Cedar Rapids weighs changes to hotel-motel tax revenue allocations to nonprofits

Cedar Rapids City Hall is seen photographed on Wednesday, Dec. 2, 2020. (Andy Abeyta/The Gazette)

CEDAR RAPIDS — Changes to the city’s application for not-for-profit organizations seeking a share of Cedar Rapids’ hotel-motel tax revenues are likely to come before the 2023 budget year.

The Cedar Rapids City Council Finance and Administrative Services Committee has been in talks over the last several months with city staff about changing the application for not-for-profits seeking to tap into some of the tax revenue the city gains in from overnight guests.

After the revenue source took a hit in 2020 with the COVID-19 pandemic upending travel, the potential changes to the allocation process are a recognition of how quickly unforeseen events can put an organization’s budget in flux and would aim to account for surprise shifts.

“It does make you think,” said council member Scott Olson, who sits on the finance committee. “We want to look at all organizations and make sure they’re financially viable and they can handle surprises like this.”

Facing fiscal uncertainty with hotel closures and travel halted, the city in 2020 paused those payments to not-for-profits for fiscal 2021 — the budget year that began July 1, 2020, and ended this past Wednesday, June 30.

City Finance Director Casey Drew sent a letter to the organizations to share that future allocations eventually would be discussed based on actual revenue from that fiscal year.

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 days out from reopening, on July 9, after closing in March because of the COVID-19 pandemic.

The council in recent years has been able to allocate more than $1 million annually to local not-for-profits. Cedar Rapids distributed $1.2 million to 23 not-for-profits in fiscal 2019, the budget year that ended June 30, 2019; and another $1.465 million to 22 Cedar Rapids organizations in fiscal 2020.

Before the pandemic, Drew said the city budgeted $3.8 million in hotel-motel tax revenue for fiscal 2021 and ended up $1 million short, at $2.8 million. Not all of that revenue is distributed to not-for-profits.

For fiscal 2022, the council in June approved allocating $3 million to city commitments. That includes nearly $1.1 million to cover debt payments, $750,000 for the Cedar Rapids Tourism Office, $702,500 to the ImOn Ice Arena and an existing $100,000 a year contribution to Prospect Meadows under a 10-year agreement.

The Tourism Office — the tourism bureau that VenuWorks has managed since the fallout of the now-defunct Go Cedar Rapids’ “newbo evolve” music festival in 2018 — is “really the group that drives the most heads and beds for hotel-motel,” Drew said.

“We want to make sure there’s funding so that they can continue to go out there and deliver on the mission of bringing people to Cedar Rapids to spend money in Cedar Rapids,” Drew said.

But it is too early to tell if the level of overnight guests is returning to pre-pandemic levels or whether it will take some time to ramp up.

“The hope is that we get to pre-COVID levels faster, but it’s unknown at this point,” Drew said.

While some uncertainty about the revenue source remains, the finance committee has discussed allocating tax revenue in two-year cycles instead of the current three-year cycle to allow for more flexibility in light of the pandemic and the derecho.

The council also may seek to cap allocations at no more than 10 percent of an organization’s budget, as the tax revenue is not intended to fund a group’s ongoing operations.

“We anticipate that that change will make it a little more transparent on what organizations can qualify for hotel-motel tax distributions, and at the same time encourage nonprofit organizations not to depend on it,” said council member Scott Overland, the finance committee chairman.

But changes to the application are not final yet. They would come to another review of the finance committee before going to the full council, which Drew said may occur in September.

Once ready, Drew said the application would be posted online and sent to not-for-profit leaders.

“It’ll be important to begin to see the convention business and other events start coming back to the city as we get further out from the bulk of the pandemic,“ Overland said. ”So we’re hopeful that if we’re sitting here a year from now, that there’ll be significant recovery in hotel-motel (revenue), but time will tell.“

Council member Ann Poe, a member of the finance committee, said those on the council have discovered how flexible many not-for-profits were to recoup some of the funding lost in the pandemic. Not-for-profits sought grant funding and federal Paycheck Protection Program forgivable loans, in addition to revamping operations to keep money coming in.

Poe said she anticipated those groups in the future will continue to be nimble in how they bring members to their organizations, fund their operations or their events.

“They’re our core organizations that really drive people to the center of our community,“ Poe said. “… We certainly value and appreciate what they bring to our community and to the quality life in our community, so I think we’re going to constantly look for opportunities to help those nonprofit organizations.”

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