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Council ponders special use tax request to state Legislature

Bemidji City Hall
Bemidji City Hall
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BEMIDJI -- The city of Bemidji intends to request authorization from the state Legislature to create special use taxes to generate funds for infrastructure and the Sanford Center.

Before sending in its request to lawmakers in St. Paul, though, City Council members and staff still have to crunch the numbers.

A step forward was taken Tuesday evening, though, as the council came to a consensus on what sort of special use taxes to use for each need. Special use taxes can range from a sales tax to a hospitality tax on restaurants and hotels.

"The framework I got out of the council meeting was to use a proposed sales tax for public infrastructure costs," City Finance Director Ron Eischens told the Pioneer. "Those would include water wells, the wastewater treatment center and possibly streets. Then, any hospitality tax on food and beverages at restaurants would go toward the Sanford Center."

According to a presentation given at the council's work session Tuesday, Eischens said hospitality taxes only need legislative approval according to state statute, while a sales tax needs a local referendum, too. Additionally, hospitality taxes have no sunset clause while a sales tax does.

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While a framework has been established for the request, Eischens said the amount to be taxed has yet to be determined. For example, a 1 percent hospitality tax on restaurants and bars would generate $584,000 annually, at 1.5 percent it would create $876,000 and at 2 percent, $1.16 million would be created.

Eischens' presentation also gave details on what a sales tax could generate, with $600,000 at 1/8 percent, $1.2 million at 1/4 percent and $2.4 million at 1/2 percent.

If a sales tax is authorized by the Legislature and subsequently passed by a public vote, the dollars would likely go toward a new facility near the city's water wells east of the Bemidji Regional Airport, as well as new equipment at the existing wastewater treatment center. The more pressing issue for the city, though, is the new facility for water wells.

To address chemicals called perfluorocarbons, or PFCs, found near the water wells, the city is considering the construction of a treatment plant estimated at $16.3 million. The city is already requesting the project be included in the 2020 bonding bill, but this could still mean a cost of more than $8 million.

Along with the water well facility, city officials say they are applying for a new permit from the Minnesota Pollution Control Agency for its wastewater treatment plant. With a new permit, there's a possibility the MPCA could require ammonia and nitrogen to be treated, resulting in another project estimated at more than $10 million.

At the city-owned Sanford Center, a 193,000 square-foot event facility featuring a 4,373-seat arena with attached conference space, Bemidji officials have two options with a possible hospitality tax. One is to direct the dollars toward the building's annual operating loss and the other is to appropriate the funds for the facility's capital needs.

For 2019 the council budgeted $450,000 to cover operating losses at the Sanford Center and authorized nearly $860,000 for capital investment needs. For 2020, the capital investment needs are estimated at $483,571.

While Eischens said how to use potential hospitality tax dollars is undetermined, he added it's not uncommon for communities to commit those types of funds to these facilities. In his presentation, Eischens said other cities with event centers such as Duluth, Mankato and St. Cloud all use special use taxes to support their respective buildings.

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The council is scheduled to reconvene on the matter Dec. 9, with the expectation to submit the city's request to the Legislature by Dec. 15. The deadline is Jan. 31, but city leaders said Tuesday it's important to get a head start with more time before the Legislature begins its session Feb. 11.

Matthew Liedke is a reporter for the Bemidji Pioneer. He is originally from International Falls and now resides in Bemidji. He's a 2009 graduate of Rainy River Community College and a 2012 graduate of Minnesota State University Moorhead. At the Pioneer, he covers government, politics, health and economic development. He can be reached at (218) 333-9791 or by email at mliedke@bemidjipioneer.com.
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