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A new hospitality tax template: Groups propose funding local sports commission/wellness complex, and help cover arena deficits

BEMIDJI—The City Council heard about a new idea for a hospitality tax Monday that could benefit both the Sanford Center and a proposed wellness center project.

The idea comes via a joint venture between Sanford Health and Greater Bemidji Economic Development, which have been working on the possibility a new family sports and wellness complex on the Sanford Bemidji campus.

The complex, at 175,000 square feet, would have three components: an overall wellness center, a multi-use sports "bubble" facility and a two-sheet ice arena.

Greater Bemidji and Sanford Health came before the council Monday with a plan for a 2 percent hospitality tax. However, the funds from the hospitality tax, wouldn't be used to build the facilities, estimated to cost about $27 million.

Instead, they are recommending the city impose a tax in which two thirds of proceeds would create and fund an Amateur Sports Commission, which, in turn, will indirectly support the project. The other one third, meanwhile, would support the operating deficit at the city-owned Sanford Center arena.

"No hospitality tax will be used for the complex," Greater Bemidji Executive Director Dave Hengel said at the council's Monday work session. "The hospitality tax has nothing to do with it, it has to do with the commission. The commission will promote the region for sports tourism, lease and operate the bubble (multi-use area) and the ice rinks and host tournaments."

To build the facility, Sanford has dedicated $10 million. The remaining financing would come through $10 million in private donations and $7 million in bonding. A total of $4.5 million already has been raised in private donations, they said.

Sanford and Greater Bemidji formed a task force earlier this year to research and develop the project. Some members were able to visit 14 Upper Midwest communities that have similar wellness center facilities and various funding structures.

Additionally, Hengel said, the group and the plan have received input and support from the Bemidji Innkeepers Association, the Bemidji Area Chamber of Commerce and Visit Bemidji.

The goal is to have groundbreaking on the project in fall 2018 and an opening in winter 2019. According to Hengel, the complex could have an economic impact of nearly $4 million on the community, which will include $2.4 million in direct spending and about 9,900 hotel stays.

"The idea of sports tourism is a big deal," Hengel said. "I wasn't aware of it, quite frankly, until I began speaking with people on Visit Bemidji's board and I started realizing the impact that youth sports has on our community."

Hospitality tax history

The concept of a hospitality tax imposed by the city on hotels and restaurants has been a recurring issue the past few years. City staff and elected officials have been seeking support for a hospitality tax to help pay operational costs at the city-owned Sanford Center, rather than relying on property taxes.

In order for a city to impose a hospitality tax, it must be approved by the state Legislature. In 2013, a committee in the Legislature rejected Bemidji's proposed 1 percent hospitality tax, largely due to a lack of support from the local business community.

This year, the city again began exploring a tax, this time 1.5 percent, which could generate about $900,000 annually. However, the idea was again met with some opposition in the business community.

Hengel and Sanford Health said this new plan of for a 2 percent hospitality tax has the support of the the Bemidji Innkeepers Association, the Bemidji Area Chamber of Commerce and Visit Bemidji.

At 2 percent, the hospitality tax has the potential to generate $1.25 million annually. By splitting in a two-thirds/one-third fashion, the amatuer sports commission would receive about $750,000 and the city would get $500,000 annually.

For the Sanford Center, the city now budgets about $400,000 from property taxes annually to cover operating losses, using the remaining funds to reinvest in the building.

"I want to make it clear that this is an informational meeting only," said Bemidji City Council member Nancy Erickson at the session's conclusion. "There's a lot of information and a lot of discussion still needed, including the legality of using public money. There's also a lot of discussion needed with the council to see whether there's support for it."

Greater Bemidji and Sanford plan to meet with the council again several more times, and will also hold public meetings about the plan. They also plan to meet with other governing bodies, including the Beltrami County Board of Commissioners.

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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