Sedona sales and bed tax collections continued to decline for the fifth straight month as the city’s economy heads into the oncoming recession, according to the latest figures for November 2022 released by the city’s finance department.

Sales tax collections in November were $2,631,897, which is 3% below the prior year’s collections for the month and 12% below the city’s budget.

Bed tax collections were $724,025, down 9% from the previous November and 14% from the city’s prediction.

While the city’s total sales tax collections for the first five months of Fiscal Year 2022-23 are lagging only 2% behind those for the first five months of Fiscal Year 2021-22, and total bed tax collections are 8.7% behind those for 2022, these numbers are, respectively, 13% and 17% short of the city’s budgetary expectations for 2023. So far, sales and bed tax collections in fiscal 2023 are $2.45 million shy of the city’s revenue predictions. A total revenue shortfall of at least $6 million for the year on this basis remains likely.

The construction sector continues to do well, with construction-related sales tax collections having risen 9% compared to November of FY 2022. Cumulative collections for amusement-related sales tax, on the other hand, are down 17% for the first five months of this fiscal year compared to the first five months of last fiscal year.

Hotel occupancy for November 2022 remained about 8% below occupancy for November 2021. The average daily room rate declined from almost $400 in October to below $350 in November; these rates were nevertheless almost identical to the 2021 rates for those two months.

Sufficient Surplus

At the Sedona City Council priority retreat on Jan. 19, city Finance Director Cherie White briefed the council on the steps the city was taking to prepare for the coming financial downturn.

“Most economists do agree that around mid-calendar year 2023 a recession is coming,” White informed council, adding that the general consensus was that it would be a mild rather than a severe recession and that the city is well-positioned for financial stability during the recession.

“We’ve always had more fund balance than what we actually spend in a year,” White said. “We have buffers built in that we will have sufficient surplus.”

As the fiscal year’s revenue collections have lagged far behind the city’s original optimistic predictions of an 8% increase in sales tax and a 10% increase in bed tax, the finance department has updated its longrange revenue forecast. For the remainder of FY 2023, sales tax collections are now predicted to be 8% below FY 2022 numbers for the corresponding months, and bed tax 10% below those numbers. Fiscal year 2024 collections are forecast to be 5% less for sales tax and 8% less for bed tax than those for 2023, with no change in fiscal year 2025.

Sales tax collections for the last seven months of FY 2022 were $19,668,601, and bed tax collections were $5,439,949. On this basis, the city’s new revenue predictions for sales and bed tax for the rest of the current year should be $18,095,113 for sales tax and $4,895,954 for bed tax. Adding in the original predictions for the first five months of the year yields total predicted revenues for the full year of $32,386,833 and $8,749,864, respectively. These figures total about $500,000 less than actual revenue collections for FY 2022.

Further reductions of 5% and 8% in FY 2024 would yield estimated sales and bed tax revenues of $30,767,491 and $8,049,875, totaling $38,817,366. This would be $2.87 million below actual collections in 2022 and about $8 million below the city’s 2023 predictions.

In spite of these downward adjustments, White remained confident that the city will continue to be able to pursue its existing projects and more. According to the model she presented to council, even a severe recession would merely reduce the amount of accumulated surplus forecast for the next eight years from $24 million to $18 million.

White’s model also showed that the city can afford to spend an additional $2.5 million per year in fiscal years 2026 and 2027 on developing its 2250 Shelby Drive property, and $2 million per year to develop the Sedona Cultural Park beginning in fiscal 2026. These expenditures would reduce the city’s expected surpluses but not eliminate them, regardless of whether the recession is mild or severe.

The biggest potential financial challenge for Sedona, White pointed out, is a further increase in construction costs, given the number of projects the city currently has under development. A 50% increase in construction costs would require some projects to be delayed or restructured.

Cultural Park

Councilman Brian Fultz asked White what a likely range for the fiscal year 2024 budget might be.

“We spent $20 million that was budgeted for the Cultural Park,” White said. “So right off the top I would say it comes down $20 million.” That would put the city’s projected 2024 budget in the range of $85 million.

However, while city staff continue to state that the purchase of the Cultural Park was included in the 2023 budget, the phrase “Cultural Park” occurs in the budget exactly twice, both times on page 156, under future objectives for the city manager’s office.

The relevant item reads, “Explore the opportunity to purchase the Cultural Park and assess the feasibility of purchasing the Cultural Park for uses which will benefit the community.”

When asked to identify the line item for the Cultural Park purchase in the 2023 budget, city communications manager Lauren Browne pointed to page 276. This page lists a requested budget of $20,020,000, and a project cost estimate of $21,620,000, as “a placeholder for acquiring property that will be determined at a later date” at a location “to be determined.”

Nothing on the page refers at all to the Cultural Park.

Furthermore, the FY 2023 budget was proposed on May 14, 2022, and approved on Aug. 9. The city council did not decide to purchase the Cultural Park until Nov. 22, meaning that it could not have allocated funds for a purchase that had not yet been authorized.

In order for the funds for the Cultural Park purchase to have been included in the 2023 budget, the city would have had to have decided to buy the Cultural Park prior to the budget’s submission. This would mean either that city staff had made the decision without council approval, in which case they would have exceeded their authority, or that the city council had made the decision without a public hearing, in which case they would have violated the state’s open meeting laws, * however, city staff could have been directed in executive session to budget to purchase the Cultural Park land, with a $20,020,000 unspecified line item later appearing on the budget’s page 276, which could explain the discrepancy. City staff have not yet confirmed whether this was what indeed occurred.

City staff has still not explained this discrepancy in spite of numerous email requests to do so.

• * Editor’s Note: The original story, published Friday, Jan. 27, omitted a third option for how the item could have appeared in the city’s budget.