Tourism to take a hit
DOWNTOWN The hospitality industry in Santa Monica is expected to take a hit as rising fuel prices have airlines cutting flights, potentially stemming the flow of foreign travelers, who contribute significantly to the city’s economy.
The Thursday sequel to the first “State of the City” event at the Fairmont Miramar Hotel painted a picture of rough waters for the local financial future, with trouble lying ahead for tourism.
“It’s not just a trickle-down effect, but a smash-down,” Misti Kerns, the president of the Santa Monica Convention and Visitors Bureau, said.
Hosted by the Santa Monica Chamber of Commerce, “State of the City II” was a follow-up to the successful luncheon and discussion on civic affairs held in January, attracting key players from City Hall, the business and school communities.
Much like the inception event, part deux featured a panel conversation on the fiscal outlook in Santa Monica, a talk that included representatives from the tourism industry, City Hall and major business sectors, including Downtown Santa Monica and the Santa Monica Pier.
The symposium took a slightly more serious tone the second time around, specifically in hospitality where the impact of high jet fuel prices on the airline industry are expected to hit the city by the sea. Airlines spend an estimated 73 cents of the dollar on fuel.
With airlines expected to cut their flights by 15 percent, the anticipated drop in tourism this fall could be on par to post Sept. 11 figures, Kerns said.
That could spell bad news for local tourism which relies heavily on the out-of-state and international population, not the driving demographic whose travel plans might be dictated by gas prices.
There is good news for hospitality where it posted an average hotel rate of $278, up from 50 percent last year. Occupancy has also somewhat flattened in the past year at about 80 percent.
The American Film Market, which brings in millions of dollar in revenue to Santa Monica, has committed to hosting the event here through the next five years. The booking of the Northern Trust Golf Open in the Pacific Palisades is also expected to be a boon to local businesses.
While Santa Monicans have seen better economic times in their city, what lies ahead might have them yearning for the status quo.
The most recent quarter ending in June showed a flattening of the sales tax and a dip in the transient occupancy tax, both of which account for a combined 30 percent revenue to City Hall.
“We’re bracing ourselves for a pretty severe type of economic downturn but I think we’re well positioned to meet the challenge,” City Manager Lamont Ewell said shortly before the State of the City commenced. “We need to take it more realistically and spend the rest of this year looking at areas where we can reduce our expenditure, carefully monitor revenues and stay focused on the highest of priorities.”
While there are talks of the country being in a recession or on the brink of one, low consumer spending could be a state of mind, according to Tom Larmore, the past chamber chairman.
But such a trend has been exhibited in the city where the auto industry in particular has taken a hit, down about 14 percent. Auto sales account for about 22 percent of sales tax revenues, generating about $32 million last year.
Ewell said that the drop in the dealerships is not just about gas prices but the slow economy.
“Twenty-two percent of that being in the auto industry, seeing that drop can be a pretty significant reduction,” Ewell said.
Interesting about Santa Monica is its ability to insulate itself from the housing crisis and sub-prime mortgage fallout, the result of location, location, location and higher property values.
“Santa Monica is such a desirable place to live,” Larmore said. “You didn’t have as much of the sub-prime problems here primarily because housing prices are so high they didn’t run into that kind of buyer.”
While City Hall is blessed with a diversified tax base, offering some protection when one of the five major revenues — business license, property tax, sales tax, utility users tax (UUT) and transient occupancy tax — takes a hit, Ewell said he is planning on recommending the City Council establish an economic uncertainty reserve.
Voters will be asked this November to approve an update of the telecommunications provision of the UUT, which would save City Hall between $8-$12 million. The UUT is a tax applied to residents’ electricity, natural gas, cable, water/wastewater and telecommunication bills like Verizon.
Roughly $8.2 million of the total UUT would be applied to the economic uncertainty reserve.
“The reserve will help us keep local services and not have to dip down when things are getting worse,” Ewell said.
Originally published in the Santa Monica Daily Press print edition on July 18, 2008. Read the original PDF.