Madison’s hotel room tax revenues rising toward pre-COVID-19 pandemic levels | Local Government

As the COVID-19 pandemic evolves and wanes, Madison hotel room tax revenues driven by leisure travel are now projected at $17 million for 2022 and $19 million for 2023, the latter sum matching the amount seen before the pandemic took hold.

The increasing revenues mean the city’s Room Tax Commission can fund Monona Terrace, Overture Center, Destination Madison marketing and other arts and tourism-related initiatives, as well as the city’s general fund, at pre-pandemic levels after two years of substantial reductions.

But city finance director David Schmiedicke is recommending a cautious budgeting approach because the pace of growth is still hard to predict due to inflation, there are uncertainties about the economic recovery, and the possible start of a recession.

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Under state law, the city must channel at least 70% of hotel room tax collections to tourist-related activities, as decided by the Room Tax Commission, while the city uses the rest for the general fund. The city charges a 10% tax on room rates.

The city saw $18.9 million in room taxes in 2019, but as the pandemic took hold the amount plummeted to $5.9 million in 2020, forcing the commission to slash funding for Monona Terrace and other entities, as well as the general fund, a report by Schmiedicke says, The city got a better than initially projected $12.1 million in 2021, and the latest projections for 2022 rose from a budgeted $14.25 million to $17 million.

So far, collections in the second quarter are up 95% over 2021, and year to date, collections are up 102% over the first six months of last year, the report says. Meanwhile, online marketplace revenues from AirBnB are up 14% to $234,775; Expedia is up 97% to $626,855 and HomeAway is up 35% to $12,258 compared to the first half of 2021.

The latest projection of room tax collections of $19 million for 2023 would be about $70,000 more than received in pre-pandemic 2019.

“The hotel industry is recovering well in Madison, driven by sports, meetings, events, and an increase in leisure travel,” said Ellie Westman Chin, president and CEO of Destination Madison, formerly known as the Greater Madison Convention and Visitors Bureau. “We’re still low on business travel, as is the rest of the country, and it will be interesting to see how that affects hotel room nights as we head into winter.”

The recovery for big entities, for example, has been uneven. At Monona Terrace, conventions, conferences and meetings have not come back as fully as anticipated while banquets returned to pre-pandemic levels, its room tax funding request says. And at Overture, which took in zero revenue between March 13 2020 and Aug. 30 2021, big shows are doing well but smaller ones are still lagging, and officials expect it will take another two years until ticket sales fully return, its request says.

For tourism-related entities, recovery means a lot. During the pandemic:

  • Monona Terrace’s funding dropped from $5.2 million in 2019 to $5 million in 2020 to $3.8 million in 2021 with $4.1 million budgeted for 2022 and $6.7 million sought for 2023.
  • Overture’s funding fell from $2 million in 2019 to $1.2 million in 2020 and rose to $1.5 million in 2021 with $1.6 million budgeted for 2022 and $2.1 million sought for 2023.
  • Destination Madison, , saw its funding fall from $5 million in 2019 to $2.65 million in 2020 and rise to $3.75 million in 2021 with $3.9 million budgeted for 2022 and $5.3 million sought for 2023.
  • The sum provided to the city’s general fund fell from $5.7 million in 2019 to $1.8 million in 2020 and rose to $3.6 million in 2021 with $5.1 million projected for 2022 and $5.7 million sought for 2023.

Funding for smaller efforts, such as city arts and tourism, also dipped during the pandemic and are recovering. Meanwhile, Alliant Energy Center, which has been receiving room tax revenues from the town of Madison, which will be attached to Madison and Fitchburg at the end of October, is seeking continued payments from the city of Madison. It received around $90,000 annually before the pandemic and is seeking $95,800 next year.

Madison cuts funds in 2021 for tourism marketing, Monona Terrace, Overture Center

Schmiedicke is recommending the commission retain a roughly $500,000 fund balance, or even more, in light of economic forecast uncertainties.

“The funding room tax recipients receive in 2023 will help stabilize the losses of the past two years, but we are not back to normal by any stretch,” Westman Chin said. “There is a lot of strategy and effort needed to remain competitive as a meetings, events and leisure destination. Room tax funds will help drive those efforts.”

The commission on Tuesday heard presentations from entities seeking to receive funds for 2023 and will approve a budget on Sept. 1.

Mayor Satya Rhodes-Conway on Sept. 6 will propose a capital budget for 2023, and on Oct. 11 will introduce an operating budget for next year. The city’s Finance Committee will consider budget amendments and the full City Council will adopt budgets in November.

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