COVID deals financial blow to Myrtle Beach SC tourism

After an initial COVID-19 gut-punch in the spring, Patrick Norton thought in May that the

After an initial COVID-19 gut-punch in the spring, Patrick Norton thought in May that the worst was in the past for the Myrtle Beach condo and hotels he manages — it was a great month and bookings were way up.

But then the COVID-19 spike of June and July hit. Local restrictions and a loss of tourists followed.

“Bookings literally dried up overnight,” Norton, who works as vice president of sales and marketing at Brittain Resorts & Hotels, said. “We’d have days where we have $1 million in cancellations. Almost overnight we went from seeing a normal summer to 50% occupancy.”

The local chain of resorts and hotels managed to end the tourist season in a decent position — warm weather and a lack of hurricanes in September allowed them to make up lost revenue over the summer, Norton said.

But that summer dip, felt by hotels and other businesses up and down the Grand Strand could now be causing problems for the cities and county they call home. For one, a loss of tourists means fewer people paying the accommodations tax, a two-pronged state and local tax generated by hotel and beach house stays that local governments are then allowed to spend on tourism-related services and marketing. Then there’s Myrtle Beach’s 1% “tourism development” sales tax that is spent in similar ways.

Believe it or not, Norton said, businesses not paying those taxes hurts them.

“When the accommodations tax is down or the tourism development tax (is down) it hurts us, we need that money to market the beach,” Norton said. “That money goes to promoting tourism. To be short on it, it’s very tough to deal with.”

Between the financial consequences of the coronavirus pandemic as well as a recent South Carolina Supreme Court ruling on a dispute over another local tax, finances for Myrtle Beach, Horry County and other municipalities have been thrown into question as the year comes to a close. The uncertainty comes as the local governments begin to craft budgets for the 2021-2022 fiscal year, the first time revenue losses from July, August and beyond will be reflected in local finances.

Some of the more visible consequences of the coronavirus outbreak, like business closures, job losses and housing insecurity, have been at the forefront of conversations and news coverage. But local governments and economies are suffering, too. While long-term impacts of the recession remain hazy, some facts and figures illustrating the financial situation of local governments are starting to come into focus.

Will the losses in the current fiscal year force cuts next year? Or worse, tax or fee increases?

“Business license (revenues) are down, tax revenue is down, the hospitality fee is in jeopardy again, it’s going to be a tough challenge,” said Horry County Council member Bill Howard, who represents part of Myrtle Beach. “I hope we don’t have to cut anything.”

Supreme Court throws out tax settlement

Heading into December, Horry County, for its part, was in decent financial shape. The county was riding on a repeat budget of the previous year and small cuts, pauses on some projects and county employees picking up needed slack left the county with $674,000 extra in its general fund compared to last year, leaving a cushion of about $8 million to spend this fiscal year if needed. Revenue from property taxes and building permits were up, even as income from business license fees lagged. Budget talks were supposed to start last week, and the County Council was supposed to start reviewing which departments’ budgets might grow and what, if anything, would have to be cut.

Myrtle Beach was similar. It ended the last fiscal year with its general fund increasing by around $29,000 from the previous year. Total revenues were down about $1.9 million but the city entered July with a cushion of around $13.6 million to use.

Despite the pandemic, both municipalities were entering their next budget season with a good idea of where they stood financially.

The South Carolina Supreme Court, apparently, had other ideas. Last Tuesday, the state’s high court threw out a settlement between Horry County and Myrtle Beach on how a local hospitality fee should be spent, meaning both municipalities now face an uncertain future on how much, or if, they’ll be able to use that money next fiscal year.

The hospitality fee dates back to 1996 when Horry County implemented a 1.5% fee on prepared foods, admissions and rentals in the county to pay for roads. The fee was supposed to be in place for 20 years, ending in 2017. But at the end of the fee’s life, Horry County Council renewed the fee for an indefinite period of time, and later dedicated $30 million of the fee’s revenue to help construct I-73 in 2018.

In 2019, Myrtle Beach sued Horry County, saying the county was improperly collecting the tax past 2017. As the two municipalities argued and inched toward a settlement on who should get what of future tax collections, both decided to leave the matter of how to distribute $19 million already collected to the courts. Myrtle Beach said half of that money should go to lawyers part of the suit, while Horry County said all the money should be distributed to Myrtle Beach and the other municipalities within the county. A lower court judge sided with the county.

In Horry County, the hospitality fee brought in around $40 million in revenue each year between 2017 when the road improvement program ended and July 2019 when a court ordered the county to stop collecting the fee in Myrtle Beach as part of the city’s lawsuit. Horry County also charges a smaller hospitality fee in the unincorporated parts of the county. That fee has brought in between $6 to $8 million annually in recent years.

But a state Supreme Court judge said the settlement couldn’t be considered complete unless all matters, including the $19 million, were resolved by the two parties. The judge sent the two municipalities back to the drawing board.

“Now that we have the hospitality fee way up in the air, that presents some unique situations we didn’t really think we’d have to deal with,” said Gary Loftus, an Horry County Council member who represents part of Myrtle Beach.

Myrtle Beach spokesman Mark Kruea declined to comment on the case, saying the city doesn’t typically talk about pending litigation. He wouldn’t say how the case could impact the city’s budget for the upcoming year. Horry County spokesperson Kelly Moore also declined to comment on the case or how it might impact county finances.

In addition to losses of accomodation taxes and hospitality fees, Horry County now also faces a potential loss of $3 million from a Myrtle Beach sale of land that helps fund the Myrtle Beach International Airport.

The county is planning to sue the city over the issue after Myrtle Beach City Council voted to authorize the sale.

City council members allege the land shouldn’t have been owned by the city in the first place, and it complicates the situation for the city to lease the property to campground owners. County council members, on the other hand, worry about the loss of funding to the airport, which Loftus said is $2-3 million annually.

Looking toward the rest of the 2020-2021 fiscal year and into the 2021-2022 year, officials from both the city and county are hesitant to say much as they study their options. The coronavirus spread hasn’t relented in the area, either. The outcome of the hospitality fee case could also sway the municipalities’ finances one way or the other once the case is resolved.

Myrtle Beach is also grappling with an expected decrease in one of its primary sources of revenue: Business license fees.

“Right now, at this point, it’s hard to tell where we’re going to end up with our two main sources of income, business licenses and property tax,” Michelle Shumpert, the city’s finance director, said. “We anticipate the business license will come in lower than the prior year.”

Myrtle Beach, county facing budget holes

Many sources of tax revenue have taken a serious hit throughout fiscal year 2019-2020 and so far in fiscal year 2020-2021, according to financial reports from the South Carolina Department of Revenue, Horry County and the Myrtle Beach finance department reviewed by The Sun News.

But revenues from tourism — primarily in the form of accommodation taxes on hotel and beach house stays, hospitality fees, tourism fees and casino boat fees — have taken the biggest hit.

In recent years, Horry County brought in more than $50 million annually between hospitality and accommodation fees — between 8-9% of the county’s overall budget, of $459 million. That overall budget includes the general fund, which pays for things like police and county employee salaries, as well as a larger capital budget for infrastructure and building projects.

Given that state and local laws mandate that accommodation and hospitality fees be spent on marketing, police services or public works projects that benefit the tourism economy, a loss of those revenues could create compounded problems for Horry County’s beach towns.

Halting tourism and closing hotels in the spring to curb the spread of COVID-19 led to the most extreme loss of revenue in the area, as Myrtle Beach and much of Horry County relies on its tourism industry to keep the local economy afloat.

The accommodation tax applies to hotels, campgrounds and other types of lodging. As of June 30, Horry County reported losing about $1.64 million in accommodation tax, hospitality fee and casino boat tax revenue. According to a county financial report from July through September, Horry County lost an additional $704,000 in hospitality and casino boat fees in those months. A reduction in interest rates nationwide has also cost the county money.

During the height of pandemic-induced shutdowns, Myrtle Beach lost nearly $4 million in revenue from the state accommodation tax, according to reports from the South Carolina Department of Revenue comparing typical tourism-heavy months April through August 2019 to the same months in 2020.

Over the same period, North Myrtle Beach lost about $888,000 in revenue while fellow coastal town Surfside Beach lost around $78,000, according to the Department of Revenue. Conway, which lacks the tourist attractions and sandy beaches of the coastal cities, saw only a slight decrease from 2019 figures with a $1,600 loss.

Shumpert, Myrtle Beach’s chief financial officer, presented the financial report to city council last week, analyzing the conclusions drawn from fiscal year 2020, the current situation in 2021 and potential lasting impacts bleeding into 2022. Despite losing revenue across several funds, Shumpert emphasized the benefits of the city’s swiftness to cut back on spending and enact a hiring freeze.

“Fortunately the city recognized early on that the pandemic was likely to have financial impacts, it was likely to reduce the number of tourists that came in,” she told The Sun News. “So in early March we implemented some spending control that allowed us to make it through the year and actually end the year at a decent level.”

The city made it through fiscal year 2020, which ended in June, without laying off or furloughing any employees. But this fall, the city lost 53 employees — many of whom were laid off — to minimize the financial blow of the pandemic.

Budget cuts may be necessary

If anyone in South Carolina is watching how the pandemic has affected tourism — and the revenues it brings — it’s Duane Parrish, director of the South Carolina Department of Parks, Recreation and Tourism. With a pandemic uniquely devastating to travel and tourism, Parish said the municipalities that rely on tourism dollars have been forced to deal with a crisis other cities haven’t. Pulling out of such a disaster will be challenging, he said, though he’s optimistic tourism will return en force to the Grand Strand once traveling is safe again.

“If you’re a government leader it’s a little like trying to fly the plane at the same time you’re building it,” he said. “The hardest part for the municipalities and the private sector is that we’re heading into the slowest part of the year.”

According to Shumpert, the accommodation tax revenue in the city is largely used to fund police and public safety. It’s an important expense, particularly because Myrtle Beach needs a bigger police force than most other cities of similar size to account for the extra people brought in by tourism.

“We have to have a police force that’s larger than any normal town with a permanent population of 29,000 people,” she said. “Because we have such a large tourism presence here throughout the seasons, we have to staff for more like 150,000 people a day for much of the year.”

She added that without many entertainment events and tourism activity this year, the city saved money on overtime pay and contracting other agencies to help during the busy months.

In Horry County, Assistant County Administrator Barry Spivey last week congratulated the county for making it through the 2019-2020 fiscal year without major cuts.

He said the county paused some capital projects, restricted employee travel, put off hiring for some positions and asked county managers to find places to cut their department budgets. That resulted in some county employees working across departments — like Parks and Recreation employees working in the county museum or Solicitor’s office employees helping run the 2020 general election — and creative cost-saving measures, like the Assessor’s office and Treasurer’s office teaming up to send out delinquent tax notices in-house for the first time, instead of contracting that work out.

Those moves have allowed the county to avoid staffing cuts and other serious cost-saving measures. But with the hospitality fee revenue now up in the air, and the county not yet accounting for the accommodation tax losses from July on, the future is uncertain.

“What do you cut? Do you cut police? No,” said Loftus, a councilman. “The roads are pretty much covered. So where do you make cuts?”

He added that the county may have to look at cutting funding to the Parks and Recreation Department: “We need to get down to what the core functions of government are,” he said.

Pandemic shows holes in tourism economy

Losing a chunk of the accommodation tax revenue revealed the vulnerability of an economy based mainly on tourism. Other areas, like Charleston and Hilton Head Island, have thriving tourism industries, but other job sources were able to prop up the economy during the pandemic in a way that wasn’t possible in Myrtle Beach. According to a report from University of South Carolina researchers, Horry County’s unemployment peaked at 22%, the highest level of any S.C. county, partly because of the area’s reliance on hospitality jobs.

That revealed a need for Myrtle Beach and the county as a whole to invest in other industries, something Shumpert said the city is working toward in its plans for the development of the arts and innovations district.

“Manufacturing and things like that, it’s not really something that’s easy to attract to an area, but increasing a presence in the medical field here, that certainly is bringing in more jobs that not necessarily is tied to tourism,” Shumpert said. “The city is always looking for ways to expand our economic base.”

City leaders are in agreement that the financial state could have been much worse following the onset of the pandemic. Myrtle Beach and the surrounding areas opened their doors to tourists in late spring, when much of the country was still under strict lockdown, which Mayor Brenda Bethune said was partly responsible for boosting the area’s economy. S.C. Gov. Henry McMaster allowed businesses to reopen beginning in April with retail businesses and restaurants following shortly after in May.

“It wasn’t the level of tourism that we typically see, but it certainly was enough to help our local businesses and our hotels to stay afloat,” Bethune said. “That does not mean that we don’t have businesses suffering and some that have had to close but it certainly helped.”

Though it helped businesses, opening up came at a price. Coronavirus cases surged in June and July with the county consistently adding triple-digit daily caseloads and being labeled a “hotspot” by the state health department. Government officials from other states warned against traveling to Myrtle Beach because of the spiking virus cases. The city continued to push to bring tourists to the area.

No tax increases in Myrtle Beach

The pandemic surges on, with Horry County coronavirus cases spiking in recent days and some projections showing a possible return of alarming levels of virus cases. The long-term effects remain to be seen, and the rate of economic recovery hinges on what happens in the coming months, specifically the potential distribution of a COVID-19 vaccine.

Bethune maintained that Myrtle Beach residents shouldn’t expect tax increases anytime soon.

“And I believe that I speak for everyone on [city] council when I say that this is absolutely not the time to do that,” Bethune told The Sun News. “We can’t put the burden on people that are already hurting.”

She said continuing to watch spending patterns and the potential passing of a new public safety enhancement fee will be vital in ensuring economic health through the recovery period. The fee, if passed, would go into effect in April 2021 and would add a $3 charge on all units. The return of tourism and the potential widespread distribution of a vaccine are also important, she said, emphasizing that much remains unknown about the pandemic’s course.

Shumpert said she’s optimistic about the return of tourism, which will hopefully spur the local economy back to its rightful position. She’s seen it before — when studying previous recessions, Shumpert realized Myrtle Beach is at an advantage since most tourists drive instead of fly.

“People tend to flock to Myrtle Beach just as soon as recoveries begin,” she said. “And I really feel like there’s going to be a travel demand once there’s a vaccine in place and once we begin to recover. I really see a fairly quick return of our tourism population once the pandemic sort of is under control.”

For Horry County’s part, County Council members await a Jan. 15 budget session where county staff will present a proposed budget — and go into detail on how devastating the pandemic has been for the county since June 30. Some, like Council Member Dennis DiSabato, are hopeful the county won’t see many, if any, serious effects from the pandemic in the upcoming budget.

“I think we’re operating with enough reserves that you’re not going to see a loss of service from the county. We’ve been fiscally responsible for years, and that pays off in times like this,” he said. “I think we’ll be in a position to weather the storm until things get back to normal.”