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Indicators that negative effects of the coronavirus pandemic on the local economy have begun to ebb were presented Thursday, August 12, to Cotulla councilors who learned that hotel occupancy tax revenues may be on the rebound.
Sales tax revenues, however, are proving slower to return to levels last seen before the pandemic.
Numbers offered by financial consultant Jorge Flores at the meeting in the AB Alexander Convention Center showed that hotels in Cotulla paid approximately $220,000 in special surcharge taxes to the city for the quarter ending in June, a statistic that Flores described as showing trade on the upswing.
For the same period in 2020, Cotulla collected $75,000 in hotel taxes.
The Hotel Occupancy Tax (HOT) is designed as a fee attached to the bill for every hotel or motel room in the city and is paid by the business into a special fund at City Hall. From there, the revenues can only be used for city projects aimed at increasing tourism and, by extension, the likelihood that more travelers will book local rooms.
The ‘heads in beds’ program of levying a tax on every hotel booking has helped Cotulla fund a number of projects over the past decade, including the Main Street Program, the beautification of Front Street downtown, installation of park features and bronzes, commission of the city’s mural depicting Cotulla’s colorful history; and the historic preservation and restoration of the former Stockmens Bank on Front Street, presently underway.
The state of Texas legislates use of HOT funds and dictates that the revenues can only be used for tourism promotion that may help with economic development. Cities collecting HOT funds are barred from using the revenues for routine municipal expenses and cannot divert them to principal infrastructure development such as water and sewer lines or street paving.
Cotulla City Hall has kept an eagle eye on its HOT revenues and has taken steps to ensure each hotel or motel is making the payments that reflect the number of rooms that were sold.
“We sent reminder letters to certain people who had not paid,” City Administrator Larry Dovalina said last week. “We collected another $70,000 for August, which takes us closer to projected figures.”
Dovalina said he will follow state guidelines in collecting the HOT funds and the city will pick six hotel properties to visit in order to compare room bookings with taxes paid.
“We will go and look at their books to ensure they are paying,” the city administrator said. “The last time, it resulted in a substantial payment from one hotel property.
“We are looking to make sure everyone stays honest,” Dovalina said, “and that there is no misinterpretation of state law.”
Flores said that while HOT funds have begun to rise, the city has fallen short of expectations in its collection of sales taxes for the summer, receiving only $132,000 in August for the June collection period.
The city collected $114,000 for the same period in 2020, and $146,000 in 2019.
The city’s sales tax stands at two percent, applicable to all retail sales inside city limits, and a portion of the funds are channeled directly to City Hall for monthly operations. A half percent included in that rate is used for the city’s economic development fund. While they form a substantial portion of the annual budget, prediction of sales tax revenue levels has been difficult during times of economic uncertainty brought on by the pandemic and its related slow-down in trade and traffic.
Flores said he is encouraged by the recent sales tax pay-out by the state to the city, however, describing August’s check as “looking a lot better than during the pandemic.”
Dovalina said the council should be encouraged by the news of a recovery but also aware that the present revenue tallies mean the city stands at $600,000 less in General Fund resources than it had expected in its budget by this month in the fiscal year.
“You had a shortfall,” Dovalina told the council last week, but joined Flores in reporting that Cotulla may see its coffers refilled with federal monies from a stimulus package.
“The stimulus check will wipe out almost all of the deficit,” Flores said.
“The funds are meant to replenish the lack of revenues such as sales tax,” Dovalina told the council of the federal government aid. “We have also applied for a Texas Emergency Management check, but it’s a reimbursement, so it’s behind.”
The first stimulus payment to Cotulla, Dovalina said, will be for over $500,000, half of the amount to which the city is entitled. The remainder will be paid later.
In order to operate next year at the same capacity as in 2021, Flores said, councilors will be made aware of the need to raise property taxes, as overall valuations have dropped during the past year.
Records at City Hall indicate the total property valuation for Cotulla stands at approximately $153,146,000, a decrease from last year by approximately $9.2 million. The drop in values means that the city should raise its property tax rate from 71 to 74 cents per $100 of appraised property value in order to generate sufficient revenue to continue operations along an identical budget next year.
Flores described the hike as a “no new revenue” tax rate, as City Hall cannot expect to boost its budget next year under the constraints of a drop in property values.
Councilors will decide at an upcoming meeting whether to push for a tax rate hike. Budget workshops for the elected officials are being scheduled in the meantime.