It’s an overwhelming understatement to say this has already been a rough year for California’s creative ecosystem. No sooner had we begun to grapple with the unintended yet utterly predictable consequences of Assembly Bill 5 and explore potential solutions with lawmakers, COVID-19 came around and threw the whole world upside down.
Suddenly, theater companies, music festivals, and the artists and technicians they support weren’t just figuring out how to cut corners in order to ensure compliance with new state employment laws. They were having serious conversations about the future of their organizations, and their very careers. And those conversations will continue well into next year, as the full scale of the damages comes into focus.
Americans for the Arts, a national advocacy organization, recently conducted a survey in an attempt to assess the human and economic impacts of COVID-19. As of this writing, the survey had received responses from more than 11,500 artists, arts organizations, and arts agencies of all types, genres, sizes, and tax statuses — with an overwhelming majority (75%) being nonprofit arts organizations.
According to survey results, the nationwide arts sector is estimated to have lost a combined $4.5 billion due to the human impacts of COVID-19 — so far. The median loss of revenue per organization was $38,000 in just over three weeks of pandemic mitigation measures. More than two-thirds of respondents estimated that the crisis would have a “severe” or “extremely severe” impact on their business. As if that weren’t enough, it’s estimated that we will see upwards of $6.2 billion in losses from event-related spending.
Taken together, this $10.7 billion hit will amount to $1.8 billion in lost tax revenue to federal, state, and local governments — much of which could potentially have been reinvested in the community to aid in recovery efforts.
Speaking of the human impact, all of this translates into 304,000 jobs disappearing. Just. Like. That.
But the repercussions of AB-5 and the Novel Coronavirus are just the latest body blows to an industry that’s constantly on the ropes, dancing the fine line between sustainability and extinction. This is particularly true in San José, where government funding that is so vital in filling the deltas for local nonprofits and creatives, is linked almost entirely to factors that are effectively beyond our collective control.
The city hall rumor mill is already churning with chatter about how this unprecedented and unpredictable public health crisis will affect upcoming budget discussions for the fiscal year beginning July 1, and anyone who works in the local arts sector doesn’t need a crystal ball or psychic powers to predict the future. As the saying goes, we know how this movie ends. We’ve seen it all before, back when the Century Domes were still a thing.
You see, most of the City’s budget for arts and cultural programming comes from what is commonly known as the “Hotel Tax”, better known by policy wonks as the “Transient Occupancy Tax” or “TOT”. This is that surcharge you see on your hotel bill wherever you travel around the country. Each municipality sets its own TOT rate — with the will of the voters. In San José, the current allowable TOT is 10%. So every visitor spending $200 a night on a hotel room here is essentially kicking $20 to the cause.
Generally, TOT dollars fund tourism, marketing, and cultural activities in the municipality where the tax is collected, a nifty reciprocal relationship that benefits locals who get to enjoy the benefits without “paying the piper.” And this is precisely what happens in San José. But there’s a catch…
40% of the money collected from the TOT in any given year (or 4% of the 10% surcharge) is taken off the top and deposited into the City’s General Fund, where it can be spent on anything that a majority of the City Council sees fit to support on any given Tuesday.
The remaining 60% (or 6% of the TOT surcharge) is split three ways. Half (or 3%) goes to Team San José — a public-nonprofit-labor partnership — to subsidize their management of the Convention Center and our downtown theaters (the Center for Performing Arts, Montgomery & California Theatres, and Civic Auditorium). Another 15% of the TOT also goes to Team San José to ostensibly serve as our Convention and Visitors Bureau.
And the final 15% funds the city’s Office of Cultural Affairs (OCA), including staff salaries and the entire cultural grants portfolio. While it’s not unusual for grants to be funded by a specific revenue stream like the TOT, nearly every other city employee is paid out of General Fund dollars, which are not (quite) as vulnerable to economic fluctuations.
It’s important to note that San José’s (amazing) cultural facilities including the Museum of Art, Mexican Heritage Plaza, Children’s Discovery Museum, Hammer Theatre Center, History Park, and Tech Museum receive about $3.5M in maintenance support from the General Fund. But one could argue that the 40% of TOT that goes to the GF more than covers this wise investment!
The ratio by which TOT is split up is set by a city ordinance as part of the Municipal Code, which in theory could be changed by a majority vote of the City Council. So an argument could be made that it is within the Council’s power to defund almost all arts and cultural programming in San José.
Think that could never happen? Too big of a black eye on the city’s image? In a world where the TOT takes a nosedive — as it just did — it’s not hard to imagine who would win out in a bare-knuckle match for funding scraps between big labor, big business, and the creative community.
 It is also prudent to point out that the Mayor and City Council recently directed additional TOT dollars to these facilities through a tax increment increase policy.
Better question: Will any of us be left to advocate for it?
Story revised July 15, 2020
Article in Issue 12.3 “Perfrom”