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2 percent hospitality tax proposed in Bemidji

BEMIDJI, Minn.—A new 2 percent hospitality tax idea that could bring in $1.25 million annually has received support from the Bemidji lodging/business community, but questions remain for city officials on how it would be used and what it's purpose would be.

The 2 percent hospitality tax concept was introduced Monday, Nov. 13, at a Bemidji City Council work session, where representatives from Sanford Health and Greater Bemidji Economic Development shared their goals for a Sanford Health and Wellness Complex project. The plan is to create a $27 million, 175,000-square-foot facility that would include a wellness center, a multiuse sports area with a bubble roof and a two-sheet ice arena.

The proposed 2 percent hospitality tax wouldn't be used for the complex's construction. Instead, Sanford has dedicated the land and $10 million for the building, with the remaining funding through $10 million in private donations and $7 million in debt service bonding.

According to the 2 percent proposal, two thirds of the proceeds from the hospitality tax will be used to create an Amateur Sports Commission to promote sports tourism in the region, as well as to lease and operate the sports "bubble" and ice rinks and host tournaments. The other third of the tax dollars collected would be available for the city to use to cover its subsidy on the city-owned arena, which also bears the name Sanford because of naming rights.

According to numbers provided Monday, that split would provide the Amateur Sports Commission with an estimated $750,000, while the city would receive about $500,000.

Relying on property taxes

Annually, the city of Bemidji budgets about $400,000 from property taxes to cover operating losses at the city-owned Sanford Center, using the remaining funds to reinvest in the building. By having hospitality tax dollars, the city could reduce the need for property taxes.

"We have a regional economical facility that is using property taxes, and it's of primary importance of the city to address that financial architecture. The use of property taxes is an atypical model, no other city's event centers in Minnesota are funding their operations through property taxes," Bemidji City Manager Nate Mathews said.

The prospect of a hospitality tax has been a recurring subject for city officials to help pay costs at the Sanford Center. In order to do so, the city requires authorization from the Legislature and, so far, attempts to get clearance have been unsuccessful.

In 2013, for example, a committee in the Legislature rejected Bemidji's proposed 1 percent hospitality tax. This year, the city explored a 1.5 percent hospitality tax that would generate about $900,000 annually. It was again met with opposition from the business community.

Support from business community

Hotel owners in Bemidji support the 2 percent hospitality tax and its proposed use.

"We voted two months ago that, in theory, we agree with the concept of having a 2 percent tax added to hotels, restaurants and liquor stores and that it provide funding for the new sports complex," said Jim Eickhorst, president of the Bemidji Innkeepers Association. "We see it as a very good thing for the entire community. We support it as long as they can write the one third/two third split in at the Legislature."

Greater Bemidji and Sanford Health say the complex is estimated to have an economic impact of nearly $4 million to the community, with $2.4 million in direct spending and about 9,900 hotel stays.

"The reality is you have people who come for concerts and hockey, and yes they do fill some hotel rooms and spend some money in restaurants, but it (the Sanford Center) doesn't bring a lot in to Bemidji," Ruttger's Birchmont Lodge owner and Innkeepers Association member Randy Ruttger said. "Whereas, these two sheets of ice would allow Bemidji to have these tournaments and people in the know feel that bringing these tournaments where the parents go with the kids would bring in a lot more people ready to spend money."

Greater Bemidji and Sanford Health plan to hold a series of public informational meetings about the complex and the hospitality tax proposal. The first is set for 4 p.m. Tuesday, Nov. 21, at the Mayflower Building, 102 First St. W.

Officials from Greater Bemidji and Sanford hope to break ground on the complex in fall 2018 and open it in winter 2019.

Matthew Liedke

Matthew Liedke is the city, county and state government reporter for the Bemidji Pioneer. He also covers business, politics and financial news.

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