Minnesota House of Representatives

Transcription

1 Research Department Patrick J. McCormack, Director 600 State Office Building St. Paul, Minnesota [FAX ] Minnesota House of Representatives February 6, 2018 TO: Interested parties FROM: Pat Dalton RE: Local sales tax requests that were not authorized The House Research information brief Local Sales Taxes in Minnesota provides a number of tables enumerating the local sales tax authorities that have been granted by the legislature over time. However the brief does not contain a list of local sales taxes that were requested but not granted by the legislature. This memo discusses reasons the legislature has not always granted request local sales tax authority and provides a list of some denied requests. The list may not be complete but it is illustrative of when and why local sales tax authority has been denied in the past. Basic reasons for denial The generally accepted purpose for granting local sales tax authority to a city or county has been to fund brick and mortar projects of regional significance. Since sales tax falls on nonresidents that shop in the area as well as residents and businesses in the jurisdiction, the expectation is that the nonresidents will also reap benefits from the capital project(s) funded from the sales tax revenue. With one exception no local sales tax authority has been granted to a city to fund operation costs or general city services. 1 There are several reasons local sales tax authorities that have been denied and sometimes more than one reason applied. These include: The projects to be funded from the tax were not of regional significance. Regional significance of course is in the eye of the beholder and the ability of a city to make the case for beneficiaries of the project. Some projects that have not been deemed of 1 The exception is the city of Duluth. In 1973, statutory authority was given to any city that wanted to impose a local sales tax. There was no requirements on what the revenues could be spent on. Duluth was the only city that took advantage of this provision before its repeal in the following year. Revenues from its one percent local sales go into the city general fund.

2 Minnesota House of Representatives Page 2 regional significance include swimming pools, city halls, and local fire stations. Even projects that have some benefits to a larger region may be rejected if the cost to nonresidents is perceived to exceed the marginal benefits going to nonresidents. The projects were not specific enough to judge their regional significance. Sometimes a local government would want to raise some indefinite amount of money to make general improvements to roads, sewers, or parks. When denied, cities would often refine the request by specifying the particular road projects or park improvements that would be funded or place a dollar limit on the amount that would be raised. The authority with the refined project list sometimes passed at a later date. Allowing local sales taxes increases fiscal inequities between cities. This was a major reason that the tax committee for the House of Representatives refused to enact a number of requests between 1999 and During that period the focus was on equalizing financial resources between cities using the city LGA program. Cities with significant retail bases often had sizeable property tax bases as well. Granting them local sales tax authority would increase the fiscal inequity between cities. The requesting city was a suburb. This is related to the fiscal inequity reason listed above. Suburbs with significant retail activity often had much higher than average per capita property tax bases. Granting them a local sales tax might greatly increase the inequity of tax burdens to finance local services. The only cities granted a general local sales tax in the seven county metropolitan area have been Minneapolis and St. Paul. Denied local sales tax authorities The table below only lists authorizations of new taxes or major expansions of existing taxes. It does not include minor modifications or extensions of local sales taxes previously authorized. Several local sales taxes were requested several years in a row before they were eventually passed, often in a modified form. I try to note when this occurred. Table of denied local sales tax requests Year City Use Action 1998 Coon Rapids Road project Denied; city was granted extra state aid instead 1998 Rochester - extension A number of projects 2001 Beaver Bay Recreational facilities, water and sewer system, a fire hall, and street improvement 2001 Senior and community center; park land improvements and infrastructure improvements for industrial park Passed, but funding of a dispatch system was removed as a local project

3 Minnesota House of Representatives Page Fairmont Hermantown - extension St. Cloud area Street, sewer and water main improvements A new community center, improvements to high school athletic facilities, a new city hall and public works garage, highway improvements Regional airport, library, and other projects ( Note: St. Cloud area bill was modified by removing the library and passed in 2002; the use for the regional library was eventually authorized in 2005) 2002 Ely Economic development and Not heard in House redevelopment projects 2002 Excelsior Commons improvement Not heard in House 2002 Cass Lake Tourist information center Not heard in House 2002 Albert Lea Lake improvement Heard, not passed 2002 Medford Water and sewer project Not heard in House 2003 Rochester - expansion Regional road and airport improvements, a sports and rec center Omitted from both House and Senate tax bills; modified and passed in 2003 Medford Hermantown Wastewater system and treatment plant Park improvements, infrastructure for an industrial park Community recreation center; civic center services complex; new public works facility; street improvements, city parks and trails tax bill Omitted from both House and Senate tax bills in 2003; included in 2004 Senate tax bill but eliminated in conference committee 2004 Albert Lea Beaver Bay Bemidji Clearwater Park Rapids Lake improvements Recreational facilities, water and sewer system, a fire hall and street improvements Park and trails Parks, trails, community center Water, road, and park projects Included in Senate tax bill but eliminated in ; (The Albert Lea and Winona taxes were authorized in 2005, and the Clearwater tax was authorized in 2008)

4 Minnesota House of Representatives Page 4 Waseca Winona 2005 Proctor - increase Baxter Beaver Bay Clearwater Medford Park Rapids Waseca Mower County Water, lake, and downtown improvements, new community center Transportation projects City streets, public utilities, bikeways, and trail improvements Water and wastewater treatment, fire substation, and a bridge Recreational facilities, water and sewer system, a fire hall and street improvements Park improvements, city infrastructure, closure of a municipal landfill Parks and trails, community center Wastewater system and treatment plant Water, road, and park projects Water, lake, and downtown improvements, new community center A criminal justice center All were carried in 2005 Senate tax bill. None, made it into the final 2005 regular session or special session tax bills 2006 Nisswa North Mankato Pequot Lakes Ely 2007 Crookston Cook County - expansion Waste water treatment Roads, parks, rails, and library City share of Trunk Highway 371 costs A number of development/redevelopment projects; any project that could be funded with special assessments Construction of public facilities relocated outside of the flood plan County community center, Grand Marais pool and Grand Marais library Community center park and recreational complex improvements; trails None made it into 2006 tax bill. A modified version of the North Mankato bill was authorized in 2007 In one of both tax bills coming out of the House or Senate; dropped in

5 Minnesota House of Representatives Page 5 Ely Boundary water s entry and related facilities, pool, and community hospital PD/rk