Monday, September 26, 2022

If the tourists don’t come, what happens to the public sector? [Free read]

The Courtyard Mariott in Carolina Beach has sat empty for 39 days during prime season, bringing in no tourists to a town that typically increases fourfold every summer. (Port City Daily photo/Johanna F. Still)
The Courtyard Mariott in Carolina Beach has sat empty for 39 days during the start of prime season, bringing in no tourists to a town that typically increases fourfold every summer. (Port City Daily photo/Johanna F. Still)

SOUTHEASTERN, N.C. — Todd Ullring probably isn’t the only hotel manager to feel like he’s been living in The Shining.

Tending to 144 empty guest rooms at Carolina Beach’s Courtyard Mariott, Ullring said the hotel would normally be packed.

Related: Theoretically, PPP loans could save Wilmington’s small businesses. The reality is more complicated. [Free]

“It’s bizarre,” the hotel’s general manager said in a mid-April interview. “Weekends, this time of year, we’re guaranteed to sell out on Friday and Saturday. In a heartbeat.”

Before any local restrictions were lifted, Ullring said the hotel’s staff, down to eight from what should be 60-65 this time of year, fielded daily phone calls from out-of-town visitors asking to book rooms.

“‘What’s the situation? Are you open? Can we just rent a room and work out of it?'” he said the callers would ask. After 39 days of being closed, the Courtyard Mariott was able to start booking guests beginning Friday, May 8.

Sales tax

Most locals have a love-hate relationship with tourists. They bring traffic, feed seagulls, and crowd beaches. But they also spend money.

When warm weather hits, populations in Cape Fear region beach towns balloon — summertime residents raise Ocean Isle Beach’s year-round population by 4300%. Topsail Beach increases tenfold; Carolina Beach fourfold.

Police departments, utility systems, and local budgets are all sized accordingly, banking on the annual summer swell.

Without the sales tax generated from visitor’s leisure spending, public institutions will be forced to cut corners somewhere. That means public sector layoffs could be imminent.

Besides property taxes, which are often paid for monthly and held in escrow through most mortgages, sales tax is typically a local government’s second or third highest source of annual revenue.

As the University of North Carolina at Wilmington’s regional economist Dr. Adam Jones explained it to the Greater Wilmington Business Journal, you can’t eat four burritos at once to catch up on the dining you missed during the shutdown. [Author’s note: that is not a competitive eating challenge.]

Sales tax accounts for about 10-30% of local government revenues. For example, the City of Wilmington budgeted to receive $27.1 million this fiscal year through sales tax, 13.5% of its revenues. Wilmington’s sales tax collection tends to run 1.5-to-2% more than the North Carolina average because of tourism-related spending, according to City’s budget.

In Carolina Beach, the town budgeted to receive $1.7 million in sales tax, at 11.1% of its revenues, and in Leland, the town budgeted for $5.5 million, at 30.8% of its budget.

How many will come?

Intended to keep the virus from spreading, the local short-term rental ban impacted not just landlords and property managers, but also small businesses and cleaning companies. Now many municipalities are loosening up their policies, with difficult if not impossible to enforce mandates like prohibiting guests who have recently visited states with stay-at-home orders still in effect.

With economies reopening across the country, the effect is essentially a global human trial that will reveal which interventions (or lack thereof) will work to slow the spread of the virus.

As Pleasure Island Chamber of Commerce President Greg Reynolds put it, the business community is both afraid and excited to welcome tourists back. “I guess what everybody is looking forward to — or afraid of — is how many people are going to come here?”

On top of paying a tax on goods purchased, tourists are taxed an additional 3-6% depending on where they rent, through a local Room Occupancy Tax. Local governments shouldn’t be too overly reliant on this tax (it typically accounts for a few percentage points of total revenues) but tourism and marketing boards are. This tax gets split up among municipalities and area tourism boards, with a majority restricted to offset costly beach nourishment efforts.

Industry

In all, domestic visitors spent an estimated $613 million in New Hanover County in 2018, according to a state-commissioned report. The report estimated the travel and tourism industry directly employs 6,470 people in the county, with a $149.14 million payroll.

Given their smaller budgets and fewer residents, municipalities are more likely than counties to be negatively impacted by sales tax declines, according to a recent Local Government Commission discussion.

Public sector jobs are often considered the safest, steadiest, even recession-proof roles. But when revenues are contracting, public institutions can’t continue spending the same amount without balancing new budgets, due soon for the upcoming fiscal year beginning July 1.

“The expenses are staying the same but their revenues are plummeting,” North Carolina State Treasurer Dale Folwell explained. “They’re plummeting because people are not purchasing as much fuel, as much electricity, as much water and sewer, not renting vacation homes, not going to restaurants and other places.”

Cities and counties should not be dipping into their reserves to cover recent budget shortfalls, Folwell said. Beach towns and communities — including southeastern, North Carolina — reliant on tourism spending are at a greater risk of revenue losses due to recent pandemic-related restrictions.

Rating agencies — the entities that give local governments grades that determine how low their interest rate should be when they borrow money — now have a heightened interest in two things, Folwell said. Number one: the agencies are looking for local governments to cut costs.

This goal proves difficult for communities when state and local governments are the biggest employers, Folwell said.

Number two: the agencies are looking for solid repayment plans; “if you’re going to borrow money, you borrow money with a plan to pay it back,” he said.

Municipal bond markets have tightened up, Folwell said. Even if the funds are approved, Folfwell said local governments may opt to revisit large projects requiring bonds sold on the public market.

“Is it necessary? Is it expedient? Do they have the ability to pay it back? These questions have never been more important in our life,” he said. “Just because we authorize something doesn’t necessarily mean that the community has to issue all that debt.” 

Public sector jobs make up the majority of employment opportunities in the Cape Fear region, according to N.C. Department of Commerce data. (Port City Daily graphic/Johanna F. Still)
Public sector jobs make up the majority of employment opportunities in the Cape Fear region, according to N.C. Department of Commerce data. (Port City Daily graphic/Johanna F. Still)

Biggest employers

A Washington Post analysis of 15 states that break down unemployment claims by industry, cuts are coming or have already arrived in public utilities, administration, and education services roles.

Government roles (not including education) make up 18.6% of jobs in the Wilmington Metropolitan Statistical Area (MSA), which covers New Hanover and Pender counties), according to pre-coronavirus employment figures in February. This represents the second-largest employment sector in the area, behind “trade, transportation, and utilities.”

In New Hanover County, New Hanover Regional Medical Center, a county-owned hospital, is the largest employer, followed by the public school system, the University of North Carolina at Wilmington, PPD, and the county itself, according to N.C. Department of Commerce data. With the exception of PPD, all of these employers are reliant on public funding.

Brunswick County and Pender County’s top two employers are the public school system followed by the county itself.

No job losses in the public sector have been reported or publicly disclosed in the Cape Fear region to date. However, local governments are already looking to make cuts, at least when it comes to projects and departments that could be considered expendable in a time of economic crisis. Leland plans to eliminate all planned projects above the town’s basic needs. Brunswick County plans to cut all park funding for projects until 2021, Commissioners discussed May 4.

Because sales tax payments are due quarterly, local governments won’t receive the reduced March taxes until June.


Send tips and comments to Johanna Ferebee Still at johanna@localvoicemedia.com

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