While the coronavirus pandemic continues to take its toll on Miami Beach’s tourism industry, CARES Act reimbursements of COVID-related expenses may buffer greater than anticipated losses in the City’s resort tax revenue. Miami Beach CFO John Woodruff told City Commissioners at their meeting Wednesday that early cost cutting efforts resulted in a lower than projected use of General Fund reserves for the FY 2020 budget year which ended September 30. In mid-April, Woodruff told Commissioners the use of reserves could have been $8.6 million but spending and hiring freezes whittled away at that number over the next six months resulting in a need of just $272,000 of reserve funds. The use of Resort Tax Reserve Fund dollars remained steady at $5 million since the April projection.
The picture for FY 2021 is a little worse. Initial projections were for the City to use $9.6 million of General Fund reserves but to need no additional dollars from the Resort Tax Fund. In September, however, City Manager Jimmy Morales warned resort taxes were “not coming back as quickly” as anticipated following COVID shutdowns. Art Basel’s cancellation of its annual event here and the scaling back of the college National Championship game were big blows.
Though the City only has 1.5 months of data points in the current fiscal year, Woodruff said, “We’re already behind” with regard to the resort tax estimates. “That doesn’t bode well for this year.” Resort tax revenues come from a 4% tax on hotel rooms and 2% on sales of food and beverages sold in restaurants, bars, or nightclubs.
The original FY 2021 assumption of a 25% decrease in resort taxes was too optimistic, Woodruff said. The number is likely to be closer to 42%.
With a 25% decrease, the resort tax revenue loss was projected to be $22.0 million. The “likely scenario” now, according to Woodruff is $37.5 million. “It looks like we’re now going to have a gap of about $15.5 million.”
Woodruff noted the City has had $7.5 million in CARES Act reimbursements approved to date with another $25 million to $35 million in potential reimbursement. While he’s conservative in not counting funds before they’re paid, he said CARES Act reimbursements could provide an “opportunity to help make ourselves whole whatever we’re short in 2021.”
Woodruff said he would have more details in the January-February timeframe when there is a better picture of resort tax collections, CARES Act reimbursements, and cost savings. At that point, he told Commissioners, he would present, “if necessary, whatever additional measures we need to take to balance the budget for 2021.”
Woodruff indicated, “We’re still seeing a lot of impacts from COVID. I wouldn’t be surprised if a portion of 2022 wouldn’t be affected as well at this point.” Both he and City Manager Jimmy Morales indicated events are expected to be impacted for many months to come. During his COVID update earlier in the meeting, Morales noted, “The Convention Center is now empty probably until April or May,” while Woodruff indicated the City will probably “not see a lot of special events until at least the third quarter” which would be the April-June timeframe.
Commissioner Ricky Arriola, Chair of the Commission’s Finance Committee, said he’s concerned about commercial property valuations and the impact of lower tax assessments. Woodruff said it’s too early to determine how many commercial properties will be assessed at lower valuations but he’s watching the appeals of current assessed values.
Arriola said the hotels that “have sat vacant for months” and the buildings with vacant stores “are going to get reset at current economic realities… I’m not sure how much we’ll see in 2021, but in 2022-23, we’ll definitely see that.”
“That’s the big ticket in our budget,” Woodruff said of the City’s property taxes which make up about 50% of the General Fund revenues. Lower resort tax revenues are “somewhat more temporary but the hits to our property taxes, that’s where we have to face cuts, potentially, going forward.”
“We’ve figured out how to save money temporarily to get through COVID,” Woodruff said. With the help of the CARES Act, the concern now shifts to be “more about the actual property values and what that’s going to do to the more permanent side of our budget.”
“I don’t think our revenues are going to rebound very quickly,” Arriola said. “We’re going to have to be vigilant about keeping our costs flat and even down in the next couple of years.”
With the FY 2020 and projected FY 2021 General Fund reserve use, the total fund would be reduced from $80.6 million to $70.7 million, about 2.5 months of expenses. The goal set by the City Commission is to maintain 3 months of expenses in reserve.
The current Resort Tax reserve is $15.2 million. The use of $5 million to cover the FY 2020 gap results in a $10.2 million balance, equal to 2 months.
Woodruff recommended the City consider placing any additional CARES Act reimbursements after what is needed to balance the budget into the General Fund and Resort Tax Reserve Funds to meet the City’s three-month expense reserve target.
“We’re still in really good shape,” to deal with additional budget gaps and another hurricane season, Woodruff told Commissioners.
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