May 18--BEMIDJI -- The city of Bemidji's hopes for a hospitality tax were effectively dashed Friday night at the State Capitol.

After months of debate in legislative hearings and at city hall, a joint House and Senate taxes committee declined to include the tax in its overall plan. That decision came at a meeting where legislators discussed what to include in that plan.

The proposal would have allowed the city to impose up to a 1 percent tax on purchases at local hotels and restaurants. Revenues would have been dedicated to Sanford Center operations, maintenance and capital improvement costs.

City leaders have argued that the tax would remove the burden of paying for the Sanford Center from property taxpayers, while taxing those who come into town for events and Bemidji State University hockey games.

"I'm disappointed because I feel as though the (city) council is being fiscally responsible by supporting this funding source," Mayor Rita Albrecht said Saturday.

The city of Bemidji budgeted $400,000 for the Sanford Center in 2013 out of its general fund. City staff has calculated that a 1 percent tax on purchases at hotels and restaurants would generate $500,000 annually.

Senate Taxes Committee Chairman Rod Skoe, DFL-Clearbrook, said the tax lacked enough support in Bemidji. He said the Senate likes to have elected officials, as well as the business community and the local chamber of commerce, request local taxes together.

"I know you never get 100 percent (consensus), but this is not close," Skoe said during the meeting.

The Bemidji Area Chamber of Commerce has not taken a formal stand on the bill, but several local business owners have opposed it.

Local hotel developer Rich Siegert, who testified against the proposal in front of Skoe's committee in early April, said Saturday that the tax isn't necessary. He called the Sanford Center "a great operation" and expected it to do better financially in the future on its own.

"I think it's a positive for the community," he said of Friday's outcome.

Rep. Jim Davnie, DFL-Minneapolis, defended the proposal during Friday's committee meeting, while acknowledging that the Sanford Center itself was controversial.

"But...as I recall, there was a referendum and the community spoke and the Sanford Center was created," Davnie said.

Skoe added that the Legislature is poised to give city governments statewide an extra $80 million in Local Government Aid next year, while exempting them from paying sales tax.

"So what I've been telling communities looking for local revenues...is that maybe you ought to wait a year or two and see what the new state partnership looks like before you come and ask for another revenue source," Skoe said during the meeting. "So I'm going to oppose this and I'm going to ask the Senate conferees to also oppose this."

Tim Flaherty, a lobbyist representing the city on the issue, wrote in an email Saturday that unless Skoe changes his mind, the proposal won't move forward this year. And with only a matter of hours left in the legislative session, that does not appear likely.

Albrecht said that although the tax bill won't include a hospitality tax, it will contain other provisions that will help Bemidji's bottom line.

"I'm disappointed, but I'm certainly not heartbroken," Albrecht said.

State Rep. John Persell, DFL-Bemidji, expressed a similar sentiment Saturday afternoon.

"I'm not happy, but I knew it was an uphill fight," said Persell, who authored the hospitality tax bill in the House. The Senate companion bill was authored by Sen. Tom Saxhaug, DFL-Grand Rapids.

Persell said "there's little doubt in my mind" that the Sanford Center will be financially successful in the near future. But, Persell added, the community needs to think constructively about how to make that happen.

Whether the city decides to pursue the legislation again in the future remains to be seen.

"That would be a city council decision," Albrecht said. "And I'm sure we'll have a discussion about it at our next meeting and sort of debrief what our process was and how well that worked and if we could have done anything differently."

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