The city of Bend doesn’t have to allocate additional money to tourism advertising while it appeals a judge’s ruling, but it does have to set aside $350,000 to move forward with the appeal, a Deschutes County judge ruled Thursday.

Circuit Judge Beth Bagley ruled earlier this year that the city broke state law by using a portion of its hotel tax revenue to pay for road repairs, a decision the city is appealing. On Thursday, Bagley agreed to grant the city a stay on that ruling while its appeal proceeds, provided it set aside $350,000 — the same amount it dedicated to roads over tourism promotion.

Thursday’s decision stems from a lawsuit filed last fall by the Oregon Restaurant & Lodging Association and two local hotels.

They argued the City Council’s May 2017 vote to spend about $350,000 of an approximately $3.5 million sum earmarked for tourism on road maintenance instead broke state law and could cost local businesses.

The council’s decision came as the city struggled to find a way to address a $91 million backlog in deferred maintenance on city streets. Shifting $350,000 to $400,000 a year from tourism spending provided enough money to do one of three things: repave 4 miles of 12-foot lanes, add chip seal — a protective coating of liquid asphalt and crushed rocks — to 22 miles of lanes or coat 40 miles of lanes with slurry seal, which seals cracks and preserves existing pavement.

The city and the tourism lobby differed on whether using hotel tax revenue to pay for potholes was legal. A 2003 state law required cities to dedicate 70 percent of any new room taxes to tourism and to avoid reducing the total percentage of room tax devoted to tourism.

In 2003, Bend was in the middle of phasing in a 9 percent hotel tax and had pledged to increase the percentage of that revenue dedicated to tourism to 30 percent. Ten years later, city voters approved an increase in room tax to 10.4 percent.

Between 2013 and 2017, Bend spent 35.4 percent of its total room tax on tourism through its contract with Visit Bend. With tourism tax revenues around $10 million annually, that comes out to about $3.5 million a year.

Bagley’s ruling came as the city was headed into the second year of its two-year budget cycle, assistant city attorney Ian Leitheiser said. Administrators pulled back on hiring for new positions to make sure the city was prepared to pay if it lost its appeal.

“If there is one thing the city of Bend is, it’s fiscally mindful,” Leitheiser said.

The city, which has a $700 million biennial budget, would not have trouble paying if it loses on appeal, he said.

The tourism lobby argued that it wanted the security to know the money will be there if the city loses its appeal. The lobby and hotels brought the lawsuit because they wanted to bring back hundreds of thousands of dollars that should have been spent on tourism, said Kurt Barker, an attorney with Karnopp Petersen LLP, which represented the plaintiffs.

An appeal could take as much as two years, and no one knows what the city’s finances might look like by then, Barker said.

“Just because they’re a public entity doesn’t mean they’re bankruptcy-proof,” he said. “…Our clients should be protected from misuse of the funds.”

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