City may tap general fund to pay lodgers tax debt - Albuquerque Journal

City may tap general fund to pay lodgers tax debt

Albuquerque increased its lodgers tax bond debt last fall by issuing $26.3 million in new bonds to support “sports tourism” projects around the city, including upgrades at Isotopes Park. But with lodgers tax dwindling, the city may have to tap its general fund to help make this year’s debt payment. (Marla Brose Albuquerque Journal)

Copyright © 2020 Albuquerque Journal

When Albuquerque Mayor Tim Keller a year ago announced a series of planned “sports tourism” projects around the city, officials were banking on the sustained success of the local hospitality industry to pay for them.

The industry’s health prompted the city to last fall issue $26.3 million in new bonds for a cash surge that could fund a new soccer complex, upgrade Los Altos Park and Isotopes Park and make other investments around Albuquerque. The city planned to pay off the bonds with future lodgers tax receipts. The tax is paid by those staying at hotels and vacation rentals in the city.

The city has historically borrowed against that revenue stream for construction projects, and the new bonds helped push the city’s total lodgers tax-backed debt to nearly $135 million.

But with COVID-19 crushing the hospitality sector, Keller’s administration is now turning to the general fund for help paying the almost $8 million in debt service owed this year.

The city’s general fund is supported primarily by gross receipts tax and is typically tapped for basic city services, such as fire protection and road maintenance.

Albuquerque Chief Financial Officer Sanjay Bhakta called the lodgers tax debt payment one of the “unavoidable” general fund costs the city will incur this year given the pandemic’s impact on the economy.

Los Altos Park is among the venues scheduled for upgrades using $26.3 million in lodgers tax-backed bonds the city issued last year. But with COVID-19 eating into lodgers tax revenue, the city may have to use money from its general fund to make bond payments that lodgers tax would normally be expected to cover. (Jim Thompson/Albuquerque Journal)

“If that sector comes up and the revenues are higher than expected, we may not need the $3.5 million (from the general fund),” Bhakta said during a budget news conference earlier this month at City Hall. “But that’s what we’re budgeting right now.”

When Keller announced his sports tourism proposal last September, the lodgers tax had been on an upward swing. Officials said that issuing bonds would give the city enough funding to tackle more significant projects than what it could do with repeated small annual surpluses. They also said the market conditions were favorable.

The plan advanced quickly, drawing backlash from local hoteliers. Industry representatives questioned the tourism value of several of the included projects, saying they were unlikely to boost visitation and, therefore, offer a return on the investment of lodgers tax dollars.

Despite the objections, the City Council approved a version of the plan in October, about a month after Keller announced it.

In addition to buying new bonds, the city last fall also refinanced some older bonds at lower interest rates to help cut debt costs. All told, the city owes about $7.8 million in lodgers tax debt service this fiscal year – up from $7.7 million last year – although the payment will keep growing annually.

At the time the city issued the bonds, the city’s lodgers tax and hospitality fee revenue was robust.

From July through November 2019 – the first five months of fiscal year 2020 – monthly revenue was up between 7.7% and 11.1% from the same months the year before.

But the year-over-year increases gave way to year-over-year declines by February. Revenue crashed in March, coming in 61% less than March of 2019, a trend that continued through the spring.

The city finished the 2020 fiscal year on June 30 with $13.4 million in lodgers tax and hospitality fee revenue – nearly $4 million less than in 2019.

Keller’s administration is budgeting for an even steeper decline this year, forecasting a total haul of only $8.5 million.

By state law, at least half of all lodgers tax revenue must go to tourism-related marketing and promotion, which leaves the city short on its debt payments.

Bhakta said the unforeseen events of this year do not necessarily change the value of last year’s bond sale.

“At that time, it made sense that we had that money, and I believe eventually it will work out. … Once the industry comes back, they will be able to reap the reward of that investment,” he said.

The sports tourism projects continue moving forward.

The city has hired a landscape architect and has begun detailed planning of the Los Altos Park renovation, and Parks and Recreation Department spokesman Philip Clelland said construction should start next year.

Planning with Bernalillo County for the planned multifield soccer complex at Mesa del Sol is “ongoing,” Clelland said.

The program also included $2.5 million for a new indoor track at the Albuquerque Convention Center. The city has bought it and should have it installed for the 2021 season, he said.

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