The hotel and hospitality industries are still suffering from the COVID-19 pandemic, but leisure travelers are fueling a recovery that’s generating higher-than-projected room taxes to support Madison’s city budget and fund tourism-related activities.
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 city’s Room Tax Commission to slash funding for Destination Madison, Monona Terrace, Overture Center and other entities, as well as the general fund.
But it’s getting better.
In June, the city projected room tax revenues to climb back to $9 million for 2021. But new preliminary data show revenues reaching $12.3 million for the year, a 109% rise from the previous year, fueled by a 326% rise in the fourth quarter, city finance director David Schmiedicke said. Better yet, the city’s August projections for $14.25 million in 2022 have now been revised up to $17 million for this year, with $19 million expected in 2023, he said.
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“A strong rebound in leisure travel is increasing hotel occupancy, revenue per room, and associated room taxes,” Schmiedicke said. “That rebound is occurring due to increased discretionary income from federal economic stimulus and shifts in purchasing behavior due to the pandemic, along with pent-up demand due to the impact of public health restrictions on travel.”
It hasn’t been by accident.
“Knowing meetings and events would take longer to recover, we put significant money and time into increasing our marketing and PR efforts to attract leisure visitors,” particularly from people who live within driving distance, said Ellie Westman Chin, president and CEO of Destination Madison, also known as the Greater Madison Convention and Visitors Bureau. “We’re also seeing a big benefit from the return of sporting events from Ironman to WIAA to smaller tournaments and niche sports.”
“There was a lot of pent-up demand for social functions due to the pandemic, and our weddings business has been the quickest to recover,” said Kristen Durst, community and public relations manager for Monona Terrace. “Professional meetings, conferences, and convention bookings, however, are still lagging. There’s a lot of different pandemic factors at play, but as workplaces find their new normal and travel confidence returns, so will that business.”
Overall, Madison ended with a 45.8% occupancy rate for 2021, which is nearly 20 points lower than pre-pandemic times and isn’t sustainable for most hotel owners, said Michael Luehrs, vice president of the Greater Madison Hotel and Lodging Association.
“Until business travel returns, most hotels will continue to struggle to meet expenses, all of which have increased over the last 18 months,” he said. “In Madison, we’re seeing signs of some conference business returning in the latter half of the year. This business is especially valuable not only for hotels but for the restaurants, shops and services throughout town.”
Further, “in talking with other hoteliers, the things that are most concerning issues are labor-related: the lack of candidates to fill open positions, big increases in cost of labor, and supply chain challenges,” he said.
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.
Destination Madison saw its funding drop from $5 million in 2019 to $2.65 million in 2020 before rising to $3.75 million in 2021 and a now-projected $3.9 million this year. Monona Terrace fluctuated from $5.2 million in 2019 to $5 million in 2020 to $3.8 million in 2021 to a projected $4.1 million this year. Overture went from $2 million in 2019 to $1.2 million in 2020 to $1.5 million in 2021 and a projected $1.6 million this year.
The reduction in room tax support hurt entities among the most affected by the pandemic.
“During Overture’s 18-month closure, the center lost over $20 million in earned revenues and reduced expenses by 70%,” said Emily Gruenewald, chief development and communications officer. “The generosity of donors, federal programs such as the Shuttered Venue Operators Grant and ticket sales returning this fall helped Overture weather pandemic impacts on our business.”
The city’s general fund also took a hit, going from $5.7 million in 2019 to zero in 2020 and 2021 to a now projected $5.1 million this year.
The recovery has had other positive implications.
The city didn’t need to make a planned $2.4 million transfer from a surplus in a tax incremental financing district to the general fund last year, meaning those funds can be used for other purposes, Schmiedicke said. No room tax revenues were transferred to the general fund in 2021, which could leave the fund with a $3 million surplus this year, he said.
The economic impacts of the pandemic have shown that reserves are critical to maintain services to city residents, and the city should build a substantial reserve in its Room Tax Fund, Schmiedicke said.
“Given the sensitivity of room taxes to the economic cycle and public health restrictions, a ‘rainy day’ reserve in the Room Tax Fund of at least 5% to 10% of revenues is prudent,” he said.
The industry is doing all it can to accelerate the recovery, officials said.
“The emphasis on leisure travel has been hugely helpful,” Westman Chin said. “We launched specific campaigns targeting older, adventurous travelers and younger, socially conscious travelers, among others. The goal was to ease Midwest road trippers back into travel by showing them how easy Madison is to enjoy and create your own adventure.”
Also, PR efforts have focused on writers, content creators and influencers within driving distance, she said. “We partnered with the team at Garver Feed Mill to assist their efforts to promote Garver as a wellness retreat for people in the Chicagoland area. We also worked closely with the Department of Tourism to host top-tier national writers.”
Monona Terrace has refined its practices and enhanced technology so it’s at a competitive advantage when it comes to providing safe, in-person events and flexible, high-tech hybrid meetings that accommodate both in-person and remote presenters and attendees, Durst said.
“From the early days of the pandemic, Overture and its partners have worked together to establish policies to support a safe, healthy environment for audiences, artists, crew, volunteers and employees to reopen the industry this fall and to stay open,” Gruenewald said. “Additionally, Overture invested in air ventilation, touchless fixtures and systems. Our nine resident companies are back in operation as well, with each producing shows and/or exhibitions.
“People are excited to return to live events but still cautious about cancellations, reschedules and local COVID-19 conditions, thus they are waiting to purchase tickets a few days before the performance,” she said. “School programs are expected to be among the last to recover since they serve a large geographic area and each district has adopted different field trip requirements.”
Destination Madison has put significant financial and personnel resources toward its sales efforts to bring events to Monona Terrace, Alliant Energy Center and other local venues, Westman Chin said.
“We are trending well for recovery in that area, though we won’t see the impact until those group events take place,” she said. “Business travel is expected to be the slowest to recover. Businesses will need to see a benefit of in-person interactions, versus virtual, before that travel picks up again.”
Barring any further unforeseen public health emergencies or other conditions, room tax revenues should return to pre-pandemic levels by 2023-24, Schmiedicke said.
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