Revenues from the city's tourism-related taxes from July through September are down about $125,000 as compared to the same period last year, Lee Tuneberg, Ashland administrative services director said.

Revenues from the city's tourism-related taxes from July through September are down about $125,000 compared to the same period last year, Lee Tuneberg, Ashland administrative services director, said.

The food-and-beverage and bed taxes plummeted 5 percent during the first quarter of the fiscal year, Tuneberg said Thursday, when the data was released.

"I've been here eight years and this is the largest reduction I've seen. I don't know when we last saw a reduction like this," he said.

For the past two years, tax revenue stayed flat, with the food-and-beverage tax bringing in about $2 million annually and the bed tax yielding about $1.5 million annually, according to the city.

The decline is likely due to the economic slowdown and high gas prices, which have both made people less eager — or able — to travel, Tuneberg said.

Earlier this year the City Council voted to raise the 7 percent tax on businesses such as hotels and restaurants to 9 percent in October, in a push to get more funding for city operations and tourism marketing.

For the first quarter of the fiscal year, a third of transient occupancy tax — referred to as the bed tax because it taxes hotels and similar establishments — went to the Oregon Shakespeare Festival, Chamber of Commerce and other tourism-related groups.

Last month's 2 percent raise included a provision that gives those groups 70 percent of the bed tax revenue. The remaining amount goes to city programs and public safety divisions, such as the police and fire departments.

The Ashland Visitor and Convention Bureau discussed preliminary data on the revenue drop at their Wednesday meeting and decided to diversify their marketing strategy to try to draw in more regional visitors, from Northern California or Southern Oregon, said Katharine Flanagan, director of the bureau.

Flanagan, who also works as the Chamber of Commerce marketing director, said advertising for Ashland's winter events and activities is crucial now, even if local business organizations receive less funding from the city for marketing because of the tax revenue decrease.

"Really, honestly, I think we have to be realistically optimistic. If tourism is strong those numbers will be strong," she said. "I know July and August were strong. I think September can be that sort of challenge month when kids go back to school."

Tax revenue could also have fallen because the Windmill Inn closed about 150 rooms in November 2007, giving tourists fewer places to stay, Flanagan said.

However, Tuneberg said he expected to see a revenue decline last year due to the closures, but it appeared visitors opted to stay at other Ashland hotels or bed-and-breakfasts, instead of forgoing traveling altogether.

The drop in tax revenue could mean higher city fees related to wastewater for locals, because 80 percent of the food-and-beverage tax revenue goes to pay the city's debt on the wastewater treatment plant, Tuneberg said.

"If the tax doesn't generate enough revenue to pay the treatment plant debt, it's going to have to be made up with fees and we'll have to raise rates for citizens," he said.

Tuneberg will bring updated tax revenue data before the City Council in February, when it will begin reworking the budget if necessary, he said.

The Ashland Parks and Recreation Department, which receives 20 percent of the food and beverage tax, could also face challenges from the revenue decline.

"It could mean they couldn't acquire as much open space for parks," Tuneberg said.

Many bed-and-breakfasts have felt the economic belt-tightening, said Dave Portera, co-owner of Ashland's Black Swan Inn on Third Street.

"It's really hard on the B and Bs, especially with the larger box hotels that are here. It's getting hard to compete and we're just trying to make a living. When food costs and taxes go up, we're hit on every front and profits shrink a great deal. Barely squeaking by is just how it is right now," he said.

Still, Portera said it's hard to tell how well his bed-and-breakfast will do this year because most travelers don't start booking summer reservations until the spring.

Crissy Barnett, owner of The Peerless Hotel and Restaurant, said the Fourth Street business is also feeling the effects of the economic slowdown, but reservations at the hotel are up this month, mostly due to last-minute bookings from regional travelers.

"We're definitely not immune to the economic downturn and what it has really motivated us to do is to really look at our expenses and do major cutting. Anything that's considered a luxury is definitely slashed and anything that we can do in-house is brought in-house," she said.

Although she hopes for a quick economic turnaround, Barnett thinks the worst is not over yet for the Ashland tourism industry, she said.

"We're going into 2009 with a budget that is projecting for a decrease in sales."

Staff writer Hannah Guzik can be reached at 482-3456 ext. 226.