The latest figures from the city of Sedona and the Sedona Chamber of Commerce suggest that the post-pandemic economic boom has ended and that tourism will decline steadily into 2024.

“The growth levels we were seeing are not expected to continue,” Michelle Conway, president of the Sedona Chamber of Commerce, informed the Sedona City Council on Nov. 9.

Hotel occupancy rates, which dropped to about 15% in April 2020, rebounded to 80% or greater in April 2021 and April 2022, comparable to 2019 levels. However, according to the city’s September 2022 sales and bed tax report, hotel occupancy in August 2022 was just over 50%, comparable to January 2019 and 2020 levels, and representing a decline of more than 10% from August 2018 and of about 15% from August 2019.

While the city’s hotel occupancy rate increased to more than 60% in September, that remains almost 10% behind September 2018/2019 levels. Average annual occupancy for the year to date is 58%, the lowest rate in the previous 16 years, which is also 8% to 10% lower than it was for 2013 through 2020.

By June 2023, the chamber expects occupancy to be up by only 3.4% over June 2019 figures, and projects that it will fall below June 2019 rates in 2024. While fiscal year 2023 occupancy rates are up by 2.6% for the United States as a whole and by 9.6% for Coconino County, compared to 2022, they are down by 7.4% in Yavapai County and 9% in Sedona.

The September sales tax report also shows that the city’s year-to-date collections are lagging 6% behind last year’s. Sales tax revenues for July 2022 were 9.4% lower than they were in July 2021, revenues for August were down by 1.8% compared to August 2021 and revenues for September were 7% less than in September 2021.

Conway pointed out that art gallery owners have seen some of the sharpest falls in business: “A couple of them said they had the worst October since 2009. For October, their foot traffic was down 19% from 2020 and down 34% from 2021. Sales down 60% and 78% also, respectively.”

Meanwhile, costs for businesses continue to rise. Conway reminded the city council that the cost of wages has increased by over 10% since last year. A survey of the chamber’s members taken between Nov. 4 and 8 revealed that 88% of member businesses described increases in labor expenses as one of their three most significant cost increases in the last three years, far surpassing the 51% who listed increases in rent as a major change.

The majority of chamber members “said they’ve seen increased costs between 11% and 30%,” Conway told the council, and “83% stated that the lower tourist traffic is affecting their bottom line, and roughly half of our members attribute the lack of destination marketing as affecting their bottom line, followed by inflation and a lack of consumer spending. What’s disturbing to me is that only 23% are forecasting a profit this winter.”

Council members explored alternative explanations for these figures.

“Can you come up with anything other than lack of customers coming in?” Vice Mayor Scott Jablow asked Nena Barlow, of the Barlow Adventures Jeep tour company, who spoke at the meeting regarding the downturn her business had experienced. “Is there any reason? Fuel was high, but it was coming back down around August.”

“I think it’s a number of factors,” Barlow said politely, adding that election years “are always a little lower.”

“I don’t agree with those numbers,” Jablow had previously said at the Sedona mayoral debate on Oct. 6, when reminded that the chamber predicted tourism would decline to below 2019 levels through at least early 2024. “I don’t know that tourism is really going to drop … We still have people coming here,” he said about the flow of visitors from Phoenix.

“What I’m hearing in the comments today are, we need people that are insulated from inflation and have the money to spend,” Councilman Tom Lamkin observed. “We need the people that spend a lot of money and it doesn’t bother them that there’s inflation because they can come up and they need to fill the needs that the other people are slowing down on, that are worried about their jobs, etc.”

If destination marketing were to start up again, Lamkin commented, “then I would say, well, it looks like we need to market to people making over $150,000 a year, making 4 trips a year, whatever those demographics are.”

Multiple council members also challenged both the accuracy of the chamber’s visitor counts and the usefulness of its year-to-year comparisons.

“We don’t even know how many tourists come here. For 10 years, I heard 3 million people come here,” Lamkin said. “Well, why wasn’t that 3.2 million and 3.7 million, 4.1 million? I’m not sure how we get a handle on that.”

“It’s the average,” Conway said.

“But how do we know that was the average?” Lamkin asked.

“Because I know the annual visitation,” Conway replied.

“The figure we’re hearing now for visitors, annual visitors — 3 million? Three-and-a-half million?” Mayor Sandy Moriarty asked.

“Last year was the highest I’ve seen over 10 years, at 3.7 [million],” Conway said.

“And where do you get that number?” Moriarty asked.

“It’s a calculation that we’ve been working with for the last 10 years,” Conway explained. “We’ve been using the same methodology for a long time … so we know we’re calculating it similarly.”

“I’ve been here 50 years, and I swear when I came here, 50 years ago, I heard it was 2 million to 3 million visitors, maybe even 4 [million],” Moriarty demurred. “I don’t know how we count day trippers, or how we get a gauge.”

Lamkin, in common with Councilwomen Kathy Kinsella, Holli Ploog and Jessica Williamson, expressed concern about the figures the chamber is using as a basis for comparison.

“I do see a concern. I see a drop of 9%. But my question — is that 9% from a 40% increase the year before? I’m having trouble getting a context,” Lamkin said.

“I don’t know where these projections are coming from,” Kinsella said.

“If something goes up 40% and comes down 5%, is that a crisis?” Williamson asked. “I would say ‘no.’”

Ploog referred to an email sent to the council by city Finance Director Cherie White, which she stated showed that for August, “hotel/motel was down 11%, but it was 48% higher than pre-COVID levels. Restaurants and bars [were] down 9%, but it was 10% higher than pre-COVID levels. Retail is down 2%, but it was 49% higher than pre-COVID levels.”

“If you look at the numbers … they’re out of sync with what the chamber provides to us,” Ploog said, adding that inflation was not significant enough to account for all of the difference. “They don’t show an economic impact as severe as what we’ve heard presented by the chamber.”

“These two narratives are contradictory,” Kinsella agreed.

“While the stories are not exactly aligned, and our numbers lag behind a bit, there is some indication even in our reports that things aren’t as rosy in terms of the overall economic picture as they have been in the last few years,” Sedona City Manager Karen Osburn advised the council. “We are tapering off. If we continue at the same pace for the rest of the fiscal year, sales and bed tax will be $8.4 million less than what we budgeted.”

The apparent discrepancy between the city’s numbers and the chamber’s numbers results in part from the distinction between room occupancy levels and the revenues derived from those rooms. While occupancy rates are declining, the average daily rate for a hotel room in Sedona is still unusually high, resulting in increased revenues and tax collection. Between June 2021 and July 2022, the ADR for a hotel room in Sedona was more than 35% above 2019 levels, reaching a high of 57.9% above the baseline in March 2022. ADRs then declined somewhat, to 33.2% above the baseline in August 2022, before rebounding to 42.3% in September. Elevated ADR levels are currently compensating for reduced occupancy, but this situation may not last. The chamber projects that by June 2023, ADR will have dropped to 9.9% above 2019 levels.

In addition, the month-to-month figures for the city’s sales and bed tax receipts can vary widely depending on whether there are four or five Mondays in a given month, as the city receives revenue distributions each Monday.

To put these numbers in context, during the Great Recession, city sales and bed tax revenue fell from $14,254,478 in fiscal year 2008 to $13,532,679 in 2009 and $12,134,503 in 2010 before recovering, for a decline of 5% over one year and 14.9% over two years.

In Fiscal Year 2008, sales and bed tax revenue accounted for 23.5% of the city’s budget, while in Fiscal Year 2022, it accounted for 66.5% of the budget.