Sedona’s sales and bed tax figures for December and January show both continued economic stagnation as well as an apparent uptick in the demand for lodging in January that suggests hotels are beginning to feel the financial pinch of a possible recession.

Sales tax revenues for December of Fiscal Year 2022- 23 were $2,361,041, and bed tax revenues were $571,961, for a total of $2,933,002. These were 11%, 14% and 12% below the numbers for December of Fiscal Year 2021-22, respectively.

For January of FY 2023, sales tax revenues came to $2,205,920 and bed tax revenues to $633,341, totaling $2,839,261. These were 2% below, 17% above and 2% above the numbers for January of FY 2022. January, like July and August, is typically one of Sedona’s slowest months.

Overall sales tax revenues for the fiscal year so far are $17,059,974, and bed tax revenues are $4,405,056. Total tax revenues are $21,465,030, which is $3,287,050, or 13%, behind the city’s original budgetary predictions for the year. Sales tax collections for the year so far are 5% below FY 2022 levels and 13% below budgeted levels. Bed taxes are 7% below 2022 levels and 15% below budgeted levels in spite of the upswing in January.

All economic sectors, with the exception of communications, were down in fiscal December 2023 compared to December 2022. Retail sales were down 13%, restaurants down 12%, hotels down 14% and amusements down 12%.

January saw a 16% increase in hotel sales tax collections in combination with the 17% gain in bed taxes compared to January 2022. The month-to-month declines from January 2022 were generally much smaller, with a 4% decline in retail and a 3% decline in restaurants. Construction sales showed a sharp 38% decline.

In spite of the apparent increase in hotel sales and bed tax collections in January, the average daily room rate dropped to $225 from almost $300 in December, the lowest it has been since calendar January 2021. Monthly hotel occupancy was at 52%, an increase from 48% in 2022 and 46% in 2021. Average annual hotel occupancy for the year to date, however, was at 60%, lower than at any time since 2012.

City Finance Director Cherie White stated that the spike in January’s hotelrelated tax revenues was due to “significant delinquencies” in December, a portion of which the businesses paid during January.

If the taxes owed had been paid in a timely fashion, White said, “December bed tax would have been approximately 4% lower than the prior December and total December sales tax would have been approximately 9% lower than the prior December. January bed tax would have been 4% higher than the prior January and total January sales tax would have been approximately 5% lower than the prior January.”

Lonnie Lillie, of the Arroyo Pinion Hotel, noted that occupancy for the first three months of 2023 has been stagnant, with numbers comparable to 2022’s figures, while “revenue is down substantially” due to the falling ADR.

If current trends continue, it appears that the city’s expected revenue from sales and bed taxes could fall about $5.6 million short of the 2023 budget’s predictions. That would place FY 2023 tax revenues at roughly $41.2 million, which would be very similar to FY 2022’s revenues of $41.69 million.

Sales and bed tax collections for FY 2019 — the busiest financial year in Sedona’s history prior to the COVID19 pandemic — totaled $26,169,932. FY 2023 estimated revenues represent a 57% increase over this amount. Adjusted for inflation according to the Consumer Price Index, FY 2019 revenues would be $30,723,500, on which basis FY 2023 estimated revenues would still represent a 34% increase over the pre-pandemic high.

Sedona’s FY 2019 sales and bed tax revenues were also more than double those for 2014 and more than triple those for 2009.

At the same time, the number of businesses in Sedona continues to shrink. In 2019, the city had issued 1,546 business licenses; by the end of October 2022, that number had fallen to 1,305, a decline of 16%. If, as a result of the decline in the number of businesses, revenues and revenue collections normalize at 16% below 2019’s numbers as the recession strengthens and the lingering effects of Sedona’s pandemic boom wear off, city sales and bed tax revenues will fall to just under $22 million, far below the city’s revised estimate of $38.8 million for FY 2024.