Mayor’s room tax allocation plan divides councilA showdown over Mayor Dean Knudson’s plan to change the way room tax dollars are allocated made approval of the city’s 2009 budget more eventful than usual.
By: Randy Hanson, Hudson Star-Observer
A showdown over Mayor Dean Knudson’s plan to change the way room tax dollars are allocated made approval of the city’s 2009 budget more eventful than usual.
In a break from past practice, Knudson proposed including allocation of room tax dollars in next year’s budget and increasing to 70 percent the amount of tax revenue going to the Hudson Area Chamber of Commerce & Tourism Bureau.
Other community organizations that received support, meanwhile, would have had their subsidies cut, and in some cases, eliminated.
While it appeared there may be enough support to eventually boost the Tourism Bureau’s share of room tax dollars from the current 40 percent, the City Council voted 4-2 to adopt the 2009 budget minus the mayor’s allocation plan. (Go to page 14A for a story on the budget.)
The motion by Alderperson Scot O’Malley to adopt the budget, seconded by Council President Randy Morrissette II, said the room tax allocation would be taken up at a later date.
Morrissette’s main objection to the mayor’s plan was a proposed $4,000 cut in the current $8,000 subsidy to The Phipps Center for the Arts.
During the time set aside for citizen comments at the start of the Nov. 24 council meeting, John Potter, executive director of The Phipps, asked that the current level of support for the center be continued.
Potter said The Phipps uses the room tax money for marketing. It is a big grant for The Phipps, he added, and said that discontinuing it would cause hardship for the nonprofit arts center.
He asked that the Tourism Bureau be required to reallocate tax dollars to The Phipps if the center’s subsidy is cut and the bureau’s is increased.
The mayor’s proposal
Knudson laid out his proposal at the start of the council discussion on the issue.
He explained that the city adopted its 3 percent tax on motel and inn room sales in 1987. At that time, the state law authorizing the tax required that at least 40 percent of the revenue go for tourism promotion.
In 1994, the law was amended to require that 70 percent of room tax revenue be used for tourism promotion.
A grandfather clause allowed communities that already had a room tax in place to continue allocating it as they had before.
Knudson said if Hudson was to increase its room tax (an 8 percent maximum is allowed) the city would have to comply with the 70 percent mandate.
The state statute creating the room tax says communities can designate a “tourism entity” to manage their tourism promotion. The city of Hudson has named the Hudson Chamber of Commerce & Tourism Bureau as its tourism entity.
Hudson’s room tax budget for 2008 was $150,000, Knudson reported.
The Tourism Bureau got $60,000 of it. The city also pays its annual dues for membership in the Chamber of Commerce ($7,800 in 2008) with room tax dollars.
In addition, the Chamber received $6,750 in room tax dollars to support the walleye tournament and Spirit of the St. Croix Days celebration that it sponsored in October.
Knudson noted that the rest of the room tax budget went to a variety of organizations and projects. You could argue that some of the grants support tourism, he said, but others — while going to worthy organizations — are simply community subsidies.
“You have to ask yourself, how did we come up with the system for doing what we’ve been doing?” Knudson said.
Other 2008 room tax allocations were:
Knudson’s proposal was to limit annual subsidies for history, culture and the arts to $4,000 per organization. He recommended phasing out grants altogether for other organizations such as Big Brothers Big Sisters, Community Action and the Hudson Hockey Association.
The argument that the hockey association tournaments bring visitors to town has been used to justify its subsidy. But the mayor said he suspects that the tournaments would draw hotel guests even if the association didn’t get a subsidy.
Alderperson Lori Bernard supported Knudson’s plan, calling it long overdue.
Bernard said the Tourism Bureau is better qualified to make decisions about tourism promotion than the council or individual organizations.
Room tax dollars should be allocated more objectively, she added.
Alderperson Alan Burchill agreed with Bernard.
“Who promotes Hudson better than the Tourism Bureau?” he asked.
Burchill said nonprofit organizations shouldn’t receive room tax revenue.
“We can’t be arbitrary about how we are allocating tax dollars,” he said.
For example, why should the hockey association be subsidized and not the Hudson Soccer Association, he asked.
Alderperson O’Malley argued that the council would be shrugging off responsibility giving the Tourism Bureau more tax dollars to decide how to spend.
Both O’Malley and Alderperson Lee Wyland said they’d like to know how the Tourism Bureau planned to spend the additional money before authorizing the increase.
“I’m just saying maybe we ought to know where we’re going before we get in the car and start driving,” O’Malley said.
Later, he added that he couldn’t think of any other organization the city would give $30,000 to without asking for a presentation on how it intended to spend the money.
Seventy percent of the city’s 2008 room tax budget is $105,000. The Tourism Bureau would have received an additional $45,000 if its grant had been boosted to 70 percent of room tax revenue this year.
Chamber President Kim Heinemann was in the audience and invited to talk about how the Tourism Bureau would use the additional money.
Heinemann hadn’t expected to be called on. She said the Tourism Bureau didn’t have a plan for the money yet, but could put one together quickly. She offered to present the tourism promotion plan as soon as the council wanted to hear it.
Heinemann assured council members that the state has rules about how tourism entities can spend room tax revenue. The Chamber’s tourism committee and its board of directors also would oversee the spending, she said.
Tourism is the third-biggest “economic driver” in the state, Heinemann said, adding that the Hudson Tourism Bureau is chronically underfunded.
Council President Morrissette, a former hotel manager, said he supported increasing funding for the Tourism Bureau, but was opposed to cutting The Phipps Center’s allocation.
“They’ve really gotten Hudson on the map,” he said. “I think we should keep on supporting the arts the way we have in the past.”
Alderperson Pam Brokaw indicated that she agreed with Morrissette and Bernard.
Wyland said increasing Tourism Bureau funding, but not to the 70 percent level proposed by Knudson, was another option the council could consider.
Knudson warned that it would be harder to cut subsidies to nonprofit organizations after their representatives hear about his proposal and begin lobbying for continued support.
O’Malley, Wyland, Morrissette and Brokaw supported the motion to adopt the 2009 general fund budget without an allocation plan for room tax dollars.
Burchill and Bernard opposed the motion.