Shoring Up The Bed Tax

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Yesterday, in "How Fiscally Sound Is The Bed Tax?", we discussed the bed tax, which is the "work horse" for paying for the reconstruction of and the operation of the aquatic center.  We have concluded there is some need to "shore up the bed tax", especially for 2013 and beyond.  This is because there is a shortfall of funding at that time.

We believe there is another reason to bolster this fund.  This is because there is a risk that the revenue stream will not materialize as projected.  Such could occur because the economy continues to be sluggish.  It could also occur if the major revenue source, the El Conquistador, has financial problems. And it does!

The bed tax is only as successful as the  El Conquistador. This is because the  El Conquistador is the main source of bed tax revenue.  There are others sources of the bed tax but they are not significant in relation to the El Conquistador.

If anything happens to the El Conquistador's revenue stream, if their sources of room bookings are lower than projected, then bed tax revenues will not be as projected.  So, its a "problem" when SAACA decides to not hold its Jazz Festival in October at the El Conquistador, choosing instead to hold it outside or Oro Valley.

Now, we have learned that the El Conquistador is in consensual bankruptcy.  This adds another level of uncertainty around the stability of this bed tax revenue source. 

The resort is owned by Ashford Hospitality Trust.  It is managed by Hilton. On 12/29/09, Ashford refinanced an almost $20 million loan from Met Life. (Source)  Met Life actually is the primary secured debt holder.  As such, they will  "call the shots" in any bankruptcy or reorganization proceeding.

Yes. The El Conquistador is in the process of renovation. Our guess is that the property is being put in "shape" in order for it to be sold.

The future of the El Conquistador is uncertain. Therefore, the future of bed tax revenues are uncertain.

When we asked if the town was concerned with the potential impact of a bankruptcy of El Conquistador ownership and management  in terms of endangering the bed tax revenue stream we were told by Town Manager Greg Caton and Town Finance Director Stacy Lemos that they were not concerned since situations like the one facing the El Conquistador rarely result in the facilities "going dark, so they will have bookings."  We asked if the town had a contingency plan and Greg did not respond.

There is another reason to shore up the bed tax. That is the uncertainty of the expenditure stream.  The town has already experienced a substantial increase in the cost of reconstructing the aquatic center.  The town has used its bed tax reserves to cover these costs. There are no more reserves.  In addition, the feasibility report on the aquatic center indicated that the center would not be a self-sufficient operation; that it would cost the town money. How much depends on uncertainties like the number of meets held and the costs of running a new facility.

We think that it never hurts to be cautious.

We need to shore up the bed tax.  We need to make it more secure.

One solution is to annex Westward Look.  We have heard that  Westward Look does not want to be part of Oro Valley because of the bed tax, which is 6%.  Council Members with whom we have spoken regarding the bed tax have indicated an interest in reducing the bed tax to 5% as in inducement to Weswtard Look.   This would have the benefit of giving Oro Valley resorts a financial advantage over those outside Oro Valley. It would also broaden the base of the bed tax, well beyond the El Conquistador.  Certainly, it is worth considering.
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