Corbett, Prosser disappointed they won't see additional hotel/motel tax revenue

Mayor Ron Corbett and City Manager Jim Prosser both expressed disappointment Wednesday after the Iowa House or Representatives killed a proposal that would have permitted cities in Iowa to raise their hotel/motel tax from the current 7 percent to 9 percent.

The city of Cedar Rapids has focused no little part of its legislative lobbying effort this year on the hotel/motel measure for a very specific purpose: the city needs to find up to $17 million in local revenue to serve as a match for an expected $35-million grant from the U.S. Department of Commerce to build a new convention center.

The city already has secured $15-million in state I-JOBS funds to upgrade the city's U.S. Cellular Center, next to which the new convention center will sit.

Corbett's idea was to use the additional hotel/motel tax revenue and some of the existing hotel/motel revenue over a number of years to pay off local bonds sold to provide the local money for the convention center.

The city currently takes in about $2.5 million a year in hotel/motel revenue, and Prosser said the city would need about $1.2 million to $1.3 million of that amount to finance a bond sale.

Earlier this year, Corbett met with local non-profit entities and arts and cultural organizations that depend that on the revenue to forewarn them that some of the money might be used to help pay for the new convention center.

Corbett last night said the city will take another run at the Iowa Legislature on the hotel/motel matter next year, and he noted that the city won't need to sell bonds for the convention center before then.

“We have been trying to get out from behind the eight ball, and this rejection by the legislature doesn't help,” he said.

Prosser noted that the $17-million local-match requirement for a new convention center is the highest estimate, and he said a private fundraising effort could lessen the amount that is needed from the city. He also noted that the Crowne Plaza Five Seasons Hotel, which is now owned by creditor banks, likely will increase in value with the new convention center and improved arena next to it. The increase in property-tax revenue from the hotel also might help pay off bonds for the convention center, he said.

“Certainly, it's not the outcome we were looking for,” Prosser said of Wednesday's action by the legislature. “But it's not the end of the line.”

Earlier in the say, lawmakers voted 73-25 to keep current language that caps the hotel-motel tax at 7 percent. Rep. Tyler Olson, D-Cedar Rapids, had sought language to allow voters to increase that to 9 percent for cities and from 7 percent to 8 percent for counties – potentially an effective rate of 10 percent if both rates were increased.

On the House floor, he argued the hotel-motel tax is a local option tax, so all legislators merely would be giving voters “the choice to make this decision form themselves.”

He called the tax a “tool for communities.” The additional revenue would be used to market tourism and attractions in communities. That would help fill hotels, generate business for restaurants, gift shops, local attractions, which in turn would generate revenue for the state, Olson said.

In Cedar Rapids and Linn County, he added, it the hotel-motel tax could be a disaster recovery tool.

“In my community, a lot of tourism related businesses, arts and cultural attractions and convention-related businesses were flooded,” he said. “This would be one way for them to bring that economic vitality back to their community.”

Although sympathetic, Rep. Nathan Reichert, D-Muscatine, said now is not the time to raise the cap.

The recession has hot no industry harder than hospitality, Reichert said. In Muscatine, the city's revenue from the tax dropped from $360,000 to $240,000 last year, he said.

“This is not the time to put this into law, to allow these local options to be exercised,” he said.

Not only is the timing wrong, added Rep. Mary Mascher, D-Iowa City, but said the standings bill was the wrong vehicle for raising the cap. Olson's measure should stand on its own merit rather than get tacked on to the standings bill.

The increase may not seem like a lot, Mascher said, but to people who come to Iowa City for family members' extended hospital stays, it adds up.