Hotel taxes forecast to fall by $36M, leading to expected deficit in city arts funding

With the city projecting a $36 million decrease in Hotel Occupancy Tax revenue because of lower hotel bookings due to the Covid-19 pandemic, arts funding for the current budget year is expected to see a $1.5 million shortfall.

The Arts Commission learned Monday that the city will cover all of the contracts to local artists that were drafted as part of the $11.8 million in funding the Cultural Arts Division expected to have this year. That will result in a $1.5 million deficit that will need to be paid back within one year, meaning there will likely only be around $7 million total for arts funding for the fiscal 2021 budget, which will largely be determined this summer.

Sylnovia Holt-Rabb, deputy director of the Economic Development Department, said hotel tax funding for cultural arts is expected to reach $8.2 million by the end of the budget year in September. Drawing on the 10 percent reserve preferred by City Council will leave the deficit that will have to be paid from the following year’s hotel tax money for the arts, which is projected to be $9.3 million.

While repeatedly stating that the city is working based on projections and estimates, Holt-Rabb said the city is committed to doing whatever it can to support the arts and culture while dealing with the financial effects of the pandemic.

“We realize the creative community is important to Austin. The budget office recognizes this fact as well as Council,” she said. “We have been in constant contact with the budget office since the cancellation of South By and we are actively trying to pursue additional revenue. We definitely understand the pressures to know answers way in advance, but as of today this is the best (estimate) that we can provide.”

Arts Commission members largely supported Holt-Rabb’s assessment of the state of arts funding.

Commissioner Rebecca Fonte said the 10 percent “set-aside” rule should be disregarded for the next budget year, though Holt-Rabb said that could result in another deficit if hotel tax revenue does not come in at the projected level.

“If there ever was a time to use the 10 percent set-aside, is this now not the time?” she said. “Why are we setting a portion of the budget aside instead of using it when there is a global pandemic, and we’re telling arts organizations they’re going to lose 40 to 70 percent of their funding. I can’t fathom how to explain that to any arts organization.”

Holt-Rabb said there are portions of the city’s funding from the Coronavirus Aid, Relief and Economic Security (CARES) Act that could provide money to arts groups. A recent Council resolution to provide money to local nonprofits includes $1 million specifically for arts and culture groups, though that money has to be used for sustainability and not for events.

City Council also recently restructured the $1 million Creative Space Assistance Program to help provide rent relief to artists and portions of the city’s Commercial Loans for Economic Assistance & Recovery, or CLEAR fund, will be available for arts and cultural applicants.

Holt-Rabb said staff charged with assembling the city’s pandemic recovery efforts are checking to make sure funding is directed in the most appropriate way to avoid redundancy and stretch relief dollars as far as possible.

“We want to ensure that whoever we subcontract with and gets engaged in these services, they’ll have the proper system in place to document who is being served, so when it comes time for an audit everything is in line,” she said. “We are trying to develop a system so that, say, if an individual received rental assistance and was a musician, we know what’s available for them to access.”

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