Editor’s note: This story is part three of four about the pavilion’s past, present and future. A new story appears each week in the Saturday edition of the Detroit Lakes Tribune.
DETROIT LAKES — In today’s economy, it’s hard to handle price shock. For some, the $13.7 million price tag for the proposed Pavilion project was a good reason to command that high price.
This article explains why the cost is $13.7 million, how the proposed sales tax would affect purchases, and what happens if the application is denied in November.
In addition, the differences between the planned and the current pavilion as well as possible changes in rental prices will be examined.
The Pavilion series has already covered the history of the current facility and the current condition of the building. The remaining article in the series will cover the City Park improvements that are part of the project.
$13.7 million? That seems like a lot!
In 2021, Detroit Lakes built a 21,000-square-foot police station, complete with underground parking, for $6.7 million. So how come a 15,000-square-foot pavilion building now costs $13.7 million?
That’s not true. The pavilion itself is estimated to cost $9.5 million. The remaining $8.7 million includes contingencies and indirect costs such as design and improvements to the city park.
Kelcey Klemm, city manager of Detroit Lakes, gave the estimated cost breakdown as follows:
- Site preparation: $240,800
- Pavilion: $9.5 million
- Stage/Canopy/Toilet: $762,500
- Playground: $370,000
- Parking: $204,700
- Wading pool: $500,900
- Landscaping: $313,000
- Artificial turf: $262,500
- Site utilities – power, lighting, water, storm, plumbing: $315,000
- Site amenities – benches, tables, trash cans, bike racks: $117,400
- Landscaping, including irrigation: $217,000
- “General Conditions/Mobilization”: USD 1,023,400
- Emergency Fund: $2,558,300
- Soft costs: $1,309,840
First, Klemm stressed that the cost of the project was only an estimate. The actual costs would only be known once the final designs were ready and bids for the project were received.
“The whole sales tax proposal works in such a way that the council can cut the budget, but we can’t increase it,” Klemm said. “So it would be terrible to start with a lower number and then have too little. I think that’s the last thing we want.”
$13.7 million! Who’s paying for it?
If voters approve the pavilion and city park projects, the tax will be funded by a half-cent sales tax on all state-taxable items for up to 12 years. Taxpayers include residents and visitors who shop in the city.
To get an idea of what half a cent of VAT would cost when shopping, Klemm provided the following examples:
- For an item costing $4, a tax of about 2 cents would be imposed.
- A tax of 25 cents applies to a purchase valued at $50.
Please note that local sales tax does not apply to food, clothing, medicine, vehicle sales, or other non-taxable items.
The $6.7 million police station was built using the half-cent sales tax option. The city was approved to implement the tax over a nine-year period, but sales tax revenue exceeded expectations, totaling over $2 million per year.
“We were able to pay off the police department in four years,” Klemm said. “At the peak of our revenue, the last full year of revenue, we were taking in over $2 million a year (from the half-cent local sales tax).”
The sales tax there was abolished about a year ago.
After reviewing 2017 sales tax data, Klemm explained at a city council meeting in April that about 60% of retail sales were made by people who live outside of Detroit Lakes.
The possibility of local sales tax will be put on hold after this year
If the local sales tax option fails this November, it is unknown when the city will have another opportunity. The Minnesota state legislature has passed a two-year moratorium on the implementation of new general local sales taxes.
“If this doesn’t go through, we’ve missed our window of opportunity for who knows how long,” said Detroit Lakes Mayor Matt Brenk.
If the moratorium is lifted, the council would have to go through the approval process again to determine whether the project is eligible for a local sales tax referendum.
There are several steps that must be taken to put a local sales tax on the ballot. The state determines the process and requires approval from the House of Representatives, the Senate and the governor.
When the city undertook a similar procedure for the police station, it first had to hold a referendum and then obtain parliamentary approval.
“They changed the statutes,” said Klemm.
He added that a project only needs to be of benefit to the region if it is to be considered for the introduction of a local sales tax.
“They don’t want to fund a town hall or a public works department,” said Klemm. “The police station was regional because it helps a regional area. The pavilion is obviously a regional attraction. And fortunately, the parliament saw it the same way we did.”
What happens to the pavilion if voters reject the city’s proposal?
If Detroit Lakes residents reject the request to impose a local sales tax, the city will continue to maintain the current pavilion, Klemm said.
“Without the sales tax, it’s probably safe to assume the city won’t go ahead with the project,” he said. “That means the city and its taxpayers will have to continue to maintain the pavilion indefinitely.”
The difference is that the cost of maintaining a building that needs expensive repairs must be borne entirely by city taxpayers.
Current versus new: Pavilion similarities and differences
The current pavilion has a floor space of 12,500 square feet, of which 8,000 square feet is the main hall, which can accommodate up to 450 guests, according to the City of Detroit Lakes website.
The footprint of the proposed replacement building for the pavilion is 15,000 square feet. The main hall would have a floor area of 8,400 square feet and could accommodate up to 500 people.
Although the two main halls are only 37 square meters apart, they are very different, Klemm explained. For one thing, the current pavilion has a veranda that significantly reduces the usable space of the main hall. There is also a stage. None of these obstacles are part of the new pavilion plan. (Klemm said there are considerations to incorporating a movable stage in the new facility.)
The proposed pavilion would also offer room dividers to accommodate a tenant who only needs a small space or wants separate rooms for an event
In addition to the main hall, the current pavilion offers approximately 420 square meters of bathrooms and a food preparation area.
The planned facility will include 6,600 square feet of bathrooms, a catering area, an anteroom, a meeting room, offices, storage space and a media room.
Perhaps the biggest change is temperature control. The current facility can be used during warmer months and was opened as an unheated shelter during the citywide Polar Festival in February.
The planned pavilion would have a modern heating, ventilation and air conditioning system and would therefore be usable all year round.
New probably means a new rental price
New facilities typically mean higher rental costs, and a new pavilion would likely not reverse that trend.
Daily rental rates for the current gazebo include use of the building, tables and chairs. The cost is $450 plus tax between Monday and Thursday. From Friday to Sunday, the daily rental is $1,300 plus tax. The city’s website states that a two-day rental is offered for $2,300 plus tax. Should heating be required via the single heater, there is an additional cost of $130 per day.
Estimated weekday rental costs for the planned pavilion are not yet available, but would be lower than expected weekend rental costs of about $3,000 per day, Klemm said.
There would also be different options with regard to the rental costs for the new facility, as areas could be separated and rental costs could thus be reduced.
“I imagine we will have a different pricing structure if we host an event with 50 people in one part of the building than if we occupy the whole building for a wedding with 400 people,” Klemm said, adding that affordability of public space is a priority.
He predicted that the new facility would host 50 events annually. The current pavilion hosted 30 events during the four to five months it was in operation in 2023.
Even with more events, the facility would not break even at a weekend rental price of $3,000, Klemm said. Any additional costs would have to be subsidized by the city through taxes, as is currently the case with the pavilion, city beach, library, parks and arena.
“For the last 100 years, the pavilion has been supported by the city on various levels,” Klemm said. “Some years the operating costs may break even, but nothing is ever set aside for capital expenditure. So if something needs to be repaired, the city pays for it. It just comes out of the park budget.”
Klemm said the financial projection he prepared for the proposed pavilion would project a deficit of about $50,000. That amount includes setting aside some funds for future building maintenance, a luxury the current pavilion cannot afford.
Brenk added that the city’s growing tax base also helps spread the city’s operating costs.
“This keeps our tax rate one of the lowest in the region,” Brenk said. “So I don’t think it will have a major impact on people’s individual tax bills.”