The city of Bend broke a state law when it redirected some of its tourism marketing budget to fix roads, a Deschutes County judge ruled Wednesday.

The Oregon Restaurant & Lodging Association and two local hotels sued the city last fall, following a unanimous Bend City Council decision to reduce the percentage of the city’s hotel tax earmarked for tourism promotion. That council decision freed about $350,000 to spend on road repairs, money the city will now have to reallocate to tourism marketing because of the court ruling.

“We’re obviously disappointed with the decision, and will be considering the impacts to city services and our options,” Assistant City Attorney Ian Leitheiser wrote in an email. “That’s all I can offer until we have discussions with the Council.”

Bend receives about $10 million each year in room taxes from local hotels and vacation rentals, and about $6.5 million of that can be used on city services, including police, fire and road improvements.

Before the council’s May 2017 decision, the other $3.5 million went to Visit Bend, which the city pays to market Bend to tourists.

That 2017 decision reduced the percentage of total room tax that goes to tourism from 35.4 percent to 31.2 percent. Doing so kept the city in compliance with a 2003 state law that required Bend to spend 30 percent of its total room taxes and 70 percent of any new room taxes on tourism, Leitheiser argued in court earlier this month. Deschutes County Circuit Judge Beth Bagley disagreed.

In 2003, Bend was in the middle of phasing in a 9 percent room tax and had pledged to increase the percentage of room tax revenue dedicated to tourism to 30 percent. Bend voters went on to approve increasing the tax to 10.4 percent in 2013.

Lawmakers rejected previous versions of the 2003 law that would have allowed cities to do what Bend did, Bagley said.

“The city’s interpretation of the statute is exactly what the court believes the Legislature was trying to prevent,” she said.

Josh Newton, an attorney representing the hospitality lobby and hotels, said his clients were happy with the decision.

“We’re pleased, and we appreciate the court taking this issue and considering it,” Newton said.

— Reporter: 541-633-2160; jshumway@bendbulletin.com

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