Miami Beach’s tourism industry has suffered one blow after another in recent years.
First, Brazil’s economy tanked and a strong U.S. dollar prompted would-be international travelers to stay home. Then Zika scared off visitors. By the time Hurricane Irma hit last September, hotels and other tourism-dependent businesses were already reeling.
And it wasn’t just the tourism industry that suffered. Miami Beach’s tax revenue also took a hit.
Now, the city is considering a novel solution: an insurance policy for resort tax revenue to help make up for unexpected budget shortfalls.
Resort taxes, which include taxes levied on hotel stays and restaurant tabs, make up more than 10 percent of Miami Beach’s primary operating budget and contributed about $83 million to city coffers last fiscal year. The money can be used to help pay for tourism-related expenses, like construction on the Miami Beach Convention Center and maintenance at South Beach parks, for example.
“It’s a very large revenue source for us,” said John Woodruff, the city’s chief finance officer. “Resort taxes tend to be pretty variable depending on economic conditions. They can move around on you. “
While resort tax revenue usually grows by 3 to 5 percent a year, Woodruff said, the amount of money the city collected stayed almost flat between the 2016 and 2017 fiscal years.
That got city officials thinking. An emergency response committee convened last year with representatives from the tourism industry came up with recommendations. Among them: Take out an insurance policy for resort taxes. Miami Beach has asked an insurance broker to run the numbers on how much such a policy would cost. The request is more complicated than it might seem — the city would likely be the first in the country to insure its resort tax revenue.
“We’re obviously just in the exploratory phase, but it’s interesting and it may be something that provides a measure of confidence and continuity,” said Mayor Dan Gelber. “It’s not unlike the business interruption insurance that is available in the private sector for often the same events. We have a very unique economy so thinking about ways to protect it makes sense.”
The Greater Miami Convention and Visitors Bureau declined to comment on the proposal until more information is available.
Although the details are still being worked out, the insurance policy would depend on certain triggers, said Sonia Bridges, the city’s division director for risk management and benefits. If winds reached a certain speed or water rose to a certain level during a hurricane, for example, or if Miami Beach saw an unexpected drop in resort tax revenue, the city would automatically get an insurance payout.
This type of insurance policy, known as parametric insurance, is still fairly new in the United States, Bridges said. Miami Beach already has more traditional types of insurance, like property insurance for publicly owned buildings, but has no insurance on its tax revenue.
“We’re making sure that as a city we’re resilient whether it’s mosquito-borne illnesses or unforeseen circumstances that could potentially hurt the economy,” said Commissioner Micky Steinberg, who served as the chair of the emergency response committee. “We’re looking at creative ways to protect revenue and the community at large.”
So far this year, things are looking up for Miami Beach’s tourism industry — and for the city’s bottom line. Resort tax revenue is on track to increase by 10 percent this fiscal year, Woodruff said. But with a busy hurricane season looming, an insurance policy could give city officials more certainty when they come up with a budget.
“It gives you stability and predictability that you would not normally have,” Woodruff said. “Even if something abnormal happened, you’d always get a certain amount of revenue.” And if the idea works for resort taxes, he added, it could also be applied to other volatile sources of revenue, like the money the city gets from parking.