Bozeman’s Tourism Business Improvement District: An Unfair and Unwelcoming Tax

Suppose that, one night in a quiet corner of a dark room, Bozeman’s hotel owners make a pact to all raise their rates by an agreed-upon amount. Hotel revenues will go up, as guests would face the same price increase everywhere in town. Sounds clever, right? Well, almost, except for the fact that activities like this (“collusion,” “price fixing”) are blatantly illegal and would land the hoteliers in jail if the Department of Justice caught wind of their scheme.

But suppose that, instead, the hotel owners were to use the city to form a “business improvement district” with a special $2 / night tax. All area hotels would be required to collect $2 per occupied room, per night, squeezing all tourists and visitors equally. Proceeds from this “tax” could then be spent to their collective benefit. Although the consumer impact is identical, this scheme is sanctioned by state law.

This latter scenario is precisely how Bozeman’s Tourism Business Improvement District (TBID) came to be. In 2009, a thin 60.2% (state law requires a minimum of 60%) of recession-hit Bozeman hoteliers banded together and petitioned the city to create a “bed tax” across all hotels in town, and to appoint a board (whose membership is literally limited to Bozeman hotel owners or their family representatives) to spend the proceeds of the tax to increase hotel occupancy in Bozeman.

Fast-forward to 2018, and this business improvement district commands $1.2m of the city’s $106m budget. For those who are counting, that’s more than twice the city’s budget for affordable housing and public transit (Streamline), combined.

Whereas many communities with tourist taxes reinvest that money into the community (e.g. Big Sky’s resort tax, which helps fund its fire department and winter ice rink), Bozeman does not. What are we spending this money on? Why, ads like these:

"Only in Bozeman" ad in Powder Magazine

Ads like these are part of the $604,000 budgeted for “Consumer Advertising.” The table below from the FY19 Bozeman TBID Budget shows the breakdown of what Bozeman gets for its $1.2m:

BTID Budget

While state law places limits on what business improvement district proceeds can be used for, alternative permissible uses include:

  • Public Transit, or Facilities / Maintenance for Active Transportation (e.g. multiuse paths)
  • Public Safety (law enforcement and fire departments)
  • Water and sewer infrastructure
  • Parking

Given the many needs in the community, is there anyone who would really suggest that buying ads in Powder Magazine is really the highest and best use of city tax revenues?

A Deluge of Visitors

The TBID proceeds are being used to bring a deluge of visitors to town—the costs of which are borne by city property-tax payers.

Each year, some four million visitors come through Bozeman. The $1.2m BTID budget corresponds to 600,000 rented hotel rooms over the course of a year. If we assume 1.5 occupants per room, that works out to just shy of 2500 visitors and tourists staying in Bozeman on any given night. For a city of 43,500, that one visitor for every twenty residents, or about 5% of the people in town paying 0% for city services and infrastructure.

That is, without a local sales tax, Bozeman’s four-million annual visitors do not pay into the costs of the city services they benefit from. These costs fall on the permanent residents of Bozeman, who pay the property taxes (directly, or indirectly) that fund city services and infrastructure.

Now, there’s such a thing as hospitality. There’s also such as thing as fairness. Charging a tax on visitors to help pay for their share of city services may not be “hospitable,” say—but, sure enough, it’s fair. But what about targeting visitors’ pocketbooks and spending the proceeds to benefit the lodging industry, and leaving tax payers to pick up the bill?

Visitation v. Affordable Housing

I’m not anti-growth, but I do question the wisdom of Bozeman spending tax dollars to try to create more of it, when it seems we have plenty enough already. I say, let’s heed the advice of Fort Collins’ city leaders, who suggest a growing city ought to focus on the quality of living for those who have already arrived ahead of trying to attract yet-more-growth.

Affordable housing is, perhaps, the most significant challenge of Bozeman’s growth. By driving up property taxes (to provide city services to visitors), competing for scarce housing stock, and attracting additional new arrivals, the TBID only makes things worse.

Tourist lodging competes directly with resident housing. Demand for short-term rentals (e.g. AirBnB) competes with long-term rentals (i.e. housing for residents). Smaller Montana communities like Gardiner are experiencing this at crisis levels, where a combination of low tourism wages and the rapid conversion of local housing stock to short-term rentals is driving locals from their own town.

In the long-run, visitation drives growth. We know it anecdotally, from the stories we hear from our new friends and neighbors. Three-quarters of Bozeman’s population growth is attributable to new arrivals (mea cupla!). Who, of our four million annual visitors, could visit Bozeman and not be charmed by our city? Who could fail to appreciate its setting in the Gallatin Valley, or not feel a tug of desire to live at the foothills of the Bridgers?

The Skinny

It all boils down to this: we’re spending $1.2m million per year to try to bring more tourists to town. In the short term, this means higher property taxes for city residents, who pay for the infrastructure and services the visitors use. In the long run, this spending just drives growth. It’s a raw deal for tourists and city residents alike.

What Can be Done?

City commission approves the BTID budget. City commission could lean on the BTID Board (which sets the BTID budget) to redirect some funds to services that offset the impact of visitation (e.g. hiring additional police, building parking downtown). If this were to happen, the hotel interests might decide the Business Improvement District no longer served their interest, and choose not to pursue a renewal in 2024 when the current iteration of the district expires. This appeals to me—we get five years of value from the BTID, and then good riddance.

If the BTID were to lapse, I believe that Bozeman could establish a new “Special Improvement District” covering the same hotels, but with a new mandate to spend the proceeds to offset the costs of tourism currently borne by city tax payers. I’m frankly a bit shaky on the legal mechanism, here, but I believe this is possible.

For the time being, let City Commission know that you you’d like to see tourist tax dollars offset the community’s costs of hosting tourists, rather than being spent to draw more tourists. The BTID Board (with opportunity for public comment) meets occasionally on the fourth Tuesday of each month (they cancelled the June meeting scheduled for next week—nothing to talk about, apparently), and are scheduled to meet next on July 24th. To confirm that the board is actually meeting, check the city calendar a few days beforehand.

About Mark Egge

Two truths and a lie: Mark Egge is an outdoor enthusiast, opera singer, and a transportation data scientist. He lives in Bozeman, Montana.
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