Raiding Resort Tax Funds

By Beacon Staff

Though Montanans are famously wary of a sales tax, across the state communities are finding alternative ways to allocate and use tourist-based dollars, whether through resort taxes or tourism business improvement districts.

Perhaps the most stunning single example of how much influence tourism money can have on a town’s infrastructure is a proposed $10.8 million downtown improvements project in Whitefish that would essentially change the face of the city’s core. Part of the sweeping project is a $5.2 million plan to make downtown more pedestrian-friendly and attractive that will be funded, if passed by city council as proposed, entirely by resort tax money. The other part is a three-level, $5.6 million parking garage funded by tax increment finance (TIF) dollars.

Whitefish City Manager Gary Marks said the city council, which should vote on the project’s conceptual design plans at one of its upcoming meetings if not the next, has a lot to mull over, considering the scope of the rebuild and the opposition from the city’s resort tax committee. By all available accounts, it’s the largest resort-tax funded project in the state’s history.

“This is one of those marquee locations from a historical point of view that defines Whitefish,” Marks said. “The decision (councilors) make will in some ways affect our future for a long time. You get one shot at it and you want to get it right.”

Of the seven incorporated towns or designated areas in Montana that have resort taxes, Whitefish ranks third in annual collections behind West Yellowstone and the Big Sky Resort area. Under state law, districts with resort taxes – also known as local-option taxes – are divided into two categories: communities and areas. Resort communities are incorporated towns with populations less than 5,500 and resort areas are unincorporated entities with fewer than 2,500 people. Places that exceed those population limits aren’t allowed to put resort tax proposals on any ballots.

Montana’s resort tax communities are Whitefish, Red Lodge, Virginia City and West Yellowstone. The resort areas are St. Regis and Big Sky, with Seeley Lake trying to join the club. Seeley Lake recently was granted a “resort area” designation.

They all have 3 percent taxes – the maximum – except for Whitefish, which has a 2 percent tax. That means that qualifying businesses, such as restaurants, hotels and tourist-oriented retail stores, give local governing bodies 3 or 2 percent of their gross monthly sales. Though locals take on part of the tax load year-round, tourists are the backbone of resort taxes, as evidenced in sharp collection increases in the summer.

The fundamental idea behind resort taxes is to allow places that get a lot of tourism to pay for the wear-and-tear on local infrastructure. But as Whitefish is proving, resort tax money can be used for substantially larger projects than basic wear-and-tear rebuilds.

Members of Whitefish’s resort tax committee, which recommends to the city council how best to appropriate resort tax money, have expressed concerns about the street project. Chairman Doug Reed and Jack Fletcher, who recently resigned from the committee because of a disagreement over the project’s funding, both say it’s a bad idea to ignore all street work, including in residential neighborhoods, for the sake of one single project. The committee unanimously passed a motion that agreed to resort taxes funding $3 million of the plan, but not the full $5.2 million.

“My concern is that it’s going to take about five years of resort tax money to pay for that,” Fletcher said. “I don’t think that’s proper because I think we should be doing some work in the neighborhoods during that time period. We’re tying up all that money in the downtown area.”

John Wilson, the city’s public works director, said the original cost estimate was $3 million, which the committee approved. But, like with what happened to the Going-to-the-Sun Road restoration, the price tag increased because of rising construction costs, Wilson said.

If the project is approved, building is expected to begin in 2009 and last through 2012. Wilson said construction would be divided into a spring season and a fall season because the city doesn’t want construction happening during the prime summer months of July and August. The street project’s goal, primarily focused on Central Avenue, is to make downtown more pedestrian-friendly and attractive by widening sidewalks, adding landscaping, benches, decorative streetlights, raised crosswalks and other features.

For small Montana towns where tourism significantly contributes to the economy, resort tax revenue is vital. The most surprising of the resort tax beneficiaries in Montana is St. Regis. The tiny unincorporated town off of Interstate 90 west of Missoula isn’t generally thought of as a primary tourist destination, but the town successfully argued to the state years ago that, as a tourist stop-off next to the interstate, it relies on tourist dollars.

Mineral County Commissioner Judy Stang, who has held office for 18 years, said resort taxes have spurred dramatic improvements in St. Regis. Each year $69,000 of the taxes goes to maintaining the city sewer system, which didn’t exist before resort taxes.

“There’s just no way for these little towns to raise money and the counties can’t give it to them,” she said.

Virginia City, with its roughly 150 year-round residents, collects more money from resort taxes than it does from property taxes, according to Karlee Smith of the Montana Heritage Commission. West Yellowstone, the first town to adopt a resort tax, has maintained and improved much of its infrastructure through resort taxes for two decades. Red Lodge collected more than $600,000 last year.

But it’s not only small towns that want a piece of the resort tax pie. At the 2007 Legislature, officials from Montana’s biggest cities, including Billings and Missoula, voiced their support for a bill introduced by Sen. Kim Gillan, D-Billings, that would have eliminated population restrictions in the resort tax law. Rep. Mike Jopek, D-Whitefish, supported the bill, which failed.

“Infrastructure needs to be addressed, and it seems like a tool that’s been working,” Jopek said.

Without resort taxes, bigger towns and cities across Montana are looking to benefit from a law enacted by the 2007 Legislature expanding tourism business improvement districts. In Billings, the only city to already have a program in place, hotels charge an additional $.75 to guests that is then set aside for use in tourism promotion and marketing. Chamber of Commerce President John Drewer said the city expects to make $700,000 this year from the small assessments. Cities like Missoula, Great Falls and others are trying to adopt similar programs, Drewer said.

“We wanted to be more proactive in taking our destiny into our own hands,” Drewer said. “But it still doesn’t do anything for infrastructure.”

Through January of this year, Whitefish had collected $13,703,450 from resort tax revenue since 1996, including $1.6 million for the 2007 fiscal year. Sixty-five percent of annual revenue goes to street improvement projects, 25 percent goes to tax relief and the last 10 percent is divvied up between the businesses themselves and local parks.

“A good share of the improvements you’ve seen in Whitefish in the last eight or nine years is because of resort taxes,” Marks said. “It’s had a big impact.”

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