Minnesota’s hospitality industry faces a crisis of a kind it has never seen before. The economic impact of COVID-19 and temporary closures is an existential threat to many small and medium-sized hospitality businesses. These operators and their workers are vital contributors to Minnesota’s economy and identity. They host some of the most important moments in our lives. Our state needs to help them survive.
Some 300,000 Minnesotans are employed in the industry, generating $6 billion in wages. The industry also collects and remits 18% of the state’s sales tax, without which the average Minnesota family would pay an additional $625 per year to fund Minnesota’s priorities.
According to the National Restaurant Association, restaurants generate nearly $11 billion per year in sales in Minnesota, and every dollar spent in the table service segment contributes $1.99 to the state economy.
The American Hotel and Lodging Association estimates annual spending by lodging guests at hotels, motels and resorts in Minnesota at $8 billion and total business sales generated at $20 billion.
The continued viability of this industry is critical to a robust and diverse Minnesota economy and its workers. We need these jobs to still be there once we make it to the other side of the current crisis.
This industry and its employees are particularly vulnerable to the economic pressures wrought by this pandemic. Many hospitality businesses operate on thin margins — often 2 to 5%, compared with 10% for many other industries. Dramatic shifts in guest volume threaten the viability of a business in this industry.
Even before the governor’s closure order on Monday, many hospitality businesses in Minnesota were projecting a 30 to 75% short-term revenue reduction. Many now face significantly deeper losses, including business failure given the current situation. Businesses that are able to stay open (or reopen eventually) will undoubtedly face serious cash flow challenges in the short-to-medium term.
We are pleased the state has taken action to accelerate unemployment benefits for our workers, as we had advocated to the governor and Legislature on Monday — and we support additional worker assistance efforts at the federal level, including direct aid to workers and potential mortgage and rent deferment relief that is currently being discussed nationally.
Minnesota needs to continue to explore additional avenues to support workers. And it must take immediate action to provide economic relief to hospitality businesses to protect this industry from further calamity and loss of jobs. This is why we have asked the state to consider the following:
Economic relief fund: Minnesota has a tradition of supporting small businesses harmed by emergency conditions. The state should immediately establish a relief fund to support hospitality businesses through no-interest loans.
Tax remittance deferral: Hospitality businesses collect and remit 18% of the state’s sales tax. Deferring payment of the sales tax would help these businesses maintain sufficient cash flow over the medium term. While this would reduce state revenue over the short term, ensuring the viability of these businesses would mean the state would continue to benefit from their sales tax revenue over the long term. In addition, the government should consider temporary deferral or “holiday” from other tax obligations such as withholdings payments, income tax, property tax and all other tax obligations to bolster short-term cash flow.
Cancel accelerated payment: Hospitality businesses facing cash flow challenges will see those challenges exacerbated by Minnesota’s current policy of accelerating the sales tax payments due for June 2020. The state should suspend or eliminate this policy.
Our businesses are attempting to adapt to the current market conditions as rapidly as possible, providing additional delivery and “to-go” options for customers, creating greater “social distancing” in both food pickup and lodging, and intensifying our ever-vigilant hygiene and sanitation efforts, to name a few. In addition, many are attempting to provide support to community efforts to feed vulnerable people in our communities.
However, it is now apparent that additional economic supports are necessary to ensure the continued viability of this industry in Minnesota. Given the critical importance of these businesses to Minnesota’s workforce and broader economy, we need to work together to ensure their survival.
Liz Rammer is president and CEO of Hospitality Minnesota.