Where will funding come from?
No new taxes will be levied for the project. The State of Iowa* and Private investments will be the largest contributors. Funding will come from a multitude of sources, including: State Funding (Iowa Economic Development Authority), private investments, tax increment financing (TIF), local option sales tax (LOST), Cerro Gordo County, Mason City Youth Hockey, and donations.
*Pending final approval
How much will the project cost?
In total, project investments and civic improvements are expected to be approximately $39 million. Hotel = $17.57 million; The Music Man Square Renovation = $3 million; New Museum = $1.5 million; Skywalk = $2.5 million; Performing Arts Pavilion = $1.65 million; Multi-Purpose Arena = $12.55 million (Numbers listed are not to exceed amounts. Actual project costs may be less)
What is TIF? How will this be used?
Tax Increment Financing has been implemented across the United states since 1952 and uses increased property tax revenues generated from new development to pay for urban development projects. After the projects are paid in full, the tax revenue generated from the new development mixes in with the general taxes collected by the city. (See bottom of page for a detailed explanation of TIF.)*
What is LOST and how is it used?
LOST or Local Option Sales Tax is an existing special purpose tax implemented and collected at the city or county level. It is a tax levied on taxable goods and services, including dining out, haircuts, clothing, etc. LOSTs are typically used to raise funds for specific local projects, such as improvements or revitalizations. LOSTs are attached to the State’s base sales tax rate (6%) at a rate of 1%. If a city utilizes this strategy as an option, the total sales tax would be 7%, or seven cents/dollar. The most important note as it pertains to Mason City residents is that it is not a new tax. Cerro Gordo County already implements LOST at a rate of 1% (one penny/dollar) for a total of 7%. For the 2016-2017 year, Mason City earned $4,874,261 in LOST. This money goes into a general fund to help pay for improvements and revitalization projects.
How much will this project raise my property taxes?
Property taxes are not anticipated to change as a result of this project. By improving the downtown and protecting the downtown tax base, we are avoiding a potential future tax increase. Other forms of funding, notably TIF, have been put in to place to ensure that there is little to no impact on taxpayers. Additionally, revenue generated from visitors to Mason City save households approximately $255/year. With the completion of the project and the potential resulting growth, attractions and business, there is opportunity for even more savings passed on to households.
What is hotel/motel tax?
Hotel-motel tax is a 7% tax collected on the rental of sleeping rooms of hotels, motels, bed & breakfasts, etc. State law dictates how this tax can be used. In Mason City, hotel-motel tax generates more than $600,000 annually:
- 45% is allocated to Visit Mason City for tourism marketing
- 5% is allocated to the Mason City Recreation Department
- 50% is retained by the City of Mason City and used for funding a variety of programs including Mason City Little League, North Iowa Corridor EDC, Main Street Mason City, Mason City Senior Center, River City Sculptures on Parade, and quality of life amenities such as the Library improvements. A portion of revenues from hotel-motel tax are also put into reserves for future use in hosting large community/tourism events such as RAGBRAI and the Pyrotechnic Convention.
Statistics via Visit Mason City
How will the City pay for the project with the money from the state being issued in small increments?
In December 2015, the City of Mason City approved the sale of $18.75 million worth of bonds. The sale of these bonds will provide partial funding for construction of the arena, pavilion, new museum and skywalk, as well as the convention center and loan to Gatehouse. Additionally, the City will bond for 20 years to increase funding to cover any remaining costs. To repay the bonds and interest, the City will utilize several sources of cash, such as money from the State, LOST, TIF, and donations. (The principal loan for the hotel will be paid back to the City at the end of 20 years.)
Can the state’s potential $10 million in funding be applied elsewhere as an alternative to this project?
No. If awarded, the State’s funding can only be applied to a pre-designated area for purposes pre-determined in a document submitted and eventually approved by the Iowa Economic Development Authority. For Mason City, the area established is approximately 25 acres that make up the Downtown area, and the purpose is for the projects involved in the River City Renaissance Project. The State’s funding cannot be used for any other project or purpose.
Can we get the funding from the state at a later date if the vote doesn’t pass in November?
If the vote does not pass, we will not receive the (up to) $10 million from the state and no other components will be fulfilled. The State funds will then be disbursed to another community.
How will the arena project be sustainable?
The arena project will be sustainable based on a strong agreement with Mason City Youth Hockey (MCYH) for operations and use for a six-month period. The guaranteed events from North Iowa Bulls games will lead to a regular revenue stream. The additional games for high school and youth hockey, as well as North Iowa figure skating events, will add even more revenue to the picture. In addition, the arrangement with MCYH removes most of the expenses to operate the facility over a six-month period. The reduction in expenses has a similar effect to the bottom line as additional revenue. The hockey off-season income may be a little more sporadic, but project developers are confident there will be events that will want to be in this facility based on input from people in the music industry and other youth sport leagues.
Where will the funding come from if the projections are not met on beer and ticket sales?
If the sales of concessions, beer and tickets do not meet projections then the City will need to balance the budget from another fund. The City Council has not discussed this possibility specifically, but options that can be considered are the use of general fund money or hotel/motel tax funds to make up any shortfalls.
*Detailed Definition of TIF:
Tax Increment Financing (TIF) is a common tool used by cities to encourage economic growth in areas that are seen as “blighted” or at risk of becoming blighted. When a TIF district is created, the city establishes an economic development plan for the area, with a predetermined start and an end date (in the RCRP case, this is set at 25 years). At this point, a “Base Asset Value” is determined (the value of all of the property in the TIF district at the start of the project) to determine base taxes. For the life of the 25 year TIF district, this is the amount of property tax revenue from the TIF district that will continue to go toward the city’s general funds. As new projects are completed, property taxes collected by the City from within the TIF district will increase due to the improvements. This increase is the “Incremental Asset Value.” Rather than putting these additional funds into the city’s general funds, the tax dollars will be used to repay debt from the project, such as general obligation bonds, bank loans, etc. Once the debt is paid in full or the TIF district end date is reached, the full amount of collected taxes will go into the general fund.
This financing strategy is attractive because the amount of taxes going into the general fund will remain the same as it would if no new development were to occur. Meanwhile, the new taxes generated by the privately-owned hotel and multi-purpose arena will pay off the city’s share of expenses. Once the RCRP is completed and the debt is paid, the city will see a significant boost in its tax base.