Revenues from the city's tourism-related taxes from July through September dropped about $125,000 compared with the same period in 2007.

Revenues from the city's tourism-related taxes from July through September dropped about $125,000 compared with the same period in 2007.

Lee Tuneberg, Ashland administrative services director, said food-and-beverage and bed taxes fell 5 percent in the first quarter of the fiscal year.

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

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.

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

The City Council raised 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 the 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 its Wednesday meeting and decided to diversify its marketing strategy to try to draw in more regional visitors from Northern California and 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 cuts.

The drop in tax revenue could mean higher fees related to wastewater for city residents, because 80 percent of the food-and-beverage tax revenue goes to pay the city's debt on the wastewater treatment plant, Tuneberg said. The city's Parks and Recreation Department, which receives 20 percent of the food and beverage tax, could also could face challenges from the revenue decline.

Many bed-and-breakfasts owners 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 B's, especially with the larger box hotels that are here," he said. "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."

Crissy Barnett, owner of The Peerless Hotel and Restaurant, said the Fourth Street business also is 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.

The worst probably 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."

Hannah Guzik is a reporter for the Ashland Daily Tidings. She can be reached at 482-3456 ext. 226, or hguzik@dailytidings.com.