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HomeMy WebLinkAboutA001 - Council Action Form dated February 23, 1999 a ITEM # • DATE February 23, 1999 COUNCIL ACTION FORM SUBJECT: RESOLUTION APPROVING ORDINANCE TO INCREASE HOTEL/MOTEL TAX FROM 5% TO 7% BACKGROUND: At a previous meeting, the City Council heard a presentation from ISU officials requesting that the City Council pass an ordinance increasing the hotel/motel tax from 5% to 7%. It was agreed that this ordinance would be somewhat generic and no specific funding formula would be included in the ordinance. Consequently, the proposed ordinance provides flexibility to the City Council by designating these additional funds for: (1) "the promotion and encouragement of tourist and convention business in the City", and (2) "improvements to and construction of recreation, convention, cultural, and entertainment facilities." The allocation for the original 5% will remain the same. The City Council directed the City Manager to work with Iowa State University and the Convention &Visitors Bureau (CVB) to develop the details regarding the disbursement of the additional funds generated by this increase in the tax, and bring the matter back for Council approval. The Council made it clear that the agreements with the relevant parties regarding disposition of these funds would not have to be finalized prior to the election. To be valid, these agreements must state a genuine business transaction that enables the City Council to withhold payment if work is not done or services are not provided in accordance with the agreement. ALTERNATIVES: 1 . The City Council can approve the attached ordinance on the first reading. In order to expedite this matter, the Council will be asked to pass this ordinance on the second and third reading on March 11th. In addition, University officials have indicated that the preferred date for the special election would be April 27th. A resolution requesting the County Auditor to set this date should be made on March 11th, assuming the ordinance is passed on third reading. 2. The City Council can deny approval of the attached ordinance. This action would indicate to the University and the Convention &Visitors Bureau that the City Council does not believe it is appropriate to finance the improvements to Hilton Coliseum with the City's hotel/motel tax funds. 3. The City Council can ask staff to modify the proposed ordinance to specify how the additional funds will be spent. MANAGER'S RECOMMENDED ACTION: Given the fact that Hilton Coliseum serves as a major convention center for the community, this facility should be perceived as more than a University asset. The proposed financial plan for this project calls for both the University and City to contribute substantially towards these improvements. This arrangement is an additional example of a successful partnership between the City and the University that has resulted in upgraded facilities for our citizens. Therefore, it is the recommendation of the City Manager that the City Council adopt Alternative # 1. Prior to the final reading of this ordinance, it would seem appropriate that the University provide to the City a written commitment to pay for all the costs associated with the proposed special election. Given this affirmative action, the City Manager will attempt to develop agreements with both the University and the Convention & Visitors Bureau to specify how the additional revenue generated from the hotel/motel tax increase will be utilized. Some further direction from the City Council would be appreciated in order for me to complete this task! It appears that there is agreement between the University and the CVB regarding the use of the additional funds for the first ten years. During the first five years, the total 2% increase would go to ISU to help pay for the debt to expand the seating at Hilton. From year six through ten, 1% would go to the University to continue this debt payment and 1% to the CVB for operations. The first question is whether the City Council agrees with this financial arrangement for the first ten years? The next issue involves the use of the funds after year ten. Apparently, the CVB supports the continuing allocation of the additional 1% to their budget after year ten, with the City retaining the other 1% for convention/visitor related capital improvements. Some Council members have expressed a desire to commit only to the initial ten year proposal that has been presented. Others have suggested that after year ten the 2% should be held in a capital improvements account by the City to be used for convention/visitor related facility improvements. The second question is how the funds generated after year ten should be utilized? Staff supports the ten year proposal agreed to by the University and CVB, but would suggest any commitment past the initial ten years of the increased tax rate is premature. In ten years the amount of funds generated by the motel/hotel tax might exceed projections. The CVB might not need 1% to satisfy their operational needs, or they might require a higher percentage of the proceeds. This situation might be the same for facility improvement needs in the future. Therefore, it would seem more appropriate not to restrict future City Councils by agreeing to a specific formula. Rather, flexibility can be maintained to respond to future needs by not committing these additional funds at this time. What is your response to these questions? COUNCIL ACTION: