More Twin Cities suburbs will ask voters to pass a local sales tax after getting permission from Minnesota lawmakers to seek additional funding for city projects.
Oakdale, Edina, and Maple Grove are among a growing number of cities in the state that are seeking the new sales taxes rather than raising property taxes. Sixteen cities received fiscal authority from the legislature during its extraordinary session in July.
“More and more cities are looking at sales taxes as a way to finance local capital projects, especially if there is a [regional] positive impact for this project, ”said Gary Carlson, director of intergovernmental relations for the League of Minnesota Cities.
The legislature granted cities the power to tax despite concerns from some lawmakers that the tax creates an unfair advantage for cities with more retailers. State lawmakers had attempted to restrict the use of these taxes in 2019 by adding more scrutiny to the process and requiring state approval before cities could seek permission from voters – a move that reversed the approval process.
The questions will appear on suburban ballots in November 2022. If voters say “yes,” cities would spend the extra revenue on new buildings, parks and a community center by adding a half percent tax to the city. base rate of state sales tax. 6.875% for 19 or 20 years.
“It’s a way to add value and quality to the community without depending on property taxes,” said Scott Neal, Director of the City of Edina.
The cities follow West St. Paul, Rogers, Excelsior and Elk River, the first suburbs to impose a local sales tax in 2019 and 2020. Bloomington has twice received permission but has not used it.
Dozens of cities and counties in Minnesota have long implemented such a tax, including Minneapolis, St. Paul, and outlying centers, such as Rochester and Mankato. Eighteen cities received approval to add or extend a sales tax in 2019.
The number of cities seeking tax authority continues to grow, said Chairman of the House Tax Committee Paul Marquart, DFL-Dilworth.
“I think what a lot of cities have seen is, ‘Alright, the legislature has opened the door for these,'” he said.
Marquart said he understood why cities applied a local sales tax, but that he was not a big fan.
“My concern has always been that this creates more disparities … between the haves and have-nots,” he said.
A regional advantage?
Local sales taxes seem more popular with the current legislature and governor than they have been in the past, said John Spry, professor of finance at the University of St. Thomas. And they’re often popular with residents, he said, as taxes generate income while others pay.
A city, like Maple Grove, could generate a large amount of local tax revenue because of its many shopping districts, he said. But, said Spry, shoppers in nearby cities like Brooklyn Park and Brooklyn Center, who are less likely among those paying that tax.
“What’s popular and what feels right depends on where you sit,” Spry said.
The state’s stipulation that projects have “a regional advantage” is supposed to ensure that individual cities do not reap all the benefits of the tax.
Lawmakers changed the rules in 2019 so that cities can’t use the money for more than five projects and must provide more details on the spending and the broader significance of the projects. Some projects, such as improving roads and sewers, are not eligible because they may be funded by other programs.
Oakdale wants sales tax funding to build a $ 15 million police station and a $ 22 million public works building. The current police station lacks adequate office space and storage space for evidence and equipment. Female officers have “totally inadequate” cloakroom space, Mayor Paul Reinke said.
Explaining the wider benefit, Reinke said Oakdale has a population of around 20,000, but its police department serves 40,000 people during the day when non-residents come to town for work and other reasons.
Edina, who owns several retail areas including Southdale Center and Galleria, hopes to spend sales tax money on two park projects. Braemar Park – home to an ice rink, baseball diamonds, and trails – would get a $ 23 million facelift, while Fred Richards Park would see $ 17 million in upgrades, including ponds and open spaces with grass.
The park system “has a much greater impact on people than those who live in Edina,” said Neal.
Maple Grove aims to raise $ 90 million with sales tax for community center improvements, including adding an ice cap, updating the swimming pool and expanding the center for teens and seniors . The city is also seeking state bond money for the center.
Maple Grove is home to the fountains at Arbor Lakes and the Grove, all retail hubs, said Heidi Nelson, City of Maple Grove administrator. She said she realized the new tax could drive buyers elsewhere.
“Just adding a tax can be a negative thing,” she said. “I think we have our eyes wide open on these things.”
“A sense of fairness”
Marquart said local sales taxes, intended for regional benefits, have typically been implemented in rural or urban areas – not the suburbs. Part of the reason is that it was more difficult to prove that a project had “regional significance” in the suburbs, where towns are close to each other and amenities plentiful.
However, the recently approved suburbs were able to justify the tax on this basis, he said.
Still, he said he was concerned that the widespread use of the local sales tax could undermine the credibility of local government aid, a “very, very important program” for greater Minnesota.
Local Government Aid is a public program of $ 564 million per year that, on a formula basis, provides funds to cities to equalize their tax burdens and their ability to provide quality services.
“I think we need to look more into this issue,” said Marquart. “How do you keep a sense of fairness? “
Erin Adler • 612-673-1781