Cedar Rapids prepares to restart hotel-motel tax payments to nonprofits

CEDAR RAPIDS — The city of Cedar Rapids is preparing to dole out revenue raised from a tax on overnight hotel guests to local cultural, entertainment and recreation nonprofit organizations, which will reboot a funding source that hasn’t been offered since the start of the COVID-19 pandemic about two years ago.

Before the pandemic, organizations that have received a share of the funds included among others the Cedar Rapids Museum of Art, Brucemore, Indian Creek Nature Center and the African American Museum of Iowa.

When eligible nonprofits apply to receive a slice of the city’s hotel-motel tax revenue, likely starting by June, they should expect to face different rules than in previous application cycles.

The Cedar Rapids City Council’s Finance and Administrative Services Committee has ironed out changes with city staff. Changes are slated to come to the council for a vote in May.

The city pursued these changes after the revenue source took a hit in 2020 as COVID-19 disrupted travel and prompted temporary hotel closures, casting fiscal uncertainty over how much money the city would take in from the tax on overnight guests.

Cedar Rapids fulfilled its obligations for fiscal 2020, the budget year that ended June 30, 2020 — a few months after the onset of the pandemic. At that time, the city-owned DoubleTree by Hilton hotel, the largest contributor to Cedar Rapids' hotel-motel revenue stream, was closed because of COVID-19 but nearing its July 2020 reopening. But the city has paused payments since then.

The new rules would shorten the grant cycle from three to two years to account for surprise events or operational changes that may occur in that time span, and ask organizations to clearly state the service they provide to the public.

Organizations must demonstrate the grant would not exceed 10 percent of their annual operating revenue, and the council will not give more than $50,000 apiece, as the tax revenue is not intended to fund a group’s ongoing operations.

With this cap, “you focus on what are those things that really help these organizations reach their goals,” Finance Director Casey Drew said.

Additionally, the rules require groups maintain information about their board of directors on their websites. They will have to send a letter to the city by Jan. 1 of each year they are awarded a grant, verifying this information is publicly available.

City officials will, from time to time, select a few websites to check the organizations have their boards’ information posted, Drew said, and if they are not in compliance Cedar Rapids will halt funding.

The city budgeted about $3.2 million in hotel-motel tax revenue for the 2023 budget year, which starts July 1 and ends June 30, 2023. Hotel-motel applications do not occur until revenue exceeds city commitments that also are supported by the funding stream.

Those commitments include debt payments, the Cedar Rapids Tourism Office (the main driver of overnight guests), the ImOn Ice Arena and a contribution to the Prospect Meadows baseball complex near Marion under a 10-year agreement.

Council member Scott Olson, a member of the finance committee, said many not-for-profits were able to recoup some of the funding lost in the pandemic. The organizations sought grant funding and federal Paycheck Protection Program forgivable loans, while revamping operations to keep money coming in.

“We’re not going to use up all the money we have with this new rule,” Olson said, and he thought that might broaden the pool of applicants the city is able to fund.

“I want to see new groups that might be applying for funds that we’ve not seen before and do not know and see if they qualify, but I think the rule you have here is they’ve got to tie back to showing how they put people in hotel rooms, and I think that’s going to restrict who comes forward,” added Olson.

The council previously had been able to allocate more than $1 million annually to local nonprofits after paying city commitments. Before the pandemic, the city budgeted $3.8 million in hotel-motel tax revenue for fiscal 2021 and ended up $1 million short, at $2.8 million.

The committee also discussed the status of grant applications from a program the city created using federal American Rescue Plan Act stimulus funds to award up to $750,000 to nonprofits that lost out on hotel-motel tax revenue when Cedar Rapids paused payments. Four groups so far have received funds since allocations began in February — Brucemore ($50,000), Hawkeye Downs ($50,000), Cedar Rapids Freedom Festival ($28,514) and The History Center ($35,000).

With a June 30 deadline for groups to apply for the special fund, $586,486 remains. Eligible nonprofits from that pool must demonstrate a revenue loss, even after accounting for grants and other funds received during the pandemic. The city also has to ensure that it distributes funds in compliance with U.S. Treasury regulations and reporting requirements.

Committee members generally favored exploring other ways to repurpose any leftover money.

“I don’t want to have that money sitting there,” Olson said. “It could go to other uses through our ARPA grants. I think you’ve done the best you can and given everybody opportunities to be creative, but I think we have strict rules here and let’s give them a little more time, but then let’s get that money out to other projects.”

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