A busted tourism industry, a flailing oil and gas sector and shuttered bars have led to a multibillion-dollar revenue shortfall for the state of Texas.
The City of Fredericksburg is slashing expenses after tourism-related revenues took a big hit early in the pandemic. Although some sectors are thriving, the local hotel industry is still recovering.
The Hangar Hotel is a World War II, aviation-themed hotel on the southwest side of town. Kelly Criddle is the marketing manager. She told TPR that the hotel hits capacity during normal, non-pandemic weekends.
“The last couple weekends, we’ve probably been a little less than half full,” she said.
That’s a big loss for an expensive, boutique hotel. It faces the runway of the Gillespie County Airport, where well-to-do tourists park their prop planes and jets a few dozen yards from the hotel’s entrance.
When asked how long the current level of business is sustainable, Criddle laughed nervously.
“I don't know,” she said. “There's so many pieces and parts that work into that. I just don't know.”
The hotel is about to re-open it’s diner, which should help. But there will be capacity limits, and the drop in occupancy has been tough. With similar situations playing out across Fredericksburg, the microscopic coronavirus has city budget-sized ripple effects.
City manager Kent Myers works at Fredericksburg City Hall on Main Street — a tourism hub. Myers believes at least some visitors are taking COVID-19 into account when making travel plans.
“A lot of our short-term rentals are actually doing very well,” he said. “So the sense we have is people are wanting to maintain that social distancing by getting into short-term rentals versus hotel establishments.”
And that boom in short-term rentals led to a bump in hotel tax revenue in July. Hotel Occupancy Tax revenue for April through May of 2020 was about 13% lower than the same timespan in 2019.
After the three-month slump, the city saw an increase of about 6% for July 2020 compared to July 2019.
Myers said that while he supports the governor’s decision to close bars and wine tasting rooms, the order hit hard in Fredericksburg.
Despite the difficulties, sales tax revenue is relatively strong.
“Our actual sales tax collected so far this fiscal year is almost exactly what it was last year,” he said. “So we didn't experience growth, but it's been pretty flat. So we've been very pleased so far.”
Myers said spending on street and sidewalk maintenance has been cut in half, a new park restroom was cancelled and a hiring freeze for certain positions is in place.
For the worst month, April, he said the city lost about $140,000 in revenues. But the revenue gains and slashed expenses since then have almost been enough to overcome the loss.
In addition to continued tourism, increased online business has played a large role. Fischer & Wieser Specialty Foods in Fredericksburg has seen a huge jump in website sales, largely by design.
“Oh, absolutely. I mean, we've been an online business since 1996. We've had jelly.com, and been producing and selling our products online for many, many, many years,” Case Fischer said.
Fischer is president and CEO of Fischer & Wieser. The company has been online for more than two decades, but its website received a facelift after in-person visitation dropped off in the spring.
“Yes, when people had stopped coming up, there was really no other choice except to invest more in our website, which we had already been doing,” he said. “We were kind of pushed into it.”
The investment paid off. Online orders jumped from about 220 per month in the first quarter to about 440 per month in the second. And because of origin-based sales tax, when a customer in Dallas — or even out of state — buys an $18 bottle of, for example, Fischer & Wieser Gewurztraminer wine, a dollar and some change goes to the state of Texas, and about 10 cents goes to Gillespie County. And of course, the wine goes to the customer.
Fredericksburg’s strong sales tax figures are reflective of recent trends across Texas. Statewide sales tax revenue actually increased in July compared to the same month in 2019.
Though there are silver linings for Fredericksburg, the statewide fiscal forecast remains cloudy.
“Overall, we will see a reduction in what is available for the legislature to spend from a $3 billion surplus — when they left last session — to right now, about a $4.6 billion shortfall,” Glenn Hegar said.
Hegar is the Texas Comptroller of Public Accounts. He oversees tax collections and tells the state legislature how much money it has to work with. And that’s important because the state constitution forbids Texas from spending at a deficit with very few exceptions. The $4.6 billion shortfall projection rests on a key assumption.
“The current revenue estimate assumes that the economies are going to continue to open up, that government restrictions will not be put on businesses, that actually they will slowly ease up as we continue through the fall,” he said.
But during a webinar with the Journal of the American Medical Association, CDC director Robert Redfield said the fall and winter might be “one of the most difficult times that we experienced in American public health.”
And more than three million Texans have applied for unemployment benefits since mid-March. This week, people in Texas — and around the county — who still receive unemployment benefits suddenly lost $600 a week. The lost benefits could reduce consumer spending, and with it, state and local revenue.
There is some reason for hope, at least on the fiscal side: Texas has a rainy day fund. Hegar says the Texas Economic Stabilization Fund will have about $8.7 billion in it when the 2021 legislative session starts.
Dominic Anthony Walsh can be reached at Dominic@TPR.org and on Twitter at @_DominicAnthony.
TPR was founded by and is supported by our community. If you value our commitment to the highest standards of responsible journalism and are able to do so, please consider making your gift of support today.
