City denies responsibility for tax

Samantha Newburn

EFFINGHAM — Although the Rosebud Theatre in Effingham might be purchased by the city of Effingham, city officials says they are not the ones who will be responsible for a possible .5 percent food-and-beverage tax increase.

City Attorney Matt Hortenstine gave a presentation at the city council meeting Tuesday night, saying the Arts Connection of Central Illinois will be spearheading the effort to implement the tax and will be responsible for getting legislation to enact the tax passed through Springfield.

Hortenstine said the arts group came to the city with the food-and-beverage tax idea. He also said it will take community support to get the power to enact such a tax through legislation.

A food-and-beverage tax has been discussed as a way to help fund the city’s possible purchase of the Rosebud Theatre, which will be operated by the nonprofit entity. The .5 percent tax increase would be imposed on items purchased at restaurants and bars, not grocers or convenience stores.

Supporters of the food-and-beverage tax believe it makes sense because the restaurants and bars are beneficiaries of the Rosebud Theatre — patrons of the theater often will eat out at restaurants before shows and will visit a bar after a production.

If imposed, the .5 percent tax would make a $10 meal at a restaurant cost 5 cents more. Hortenstine estimated the tax could generate about $300,000 per year.

One of the proposals from the arts group was for the city to purchase the Rosebud using hotel-motel tax funds, but the city up to now has been silent about the possible funding package. With other projects already slated for use of hotel-motel tax funds, there is not enough remaining in the hotel-motel tax account to sustain payments over 20 years to purchase the Rosebud building, according to Economic Development Consultant Hank Stephens.

If the food-and-beverage tax is implemented, the city could use the revenue to help pay for the Rosebud facility over the next 20 years. The city’s annual payments on the bonds would be $250,000.

However, if the tax is not implemented, the city will make payments on the theater for the next two years for a total of $500,000. As part of the purchase agreement, the city would have the right to give the theater back to the banks after those first two years.

This scenario gives the city time to implement the food-and-beverage tax, but if it cannot be accomplished in those two years, then the city could give the facility back to the banks.

If the nonprofit group has been able to financially operate the facility for those first two years, the banks have agreed to transfer the facility once the city hands it over to them to the nonprofit group and the nonprofit group will be responsible for future payments.

As of right now, the city of Effingham does not have the authority to impose the tax. However, the Arts Connection can go through the Illinois General Assembly and get legislative authorization to implement the tax. The city council would have to approve the tax for it to take effect.

Arts Connection members Tom Henderson and Joe Fatheree also spoke at the meeting, saying the support for the theater “has been overwhelming.”

“The city has no way of imposing the tax,” Henderson said, “so it will take the community to want it to pass in Springfield.”

Fatheree also spoke about the possible tax and wanted to reassure residents the money would not be used to bail out the theater’s investors.

“This is a tax the investors won’t see,” Fatheree said.

After returning from executive session to discuss the possible purchase, Public Safety Commissioner Merv Gillenwater asked Hortenstine and the nonprofit group why the city would like to purchase the facility now instead of waiting for it to be placed on the market.

Hortenstine said it was a good idea to purchase the theater now instead of waiting to compete with other buyers so the city doesn’t become locked into a lease-hold position. Henderson and Fatheree said a different buyer could turn the building into something other than a theater, thus losing the arts entertainment the facility is known for.

“This is a legitimate reason for us to buy it,” Gillenwater said, “and if we want to save the theater, this is how we do it.”

The council did not take any action following executive session.

Samantha Newburn may be reached at 217-347-7151 ext. 131 or samantha.newburn@effinghamdailynews.com.

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