed.

“We are not quite landed on what that looks like for next year,” he said.

In Birmingham, where museums are closed and tourism has dwindled, marketing and advertising efforts have expanded to include a 600-mile radius to tourists who are traveling to Alabama for a weekend getaway. The region is also advertising its hotels and accommodations to travelers who driving through Alabama to the Alabama or Florida Gulf Coast.

The Birmingham region is also rebounding thanks to summer youth sports, which helped the Magic City’s occupancy rates to rebound to 55% in July (occupancy rates were below 30% in April). A continued ramp up of fall and winter sports is expected to help boost hotel activity.

“I can say we’ve seen the bottom and we’re slowly coming out,” said John Oros, president, and CEO with the Greater Birmingham Convention & Visitors Bureau. “There is light at the end of the tunnel. We will come back from this.”

As Oros and others have noted, the traveling public must “feel safe when traveling,” and they all acknowledge – as the studies show – that it will take several years to recover from the pandemic.

Charles Winters, spokesman with the Huntsville/Madison County Convention and Visitors Bureau, said his optimism for Alabama tourism centers on its reputation as a “drive” market, which means travelers from the Midwest and other regions of the South, tend to drive to state attractions than fly on airplanes. He said that his organization is promoting travel to the community from a “drive” perspective.

U.S. Space & Rocket Center in Huntsville, Alabama. (File Photo)AL.com

In some Birmingham and Huntsville, local fundraising efforts have help boost some of the attractions that have been closed during the pandemic. The most notable was a massive fundraising haul to help keep the U.S. Space & Rocket Center open in Huntsville, which generated national headlines. More than $1 million was raised by private and corporate donors in less than a week.

In Birmingham, the city council voted last month to give $250,000 to the Birmingham Civil Rights Institute. In addition, the Birmingham Legion FC professional soccer club raised more than $9,000 for the institute through auctioning commemorative Birmingham Civil Rights Institute-inspired player jerseys worn during the team’s July 15 season opener.

Montgomery, like the other cities in Alabama, is anticipating being down $1.7 million in lodging tax collections. Like Mobile, the Capitol City has suffered from a drop in hosting meetings and conventions.

Dawn Hathcock, senior vice-president with Destination MGM and the Montgomery Chamber – like representatives in other cities – said she feels that Montgomery is poised to rebound strongly.

“It’s due to our historical sites and where we are in the nation’s history right now,” Hathcock said, referring to tourist attractions like the EJI lynching memorial and museum, the Rosa Parks Museum and Dexter Avenue King Memorial Baptist Church. “There is a lot of interest in the Civil Rights Era and discussions about diversity and inclusion. We feel like we’re a great place to have those conversations and to learn from the past.”

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