MANKATO — Following strong opposition from some area nonprofits, Mankato City Manager Pat Hentges has cut the charitable gambling tax in his proposed 2020 budget nearly in half.

The tax rate now being suggested by Hentges is 5.5% of net revenue from pulltabs and other gambling sponsored by youth sports groups and other charitable groups. That’s down from 10% in the initial budget proposal.

If a majority of the City Council agrees with the suggestion Tuesday night, the proposed amendment to the city’s gambling ordinance will be published and be on a path for final approval after a public hearing Nov. 25. The new tax would actually be a replacement of an existing tax on 3% of gross revenue from charitable gambling.

Because the existing 3% tax is on gross revenue and the originally proposed replacement is 10% of net revenue — after the charitable gambling organizations deduct their expenses — both would have allowed the city to collect about $100,000 a year.

State law restricts the use of revenue from the old tax, however, requiring it only be used in monitoring and regulating charitable gambling. In recent years, the Minnesota Gambling Control Board has signed off on just a fraction of the expenses the city has claimed for gambling regulation.

That forced the city to refund half or more of the $100,000 collected each year back to the charitable groups. So the groups are effectively paying $50,000 or less annually under the 3% tax.

Leaders of the VFW and the Mankato Area Hockey Association argued the new 10% tax, which state law allows cities to spend on a variety of charitable and cultural purposes, would have doubled the amount coming out of their budget when the refunds are factored in. By slicing the rate to 5.5%, that argument is largely eliminated, Hentges said.

“For the most part, it holds the organizations harmless,” he said.

Because the new tax is collected after the organizations deduct allowable expenses, the impact of the change varies because of differences in expenses between the organizations. The hockey association, which supports youth hockey teams, will still pay roughly double what it currently does — after the refunds are factored in — even with the rate reduced to 5.5%, based on comparisons compiled by the city.

The Eagles and VFW take a smaller hit.

Community Charities, the Governaires, the Lake Washington Improvement Association, the Mankato Area Youth Baseball Association and the Prairie Ecology Bus would be winners under the ordinance change.

The projected $54,000 the city would receive from the 5.5% tax would cover the municipal contribution to the Greater Mankato Diversity Council, along with the annual grants the council makes to support art, music and community festivals — funding that now comes from property taxpayers.

And while the revenue won’t be directly paying the city’s gambling regulation expenses, the property tax funding no longer being spent on the Diversity Council and community grants would be available for that enforcement work, Hentges said.

“It covers the cost we’ve been spending in a typical year and will continue to spend,” he said.