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Keystone, Casinos in Big Economic Trouble as Coronavirus Kills Tourism

Coronavirus won’t kill everybody, but it could put everyone in Keystone, including city government, out of business:

…the sales-tax revenues from food and drink, lodging and retail sales make up nearly three-quarters of the town’s annual $1.25 million budget, putting Keystone’s financial fortunes at the mercy of the tourism trade and almost entirely reliant on money spent by visitors.

“The town has kind of set itself up to be extremely sensitive to sales tax because we don’t have much property tax,” said Cassandra Ott, finance officer in Keystone. “Considering the town is mostly tourism-based, I would say the majority of that is from visitors.”

And this year, with fears of COVID-19 keeping tourists away so far and into the foreseeable future, the town might have to undergo some painful belt-tightening. Local businesses that are open year-round or which opened in March for the early tourism season report that sales are already down by 65% or more, and the spring-break season appears to be a complete loss [Bart Pfankuch, “Tourism Slowdown Could Devastate Keystone, S.D., Gateway to Mount Rushmore,” South Dakota News Watch, 2020.03.31].

On the other side of the state, Royal River Casino in Flandreau is closing “in the best interest of our guests and team members.”

Senator Marion Michael Rounds tells Pfankuch and fellow SD News Watcher Nick Lowrey that South Dakota’s tourism season will be “extremely difficult, if almost nearly non-existent.” Those 48,000 idle tourism workers might be good candidates for a new Civilian Conservation Corps and Works Progress Administration, dispatched to the Black Hills, the Badlands, and elsewhere around the state to build roads and parks and dinosaurs for people to come see and enjoy in South Dakota when we’ve all had our new shots and can get back to touring our great state and nation.

17 Comments

  1. Interested 2020-04-01 08:17

    Wouldnt an income tax both be less regressive and also more stable in instances like this?

    I guess its good policy to get other people to pay for all your things… until they can’t/won’t anymore.

  2. Bob Newland 2020-04-01 08:58

    Keystone’s spring break season?

  3. grudznick 2020-04-01 11:16

    Bob, in the Hills, Keystone’s spring break season is third, behind only Deadwood and Hermosa.

  4. Cory Allen Heidelberger Post author | 2020-04-01 12:01

    That, my Interested friend, is a question I’ve been wrestling with. Looking just at stability, income tax may be no more immune to coronavirus that sales tax. Sales are plummeting in part because people are losing income. People who lose their jobs won’t pay any income tax at the moment, but unemployed folks with savings will keep paying some sales tax at the grocery store. Property tax is supposed to be more stable, although if people don’t have income, they’re going to have a hard time paying their property tax bills, and if won’t benefit the county much to slaps liens on half the population or foreclose and sell property at a loss in a bear market (because darn few people are going to have the disposable income to buy extra property at this point, right?).

    But on pure regressivity, yes, Keystone and everyone else would be better off relying on income tax. And I wonder: could we argue that higher income jobs tend to be more immune to coronavirus than lower income jobs? Doctors and lawyers aren’t getting laid off. CEOs will be the last to go. Mutual fund managers may lose money, but they’re not going out of business managing other people’s money.

    Taxes on capital gains won’t help us when the stock market sheds 20% of its value… but over the last ten years, the stock market has grown faster than income or sales… hasn’t it? Maybe it’s not just that we need to tax income, but that we need to tax certain kinds of income, the income that doesn’t produce direct value but just comes from playing with money.

  5. Cory Allen Heidelberger Post author | 2020-04-01 12:11

    Bob, I wasn’t aware that any college students headed to Keystone for their March extracurriculars. Perhaps Bart meant the shoulder season?

  6. Interested 2020-04-01 13:23

    This is a great discussion, I am genuinely interested here.

    My thought in terms of stability is that in an instance like this, where a majority of that sales tax comes from a disproportionately small number of months in the year, it creates the possibility of losing a disproportionate amount of state revenue as well. If this goes through August and wiped out the tourist season through Sturgis, the entire western half of the state would be on economic life support or worse in terms of sales tax revenue for the year since we could not make up any ground once the season ends.

    In a world where there is an income tax, revenues are still down, and it hurts worse when something like this happens during peak tourist season because there are less kids working the minimum wage tourist jobs, I get that. In this world though, the high dollar jobs that are working from home still in Rapid and SF and Aberdeen and Watertown are still paying into the economy, and even if we arent able to get anything going again until september, at least there would be a steady increase as we ramped up as opposed to having to wait until it gets warm out again and people want to come see the prairie and black hills.

    Maybe a hybrid tax model where, as sales tax receipts decrease, the percentage that comes from top income earners increases to offset. This would make these folks actually invested in money getting to main street as well.

  7. mike from iowa 2020-04-01 14:46

    I’m not sure where income taxes would come from if tourism fails and no one makes any money. If no tourists come by, wheel taxes are out. Cover charge would likely be a one time thing. Someone’s best bet would be to get a tin can and set up in front of the bank and beg and then hire someone to set up in front of any other banks and franchise. (TIC)

  8. Donald Pay 2020-04-01 15:19

    Income taxes vary with the economy in a way similar to sales taxes. In a steep downturn, there will be revenue shortfalls if there are substantial job losses (in the financial crisis of 2008-20011, for example). It’s still better to have an income tax, but it should be coupled with a substantial rainy day fund to be used to used when times are lean.

  9. Debbo 2020-04-01 20:33

    While all this points out the virtues of a varied tax base, it also indicates how important a varied economy is. That requires a state willing to support education and be bold in its human investments. A bright ray in this dark time would be the SDGOP being shocked out of its economic and political timidity.

  10. Interested 2020-04-01 22:59

    I think (know) that Cory’s premise that the high wage earners are the last to see their actual salaried incomes effected by something like this (although their stock portfolios may take a “bigger” hit in real dollars but not enough to change their social status). If that is true, a hybrid tax that relied more on those folks when the regular economy and sales tax were not cutting it would seem very nice indeed.

    Debbo you are right though as well. Diversity in industry is the best hedge against this type of situation.

  11. Debbo 2020-04-01 23:04

    538 had something about mental health in this pandemic. I don’t remember where they snared it from, but it showed that people in the middle and lower classes are faring better emotionally than the uppers. I guess we know how to deal with adversity while they’re disintegrating because they can’t take their expensive, pedigreed pooch to their regular groomer.

  12. David Bergan 2020-04-02 00:01

    And I wonder: could we argue that higher income jobs tend to be more immune to coronavirus than lower income jobs? Doctors and lawyers aren’t getting laid off. CEOs will be the last to go. Mutual fund managers may lose money, but they’re not going out of business managing other people’s money.

    Hi Cory!

    It’s hard for me to imagine any economic situation where the rich are worse off than the poor… unless we include dekulakization and ilk.

    Kind regards,
    David

  13. mike from iowa 2020-04-02 07:07

    koch bro should not have to worry. They know the fed will provide. Can’t afford to,allow the rich to become less rich. Bad form, what?

  14. John 2020-04-02 07:30

    “why did you rob banks?” “Because that’s where the money is.” – Willie Sutton

    The money is South Dakota is in the trust & estate “business”. Tax that.

  15. Debbo 2020-04-02 15:21

    This is about Wisconsin dairies, but the same is likely true in SD:

    Many dairy processing plants across Wisconsin have more product than they can handle and that’s forced farmers to begin dumping their milk down the drain.

    That’s the case at Golden E Dairy near West Bend. Farmer Ryan Elbe told WISN-TV they are dumping about about 30,000 gallons (113,562 litres) a day.

    The coronavirus has dried up the marketplace for dairy products as restaurants, schools and business in food service have been closed. About one-third of the state’s dairy products, mostly cheese, are sold in the food-service trade.

  16. Cory Allen Heidelberger Post author | 2020-04-02 22:34

    Yes, time for a trust tax. The money’s sitting right under our noses; it’s time to crack open the vault and get our share for the service we render… and just for decency and humanity.

    Economic diversity: Keystone will be hit harder than Sturgis, since Sturgis has some semblance of normal town life outside tourism. Spearfish will be better off than Sturgis because it has a university, an institution where jobs are more recession proof… and easier to move online than most other jobs. Sioux Falls will be better off than Spearfish, because it offers a broader range of economic opportunities.

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