Loss of tourism hurting businesses and governments in SD

The COVID-19 pandemic has almost completely shut down tourism in South Dakota, one of the state’s largest industries. The loss of visitors now and potentially into the summer tourism season threatens to cut off a vital economic lifeline for businesses and their employees and eliminate a major source of sales tax revenues that fund operations of cities and state government.

Tourism represents roughly 5.5% of the state’s gross domestic product, a key indicator of economic health. According to a report prepared for the state Department of Tourism, tourists in South Dakota in 2019 spent more than $14.5 billion and generated more than $308 million in state and local tax revenue, mostly through sales taxes. In terms of employment, the industry supported more than 48,000 full-time jobs in South Dakota and at least partially supported another roughly 7,000 jobs last year.

“One-third of our sales tax revenue in South Dakota is paid for by people outside their own zip code,” said state Sen. Jeff Partridge, R-Rapid City, a member of the Senate Appropriations Committee. “Now, that could be me traveling to Custer, it could be traveling to a hockey tournament in Brookings, but it’s also those folks traveling from all over the country to come here.”

As early as March 19, tourism-focused businesses in the Black Hills were reporting drops in sales and spring bookings of more than 40%, according to the South Dakota Retailers’ Association.

Major tourist attractions across the state were shut down in March, including the Corn Palace in Mitchell, Wall Drug in Wall, the casinos in Deadwood, the Crazy Horse Memorial near Custer and many others. The city of Wall seemed ominously quiet on a 65-degree Sunday in late March with not a single car parked on the typically busy divided throughway in front of Wall Drug.

U.S. Sen. Mike Rounds, R-S.D., a former governor, said he is aware of the fiscal challenges a major drop-off in tourism in South Dakota will create for state and local governments, but also for the entire state economy.

“We have to recognize that this tourism season is going to be extremely difficult, if almost nearly non-existent,” Rounds said.

Many people thought 2020 would be a banner year for tourism, with the 80th Sturgis rally and possible fireworks at Mount Rushmore National Memorial on tap.

But in March, as the virus took hold, seasonal businesses began to scale back hiring and year-round operations had to make difficult choices on whether to reduce staffing or even close temporarily.

“If there’s anybody out there that’s not being affected in the hospitality business, they‘re very lucky,” said Stacie Hull, general manager of The Rushmore Hotel and Suites in Rapid City.

Some in the tourism industry are worried that the virus might have a long-range negative impact on the state’s tourism economy and the livelihoods of those who work in the industry.

“That’s another concern in this; if we get things up and running again, is our visitation going to bounce back immediately, because it may take a little time for people to get back into the travel groove,” said Lee Harstad, director of the Deadwood Chamber of Commerce.

Many South Dakota communities rely on robust sales taxes to fund their governments, Partridge said. Most cities collect a 2% sales tax on sales made within their city limits. An additional 1% tax can be levied on hotel beds, alcohol sales and restaurant sales.

In De Smet, home to popular attractions focusing on iconic American author Laura Ingalls Wilder, visitor-focused businesses were grinding to a halt, said Rita Anderson, director of the De Smet Development Corporation.

The loss of tourists and the tax revenues they bring in could have a significant negative impact on the city. Sales taxes collected by De Smet retailers in 2019 accounted for roughly $591,000 in revenue, according to the state Department of Revenue. The city’s 2020 general fund budget was $1.37 million, according to budget documents on the city of De Smet’s website.

In De Smet and elsewhere, many stores have seen their revenues crater in recent weeks, said Nathan Sanderson, South Dakota Retailers’ Association executive director. With the exception of grocers, most retailers were seeing sharp declines in sales. Bars and restaurants were the state’s hardest-hit businesses, Sanderson said.

South Dakota’s hotels, restaurants and bars rely on visitor spending to stay afloat. Hotels get as much as 77% of their business from tourists, according to the Department of Tourism. About 42% of restaurant revenue in South Dakota is due to tourism. Businesses that cater to recreational activities such as fishing, biking or even rock climbing get about 57% of their revenue from visitors. The closure of the casinos in Deadwood by the city council on March 25 could have significant implications for the town, the Northern Black Hills and the statewide promotion of tourism in the future, said Harstad, the chamber director.

The closure of casinos put an estimated 1,200 people out of work and will result in millions in lost payroll and payroll taxes. Harstad said that, based on data from April 2019, the closure for the entirety of April 2020 alone could result in the loss of $740,000 in tax revenues for the month, about $265,000 of which went to the state Department of Tourism and about $83,000 of which went to the state’s general fund. April is typically a slow month for Deadwood tourism, he added.

Despite all the doom and gloom, Sanderson said he remains optimistic that most of South Dakota’s businesses will survive the pandemic and be able to take advantage of a spike in demand once the threat from COVID-19 eases.

“Are some businesses going to close because of this? Yes, but most of our businesses will make it through,” Sanderson said. “I really think we’re pretty optimistic people in America. I think more Americans will be ready to get out, away from their homes for a while and travel, once we get the all clear.”