Food for thought: Proposed restaurant tax generates healthy discussion

The City of Carrington's proposed restaurant tax was a hot topic last week.

Carrington Convention & Visitors Bureau (CVB) hosted an informational meeting to give residents and officials the opportunity to debate the pros and cons of the proposed 1 percent tax on prepared food and beverages in the city.

Mayor Tom Erdmann opened the meeting and delivered a prepared statement.

Board members of Carrington CVB, Carrington Chamber and Economic Development Corporation (CCEDC) and the Rainbow Gardens project were in attendance, as well as six of the seven city council members.

As Erdmann explained, there wasn't a strict agenda to follow, as there would be with a special city council meeting. Attendees were open to discuss any topic.

CCEDC Executive Director Laurie Dietz made available copies of the proposed ordinance, as well as details on over 20 North Dakota communities that currently have a restaurant tax in place. Many mid-size communities, such as Devils Lake, Valley City and Jamestown, have the tax. Even towns smaller than Carrington, such as Minnewaukan and Edgeley, collect the tax, and they use the funds for a wide variety of projects that they believe will draw visitors to their community and spur them to spend money.

According to the N.D. Tax Commissioner's website, there are 29 communities who currently levy a tax on prepared food and/or alcohol. Of the four largest communities, Bismarck and Grand Forks collect a restaurant tax; Fargo and Minot do not. Surrounding communities including Harvey, New Rockford and Cooperstown do not either.

Copies of both the survey data and the proposed ordinance are available for download here: https://www.fosterconews.com/home/cms_data/dfault/pdfs/misc/2023-04-17.pdf

Officials frequently repeated that while the proposed Rainbow Gardens project was the "catalyst" for the restaurant tax, it is not the sole purpose for it.

Rainbow Gardens chair Dennis Swanson clarified that restaurant tax funds would not be used to fund construction of the gardens and visitor center. As the Independent has reported before, the committee is engaged in fundraising and grant writing, with plans to fund the entire construction with donations and grants.

Erdmann explained that a family who currently spends $500 per month at local restaurants and bars would pay $5 more in taxes.

"It's not a significant amount, but it does add up over time," Erdmann said.

The tax is estimated to generate $50,000 per year, based on collections in similarly-sized communities. Operations and maintenance of Rainbow Gardens and the visitor center could use up to 20 percent of that, or $10,000 per year, officials say.

The rest of the funds would be made available for other projects, and guidelines would be put in place to accept and review requests from organizations, businesses, groups and individuals. One example Erdmann offered is the 4th of July fireworks display. The city has not funded fireworks in the past, but could potentially do so with tax proceeds, he noted.

Officials also referenced the construction of a new swimming pool as a potential use of the funds, as they are designated for tourism infrastructure.

It would take a full year, however, for funds to build up before the council could begin allocating dollars to projects. At that point guidelines would be put in place, Dietz said.

Officials estimate that 60 percent of the tax proceeds will come out of the pockets of Carrington residents, and the other 40 percent will be from visitors who eat and drink at Carrington establishments.

Visitor spending in Foster County totaled $11.14 million in 2021, according to data compiled by Tourism Economic on behalf of North Dakota Tourism. There was no immediate data available on the City of Carrington.

Among the most vocal opponents of the tax were the restaurant and bar owners.

Hi-Way Drive In owner Curt Klein noted that he and other restaurant owners were not approached before the ordinance was put in front of the city council in January. They first learned of the proposal when it hit the front page of the Independent and was announced on the radio following the meeting, Klein said.

"All our prices keep going up all the time," owner of Five Spot Bar Scott Fetch added. "This is one more unneeded thing that is attacking the restaurants and bars." Fetch said he has been hesitant to raise drink prices, even though his distributors have increased their wholesale prices four times in the past four years, because he does not want to drive local customers out.

It's already happening, he noted, because some choose to purchase off-sale liquor and beer and gather at local residences rather than the bars. Alcohol is already taxed at a higher rate than any other retail goods, as the state collects 7 percent on alcohol sales. All other retail sales are taxed at 5 percent by the state, except farm machinery solely used for agricultural production and new mobile homes, which are each subject to 3 percent tax.

Fellow bar owner Cole Broadwell agreed. He said the city should put the matter up for a public vote, as they did with the last two sales tax increases. Erdmann noted that both easily passed. Broadwell posited that it would be more palatable as a general sales tax, as then all retail and food service establishments would be collecting the funds, not just a select few.

"The consumer is the one that's supposed to pay the bill, not the proprietor," Erdmann said. That's not so easily done, bar owners replied. They aim to keep their prices in even amounts because they want their bartenders making drinks rather than counting out pennies and nickels.

Members of the public also commented that adding another tax in already uncertain economic times could cause more residents, particularly those on fixed incomes, to forgo trips to bars and restaurants. As a result, the tax would have to generate more visitor spending just to make up for the lost local patronage.

The first reading, which was held at the Carrington City Council's January 9 meeting, put the matter on the table for further debate and discussion, officials noted. It was not an attempt to pass it without debate.

The new baseball and softball diamonds, golf course and bowling alley all could have been funded with the restaurant tax, officials say.

Nikki Mertz has been involved with economic development and tourism efforts in Carrington for 20 years, and she said that in her experience "everything worth doing has been controversial." She referenced the golf course and the Van Bedaf Dairy, among others.

"If we are going to continue to grow and thrive and prosper, it's going to take money to do so," Mertz said. She expressed that officials have talked about the merits of levying a restaurant tax for years.

CVB President Kim Montgomery added that dollars are available for tourism marketing through the city's lodging tax, and the board is open-minded about requests for funds. The CVB meets monthly and considers requests. If anyone has ideas about how to increase visitor spending in Carrington, they are encouraged to submit a proposal.

So what's next for the restaurant tax? At minimum, a second reading of the ordinance is required before it can go into effect, and it must be done 90 days prior to implementation at the beginning of a quarter. Therefore, Erdmann stated, the second reading would need to be held prior to June 30 in order for the tax to go into effect on October 1.

Since the city has a Home Rule Charter, the restaurant tax does not have to go to a vote of the people, although the city council can choose to do so. Erdmann acknowledged that there has been talk among council members to put the matter up for a vote.

If the city council approves the second reading and sets an effective date, citizens who object to the ordinance have 30 days to file a petition. In Carrington, 348 signatures from qualified electors (or city residents of voting age) would be required to refer the matter for a public vote.