Cities hope for reversal of swooning hotel-motel tax streams

The recession has cut into travel, and that cut is showing up in decreased hotel and motel room rentals, as well as in the income cities receive from the 7 percent hotel-motel tax.

Those reduced tax collections, in turn, mean the cities have less money to spend on tourism promotion and cultural attractions.

Cedar Rapids and Coralville/Iowa City hotels and motels enjoyed near-record occupancy rates and hotel-motel tax revenues in the last half of 2008, when flood relief workers and dislocated residents filled properties to capacity.

The boom faded in early 2009, when the recession's effects on travel became fully evident, and collections of the hotel-motel tax slumped accordingly.

The city of Cedar Rapids is the biggest beneficiary of hotel-motel taxes in the Corridor, taking in about $2.9 million in fiscal 2009, which ended June 30, 2009. Coralville's hotel-motel revenues have seen healthy growth, to about $2.1 million that year. Iowa City received about $700,000 that year and Marion $177,000.

But Cedar Rapids hotel-motel tax collections were down 39 percent, to $610,221, in the quarter ending Sept. 30, compared with a whopping

$1 million in the same quarter a year before. The next quarter, which ended in December, was down 14 percent from the year before. And the quarter ending this March was down 7.7 percent compared to the year before.

The numbers are down, for the most part, in Coralville and Iowa City, too (see chart), though hotel managers say room sales appear to be recovering now.

“There was a big dip - the recession - and it's been kind of stop-and-go since then,” said Tim Duffy, general manager of the Clarion Hotel and Convention Center in Cedar Rapids. “But, for the most part, I'm seeing that our market is up considerably.”

The improvement could appear in the April-June quarterly hotel-motel tax figures slated for release this month.

Coralville supplement

In Coralville, the city's hotel-motel tax revenues dropped 19.8 percent in the third quarter of 2009, to $549,438, and 5.4 percent in the fourth quarter, to $534,637.

The city owns the Coralville Marriott Hotel and Conference Center, which wasn't generating enough revenue to fully fund its debt service in 2009.

City Administrator Kelly Hayworth said the city diverted $700,000 from its Iowa River Landing tax increment financing district revenues at the end of the year to pay the bond debt. Hotel revenues have since rebounded, he said.

Hayworth said the need to plug the funding gap took away money that could have been used for other projects, but it hasn't dampened the city's enthusiasm for the hotel. He said the hotel generates economic activity that offsets the expense, and business is once again showing strength.

“The amount of hotel-motel tax generated by the Marriott Hotel increased significantly this year,” Hayworth said.

C.R. used carry-over

The 7 percent hotel-motel tax on rooms is a big piece of the funding for tourism and visitor promotion in the Corridor.

Sue Vavroch, city treasury operations manager, said the city of Cedar Rapids had a shortfall of $120,000 in hotel-motel tax below the amount it had forecast in its fiscal 2010 budget.

Thanks to the strength of the previous fiscal year's hotel-motel tax revenue, though, the city had a holdover surplus that it used to maintain its budgeted commitments, including grants to such cultural organizations as the Cedar Rapids Museum of Art and Brucemore, Vavroch said.

Vavroch said she's hopeful that the opening of a 71-room hotel at Kirkwood Community College last month will reverse the decline in tax collections.

Groups depend on tax

Cultural and tourism organizations watch the ups and downs of hotel-motel tax revenue because many depend on the money to help with their operations. (See chart.)

In Cedar Rapids, it's possible some of that support might disappear if the City Council opts to use part of the revenue as the city's share of funding for the new Event Center being planned in the downtown. About half of the revenue is obligated to pay off debt - for The Carl & Mary Koehler History Center and the Museum of Art, for example - but more than half is discretionary grants.

Brucemore Executive Director Jim Kern said he'd hate to see the mansion lose its hotel-motel tax funding because it fills a void in local funding for regular day-to-day operations.

Brucemore's $36,000 allocation from hotel-motel tax is equivalent to one full staff position, Kern said, and one of the few sources of public funding that the organization has.

“It's the ongoing day-in, day-out expenses that are the hardest dollars to find,” Kern said.

UI helps Coralville

The impact of the hotel room slump on Coralville has been muted by the steady room demand from visitors to the University of Iowa, according to Josh Schamberger, president of the Iowa City-Coralville Convention & Visitors Bureau.

The number of visitors to the University of Iowa Hospitals and Clinics, especially, isn't sensitive to any downturn in the economy, Schamberger said.

The bureau received $594,866 from hotel-motel tax revenues in the fiscal year that just ended, down from $613,866 the previous year. The total makes up about half the bureau's budget, Schamberger said.

The downturn had its biggest effect on the check the bureau received Dec. 30 for the third quarter of 2009, Schamberger said. By the end of the fiscal year, however, the bureau's funding was down only about $19,000, and it was not forced to reduce its operations.

Room rates down

Even though room occupancy appears to be recovering, all still is not well for hotel operators.

Duffy, from the Clarion in Cedar Rapids, said room rates in the market have dropped because of competition for traveler dollars.

Lodging operators also appear to be delaying property renovations and upgrades that tend to go hand-in-hand with rate increases, Duffy said.

“The market has come back, occupancy-wise,” Duffy said. “Now, we just need to have some rate adjustments.”

Schamberger said he's also worried about “rate integrity.” Once hotels have lowered rates, he said, it sometimes can take a year to get them back to previous levels.