Cities reluctant to let local sales taxes expire at end of projects
The local sales tax has become a popular way for cities to tackle projects that otherwise might have to wait for funding. The sales tax comes with an expiration date upon completion of the projects funded by the temporary revenue. The League of Minnesota Cities made sure to remind members to get in their requests by Jan. 31 to the Minnesota Legislature for authorization before putting proposed tax hikes in front of local voters for approval.
Cities may request legislative authority to impose a local sales tax to fund up to five capital projects. A revised process for granting local sales tax authority, which includes a finding of “regional significance,” was enacted in 2019.
The law requires cities to send their requests to the “chairs and ranking minority members of the committees with jurisdiction.” The city must submit a resolution proposing the local sales tax, details on the projects that will be funded by the tax, and documentation on regional significance.
It’s clear the local sales tax has evolved to the point where it’s viewed as anything but temporary by a number of cities that have come to depend on it as a new revenue stream for an endless list of civic projects.
For example, the projects paid for under Rochester’s local sales tax will be completed by 2024. But the Post-Bulletin notes that that won’t stop the city from seeking to re-up the tax, which generates more than $12 million annually, for years to come.
At least five of seven Rochester City Council members voiced support for four proposed projects that would extend the existing tax by an estimated 16 years if approved in a citywide election.
“If it’s not on the list, there’s nothing to talk about,” council member Mark Bransford said in supporting the broadest list proposed.
The proposal earmarks $50 million for street reconstruction projects, $50 million to address housing needs, $40 million for future work related to flood control and water quality, and $65 million to create an undefined regional community or recreational complex.
Two city council members raised questions about moving forward before the current tax expires, as well as about the lack of specifics on new projects that would warrant extending the sales tax.
Council member Nick Campion said the lack of clarity for some of the projects gives him pause.
“It’s a significant sum of money here that we are talking about, and from my perspective, it’s a relatively superficial description of what a number of these are,” he said.
He said projects like street reconstruction are important and sales tax revenue is needed for the city to fund projects, but he didn’t say whether he supports everything on the list.
Shaun Palmer was the only council member to propose waiting for a 2024 vote when the current 0.5% sales tax is expected to expire.
“I think maybe some stability all the way around might be beneficial to that,” he said.
Once submitted to the Legislature, the main thing standing in the way of Rochester extending the $12 million a year “temporary” local sales tax on the city will be the residents themselves, who’ll be on the hook for paying it through 2040. Last year, legislators approved 16 of the 18 requests from cities to impose or extend a local sales tax.