The 2020 HVS U.S. Lodging Tax Report - By Thomas Hazinski

While prior HVS annual lodging tax studies have looked back on tax rates and revenues across the United States, this ninth annual Lodging Tax Study also looks forward and assesses the impact of the COVID-19 pandemic. This analysis of 25 major US markets illustrates the depth of the impact on the hospitality industry and projects a pattern of recovery over the next few years.

HVS also provides historical data on tax rates and the collection and distribution of revenue from lodging taxes levied in all 50 States and the 150 largest US cities. Introduction The COVID-19 pandemic has dealt a bigger blow to the lodging tax revenue stream than any previous event of economic dislocation in US history. Lodging taxes provide a critical source of support for the convention and tourism industries. Lodging tax revenues fund debt service for the construction of convention centers, arenas, and other public assembly facilities. This revenue source provides a large share of the funding for destination marketing organizations (“DMOs”) and covers the operating deficits of convention center venues.

The complete picture of how the COVID-19 pandemic impacted the tourism industry will not be completely understood until after the discovery of an effective vaccine or some other mitigation. Furthermore, the economic fallout from the pandemic is likely to last for years. This report provides HVS’ updated forecast for the impact of COVID-19 on lodging tax revenues based on currently available data and on assumptions about the pattern of recovery. COVID-19 Impact on the Lodging Industry The hospitality and tourism industries have proven to be the most vulnerable of industries to the COVID-19 pandemic with percentages of revenue losses far exceeding that of the overall economy. The Bureau of Economic Analysis showed a 31.7% decline in real GDP during the second quarter of 2020.^[1] The Congressional Budget Office projects annual GDP growth for real GDP to fall by 5.6% in 2020.^[2] By comparison, projections of travel industry losses are greater than overall decreases in GDP. An Oxford Economics study from April 2020 projected an 81% loss in travel industry revenue in April and May 2020—with losses continuing through the rest of the year—and a decline of 45% of the travel industry’s contribution to US GDP for the year 2020.^[3] In June 2020, U.S. Travel Association and Tourism Economics revised their forecast to estimate $505 billion in losses and $81 billion in lost federal, state, and local taxes by the end of 2020.^[4]

Federal aid to the hospitality and tourism industry, thus far, has provided some direct aid to private sector partners and owners of properties affected by the pandemic, primarily through Small Business Administration (“SBA”) loans and grants, but these programs have ended and they did not cover the extreme industry-wide financial losses. As of this writing, an agreement on additional stimulous legislation remains stalled. The U.S. Travel Association, in tandem with Tourism Economics, projects cumulative losses since the beginning of March totaling $360 billion for the travel industry.^[5] Estimates of the quantifiable effect of COVID-19 on the industry vary; however, the common thread of these projections show an industry at risk. The federal government provided roughly $274 billion in aid to state and local governments in the CARES Act.^[6] But most of that aid was directed at paying for COVID-19 pandemic response and could not be used for revenue replacement. As of this writing, there has been no legislative progress on an economic relief package and it appears unlikely that an any such legislation will be approved until well after the US election.

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