The Sedona Chamber of Commerce and Tourism Bureau decided to end its 20-year relationship with the city of Sedona on April 5 and has new plans for destination marketing to help Sedona-area businesses.

The chamber noted that the city of Sedona spent the last three years cutting into bed tax funding.

Numbers show the city cut its contracted spending by a third and prevented the chamber, as the city’s vendor for destination marketing, from accessing an estimated $8 million in funding that could have been available.

In 2013, the city adopted Ordinance 2013-07, which increased the city bed tax rate from 3% to 3.5%. In compliance with Arizona Revised Statute §9-500.06, passed in 1990, the additional 0.5% was required to be expended on tourism promotion. Some of the other 3% went to the general fund, while the rest of the bed tax imposed after 1990 also had to be used on tourism.

The 2013 city ordinance established as public policy that “a minimum of 55% of all revenue generated from the new 3.5% bed tax rate shall be devoted to the promotion of tourism and allocated to a contracted destination marketing organization.”

This arrangement functioned between 2014 and 2019. The city’s bed tax collections for fiscal years 2016 through 2019 totaled $8,823,089, while city contract allocations to the chamber came to $8,294,928, or 94% of collections.

The city abandoned its previous policy of providing the chamber with 55% of bed tax revenue on July 10, 2019, partly to eliminate a potential violation of the gift clause in Arizona’s constitution.

According to the Arizona Attorney General’s 2019 report examining the arrangement, the city “established that, beginning with fiscal year 2020, the chamber would receive only what the city approves via the annual budgeting process.”

For fiscal year 2020, following the abandonment of the original city-chamber contract, 55% of bed tax collections came to $2,288,101, and in line with previous years’ funding allocations, the city approved a chamber contract of $2,492,500.

The agreement broke down in 2020 when the city considered the following year’s budget. Anticipating a decline in visitation due to the COVID-19 pandemic, or considering such visitation undesirable, the city allotted the chamber $2,446,060 for fiscal year 2021. Due to the localized economic boom the city experienced that year, 55% of bed tax collections came to $3,933,049, leaving the chamber short about $1.5 million of the sum it could have received under the previous contract.

Rather than increase the chamber’s contract for 2022 to compensate, the city lowered it further, to $2.1 million. Meanwhile, fiscal year 2022 bed taxes continued to climb. Fifty-five percent of those taxes equaled $4,918,521, putting the chamber’s actual contracted funding about $2.8 million below the previously-agreed basis.

In fiscal year 2023, the city slashed the chamber’s contract again to $1,670,211, at the same time questioning whether it was a necessary expenditure at all. Fifty-five percent of the city’s estimated bed tax collections for fiscal 2023 would have been $5,627,600, leaving the chamber almost $4 million behind the old benchmark.

Since it amended Ordinance 2013-07, the city has used the elimination of its previous legal obligations to abandon tourism spending. The chamber could have been contracted to spend $8 million that previously would have been required to pay for marketing, in addition to cutting the chamber’s actual contract by 33%.