Government

Demise of GO Cedar Rapids puts new focus on hotel-motel tax revenue

Is there enough scrutiny over hotel-motel tax allocations?

People arrive Oct. 5 for “My Fair Lady” at Theatre Cedar Rapids and for a Newsboys concert at the U.S. Cellular Center across the street in downtown Cedar Rapids. Both facilities have benefited from the 7 percent tax collected on hotel and motel rooms in the city. Until it announced last week it was folding, the GO Cedar Rapids tourism organization got the lion’s share of the bed tax money — receiving about a fourth of the $3.8 million raised. (Liz Martin/The Gazette)
People arrive Oct. 5 for “My Fair Lady” at Theatre Cedar Rapids and for a Newsboys concert at the U.S. Cellular Center across the street in downtown Cedar Rapids. Both facilities have benefited from the 7 percent tax collected on hotel and motel rooms in the city. Until it announced last week it was folding, the GO Cedar Rapids tourism organization got the lion’s share of the bed tax money — receiving about a fourth of the $3.8 million raised. (Liz Martin/The Gazette)
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CEDAR RAPIDS — Local tourism marketing agency GO Cedar Rapids, which folded last week after failing to overcome $2.3 million in debts it ran up producing the “newbo evolve” festival, had been heavily supported for years by a publicly funded grant program with loose guidelines for divvying up millions of dollars.

One Cedar Rapids City Council member called the process “murky,” but others say it is thorough and has led to a strong track record of supporting organizations that draw visitors here and benefit the community.

In recent years, city leaders guiding the funding process have relied mainly on what was given to organizations in the past when deciding on future awards.

“If we gave $50,000 last cycle and they are doing similar things and making improvements, why wouldn’t we continue to give to them?” Cedar Rapids Mayor Brad Hart said, speaking in general about organizations that receive the public money.

How Cedar Rapids uses its roughly $3.8 million in annual hotel-motel tax revenue has come into focus with the saga of GO Cedar Rapids, which long has been the largest beneficiary, receiving about a fourth of the annual total.

GO Cedar Rapids, which got about $1 million annually of the hotel-motel tax — or half its $2 million budget — put on a music and cultural festival in August called newbo evolve.

The production lost millions of dollars. GO Cedar Rapids hasn’t paid an untold number of vendors it brought in for the festival and owes Bankers Trust $1.5 million.

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All of them were left in the lurch when the organization announced Friday it would cease operations. The city said it would work with its current venue management company to temporarily take on the marketing and booking of tourism and convention events, but was not responsible for the nonprofit’s debts.

Officials noted hotel-motel tax money was not specifically earmarked for the festival, but rather for GO Cedar Rapids.

More than 20 nonprofits a year get hotel-motel tax money from the city — albeit in significantly smaller amounts than GO Cedar Rapids — that they say is critical.

“It is significant support for us. It allows us to do things we could not do otherwise,” said Forrest Meyer, a spokesman for the National Czech & Slovak Museum & Library, which uses its $45,000 a year for community and family programs such as summer family free day, Music at the Museum, school tours and walking tours of Czech Village.

The Brucemore historic estate spends its $50,000 annual allocation in the spirit of the award, including activities that draw visitors such as Brucemorchestra, eight to nine cultural events a year and five-day-a-week estate tours.

“Like any nonprofit we rely on diverse revenue sources, such as grants and sponsorship for critical programs,” said David Janssen, executive director of Brucemore. “Hotel-motel tax grants fall in that category and makes the work we do to drive tourism and visitors possible.”

Cedar Rapids is among 160 cities and 18 counties in Iowa where voters have approved a nightly lodging tax on visitors, according to data from the Iowa Department of Revenue. Cedar Rapids taxes the maximum allowed — 7 percent — as do the majority of communities, according to the revenue department and an Iowa State University study. A 5 percent state excise tax on lodging is also charged.

Cedar Rapids was among 14 communities to enact the hotel-motel tax in 1979 when Iowa began allowing it to help communities better market themselves.

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Cedar Rapids sought to support the U.S. Cellular Center, Paramount Theatre and the Cedar Rapids Convention and Visitors Bureau, which was established in 1982 and renamed GO Cedar Rapids in 2016.

In the past 10 years in Cedar Rapids, hotel-motel tax revenue has grown 28 percent from $2.9 million in fiscal 2009 to $3.75 million in fiscal 2018, according to revenue department data. Last year, more than $57.7 million in hotel-motel taxes were collected across the state.

By law, communities must use at least half the proceeds for tourism-related spending through facilities or programs.

To receive money in Cedar Rapids, the use must fit into one of four categories: a primary category for city facilities and venues supporting entertainment, art and cultural events and activities; community culture and education; community recreation and events; and new and emerging organizations and events.

Across the state, there is not a consistent process for deciding how to use the money. The Iowa Department of Revenue leaves it to local jurisdictions to set guidelines and distribute the money within the parameters of the approved use.

Iowa City, for example, uses a formula that devotes 47.5 percent its roughly $1.1 million annual hotel-motel tax revenue to the police department. Think Iowa City, the tourism bureau, gets 25 percent; and parks facilities get 27.5 percent.

The Cedar Rapids process is more arbitrary, as long as the use fits into one of the required categories. No scoring or ranking system exists to differentiate one applicant from the next.

Cedar Rapids roughly divides the amount of hotel-motel tax proceeds in half, earmarking most of one part to pay off debt on city projects and facilities catering to tourism, recreation, entertainment and culture.

In the past, the money also has covered losses at the convention center and U.S. Cellular Center.

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The other part of the total is awarded through grants to community nonprofit organizations that attract visitors.

For the grants, a three-member committee reviews applications and recommends awards, which are approved by the full City Council and paid quarterly to organizations. The grant program works on a three-year cycle to help the organizations budget.

Still, the City Council must vote annually on the disbursements, which could be adjusted based on the actual revenue generated each year.

During the most recent vote in July, the council earmarked about 54 percent or $2 million for primary functions, including paying down debt at the DoubleTree Hotel, Cedar Rapids Ice Arena, Cedar Rapids Museum of Art and the Cedar Rapids Convention Center, operations at Ushers Ferry and the ice arena, and $105,000 for Cedar Rapids Metro Economic Alliance, among other uses.

The remaining $1.2 million was awarded to 23 nonprofits through the grant process, with an additional $500,000 set aside for but not committed to GO Cedar Rapids.

This was the beginning of a new three-year cycle, which runs from 2019 to 2021.

Hart, council member Scott Overland and city Finance Director Casey Drew made up the awards committee, which reviewed 42 applications seeking $8.7 million over three years and recommended how to divvy up the available amount.

“The city committee reviews each application and discusses how to allocate based on each organizations request and financial need,” Drew said. “Unfortunately, there are more request for dollars then what the city has available to allocate. The city looks to put hotel-motel funding toward organizations that help increase heads in beds, which will allow hotel-motel revenue to continue to grow.”

Hart and Overland described taking home the applications and reading them thoroughly. Overland recalled the group met three or four times.

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The committee recommended nearly the same cohort of organizations to receive either the same amount or ones within a few thousand dollars as the previous three-year cycle, which mirrored the three year cycle before that.

The exceptions this year included replacing Eye380 and Eastern Iowa Figure Skating Club with Iowa Art Works, and increasing funding for Hawkeye Downs from $106,632 to $150,000 and NewBo City Market from $35,000 to $46,000. The Economic Alliance had its funding cut from $120,000 to $105,000.

“We went through them one at a time,” Overland said. “There wasn’t additional money to dole out. Our attitude was the entities that got money a year before would get it again. Pretty much status quo. ... If they’ve done what they said they were going to do, who are we to say, ‘whack their budget?’”

The applications were required to include a maximum 500 word description of how the hotel-motel tax money was used in the past and another maximum 500 word description about how it would be used in the future, a strategic plan and three years worth of audited financial statements.

The level of scrutiny differs from non-hotel-motel tax awards.

Economic development partners, including the Entrepreneurial Development Center, Small Business Development Center and NewBoCo/Iowa Startup Accelerator, which receive significantly less than GO Cedar Rapids, are required to appear before City Council annually. GO Cedar Rapids had no such requirement.

Drew noted the organizations receiving hotel-motel money are large and can easily be monitored, so there is no need for a public presentation.

Overland is among council members who said additional scrutiny is not necessary.

Council member Ann Poe said she would like to see formal presentations. Poe also is executive director of Hawkeye Downs, which receives hotel-motel money.

“I’m in favor of that,” she said. “Frankly, there’s a lot of good work by organizations receiving that money and they are excited to share. ... I don’t think organizations have anything to hide. We are proud of the work we do, proud of our accomplishments.”

Council member Dale Todd described the process as “murky.”

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Todd, who also served from 1998-2002, said a previous process was to discuss applications as an entire council, which he said helped answer questions and set priorities as a group. Under the current process, he said, council members received a list of award recommendations and a presentation of less than five minutes.

Todd noted he could have sought more information and asked questions, “but the former process seemed to shed a bit more transparency.”

l Comments: (319) 398-8310; brian.morelli@thegazette.com

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