Hotel taxes expected to drop by two-thirds statewide |

Hotel taxes expected to drop by two-thirds statewide

A state auditor report has found that municipalities that rely on tourism and entertainment are hardest hit from the coronavirus pandemic, forcing some to dip into reserves and even face the potential of rolling back city services.

Although Grass Valley and Nevada City are seen as tourist towns, the cities only receive 5.5% and 8% of their tax revenue, respectively, from transient occupancy taxes. Nearby South Lake Tahoe, for example, gets 48% of tax revenue from hotel taxes, the third highest ratio in the state.

The report also used the California Economic Forecast to predict how those revenues will be affected in the next year, estimating transient occupancy taxes will drop by more than 38% in fiscal year 2020-21, compared to an estimated 23% in fiscal year 2019-20.

For Grass Valley, that would mean a loss of over $1 million in tax revenue for those fiscal years, according to the report. Nevada City is projected to lose about $400,000 in that same time frame.

City managers for Grass Valley and Nevada City couldn’t be reached for comment.

While the most affected cities, like Richmond in the Bay Area, have general fund reserves deplete and debt obligations stack up, the report lists Grass Valley’s financial risk as “low” and Nevada City as “moderate.”

However, the California Economic Forecast analysis relies on assumptions that the economy will continue a “slow but sustained recovery,” a vaccine will be rolled out in early 2021, and that another fiscal stimulus will be passed — none of which are assured.

A fiscal year 2020-21 worst case scenario is included in which hotel tax rates decline 46% and a best case scenario has revenue falling 31%.

According to the analysis, Grass Valley would have just over $11 million in reserves. There’s an estimated $750,000 in projected reserves for Nevada City.

The report notes that property and sales tax would not be affected as dramatically, and property taxes may even increase in some counties.

To contact Staff Writer John Orona, email or call 530-477-4229.

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