Editor’s note: This story is part three of four about the past, present and future of the Pavilion. A new story will be released each week in the Saturday edition of the Detroit Lakes Tribune. DETROIT LAKES — Sticker shock in today’s economy takes effort.
For some, the $13.7 million price tag associated with the proposed Pavilion project managed to achieve that tall order. This article will review why the cost is $13.
7 million, how the proposed sales tax would impact purchases and what happens if the request fails in November. Differences in the proposed and current Pavilion are also examined, as well as potential changes in rental prices. The Pavilion series has already covered the history of the current facility and the current state of the building.
The remaining article in the series will dive into the City Park improvements that are part of the project. ADVERTISEMENT In 2021, Detroit Lakes built a 21,000-square-foot police station for $6.7 million, and it included an underground garage.
How then, does a 15,000 square-foot Pavilion building now cost $13.7 million? It doesn’t. The Pavilion itself is estimated to cost $9.
5 million. The remaining $8.7 million includes contingencies and soft costs, such as design and City Park improvements.
Detroit Lakes City Administrator Kelcey Klemm provided the estimated cost breakdown to be as follows: First off, Klemm emphasized the cost of the project is only an estimate. True costs will not be known until the final designs are completed and the bids are received for the project. “The way the whole sales tax proposal works is, the council can decrease the budget, but we can't increase the budget,” Klemm said.
“So, you'd hate to go in with a lesser number and then be short. I think that's the last thing we want.” If voters approved the Pavilion and City Park projects, it would be paid through a half-cent sales tax on all items subject to state tax for up to 12 years.
Those paying the tax would include residents and visitors who shop in the city. To get a glimpse of what a half-cent sales tax would cost when shopping, Klemm provided the following examples: ADVERTISEMENT It should be noted that the local sales tax would not apply to groceries, clothing, prescriptions, vehicle sales or other non-taxable items. The half-cent sales tax option was used to build the $6.
7 million police station. The city was approved to implement the tax over the course of nine years. However, the sales tax revenue exceeded expectations and generated more than $2 million per year.
“We were able to pay off the police department in four years,” Klemm said. “At the peak of our collections, the last full year of collections, we were collecting over $2 million a year (from the half-cent local sales tax).” The local sales tax concluded about a year ago.
After reviewing sales tax data from 2017, Klemm stated at an April City Council meeting that about 60% of retail spending was generated by those residing outside of Detroit Lakes. If the local sales tax option were to fail this November, it is unknown when the city will have another opportunity. The Minnesota Legislature approved a two-year moratorium on imposing new general local sales taxes.
“If this doesn't pass, we've lost our window of opportunity for who knows how long,” Detroit Lakes Mayor Matt Brenk said. ADVERTISEMENT When the moratorium lifts, the council would have to go through the approval process once again to determine if the project is eligible for a local sales tax referendum. Getting a local sales tax on the ballot requires a series of steps to be completed.
The state determines that process and has required the approval of the House, Senate and governor. When the city did a similar process for the police station, the referendum was required to be held first, and then legislative approval was sought. “They changed the statute,” Klemm said.
He added for a project to be considered for a local sales tax, it has to be beneficial to the region. “They don't want to fund a local city hall or a local public works building,” Klemm said. “The police station was regional because it helps a regional area.
The Pavilion; it's pretty obvious that it's a regional draw. And fortunately, the Legislature saw it the same way as we did.” If the residents of Detroit Lakes vote down the local sales tax request, Klemm explained the city will continue maintaining the current Pavilion.
“Without the sales tax, I think it's safe to say the city's not doing the project,” he said. “So, that means, the city and the taxpayers of the city have to continue to maintain the Pavilion, kind of indefinitely.” ADVERTISEMENT The difference is, the cost of maintaining a building in need of expensive repairs will be on the backs of the city taxpayers only.
The current Pavilion footprint is 12,500 square feet, of which 8,000 square feet is the main hall that seats up to 450 guests, according to the City of Detroit Lakes website. The proposed Pavilion replacement building footprint is 15,000 square feet. The main hall would account for 8,400 square feet and could seat up to 500 people.
While the two main halls are only 400 square feet apart, Klemm explained they are very different. For one, the current Pavilion has a veranda, which essentially reduces the usable main hall space. There is also a stage.
Neither of those obstacles are part of the new Pavilion plan. (Klemm said considerations have been given to having a movable stage at the new facility.) The proposed Pavilion would also offer room dividers to accommodate a renter who only needed a small space, or wanted separate spaces for an event Aside from the main hall, the current Pavilion offers about 4,500 square feet of bathrooms and a food preparation area.
The proposed facility has 6,600 square feet of bathroom facilities, a catering area, vestibule, meeting room, offices, storage space and a media room. ADVERTISEMENT Perhaps the biggest change would involve temperature control. The current facility can be used during the warmer months, and has been opened for a non-heated shelter during the citywide Polar Fest celebration in February.
The proposed Pavilion would have an up-to-date heating, ventilation and air conditioning unit, making it available year-round. New facilities typically equate to higher rental costs, and it is likely a new Pavilion wouldn’t buck that trend. The daily rental rates of the current Pavilion include the use of the building, tables and chairs.
The cost, between Monday and Thursday, is $450, plus sales tax. From Friday through Sunday, the daily rental is $1,300, plus sales tax. The city website states that a consecutive two-day rental special is offered at $2,300, plus tax.
Should heat be needed from the single space heater, there is an additional cost of $130 per day. The estimated weekday rental cost for the proposed Pavilion has not been estimated, but would be less than the projected weekend rental cost of about $3,000 per day, Klemm said. The rental cost of the new facility would also have different options, as space could be partitioned off, and thus reducing the rental cost.
“I imagine we're going to have a different rate structure to have a 50-person event in a part of the building versus a 400-person wedding that's going to take up the full building,” Klemm said, adding maintaining affordability as a public space is a priority. He projected the new facility would host 50 events annually. The current Pavilion hosted 30 events in 2023 during the four to five months it is operable.
ADVERTISEMENT Even with more events, the $3,000 weekend rental rate suggests the facility would not break even, Klemm said. Any additional cost would need to be subsidized by the city through taxes, much like the current Pavilion, city beach, library, parks and arena are. “For the last 100 years, the Pavilion has been supported by the city at different levels,” Klemm said.
“Some years, the operating cost maybe breaks even, but there's never anything put away for capital expenses. So, when there's something that needs to be repaired, the city pays for it. It just comes out of the park budget.
” Klemm said the financial projection he created for the proposed Pavilion projects the facility would be in the red by about $50,000. That amount includes tucking some funds away for future building maintenance, which is a luxury the current Pavilion does not have. Brenk added that the city’s growing tax base helps spread the city's operating costs out, as well “That keeps our tax rate one of the lowest in the region,” Brenk said.
“So, I don't think this is going to have much of an impact at all on people's individual tax bills.”.
