Receipts in St. Louis Park could contain a new tax in the future.
The St. Louis Park City Council is considering asking the Minnesota Legislature to allow it to impose either a quarter-cent or half-cent sales tax. A quarter-cent tax would raise taxes by 25 cents on every $100 of taxable sales while a half-cent tax would increase taxes by 50 cents on such a purchase.
If the Legislature approved a bill allowing the city to pursue the sales tax, St. Louis Park voters would need to approve the tax for each of up to five projects that would benefit from the funds.
City staff members proposed using the sales tax to pay for work on Cedar Lake Road between Highway 169 and Kentucky Avenue; Louisiana Avenue between Wayzata Boulevard and Lake Street; Shelard Parkway; streets near the Louisiana Station planned for the Southwest Light Rail Transit line; and the reconstruction of Texas Avenue and Minnetonka Boulevard.
The five projects would cost $23 million for basic improvements or $35 million for upgrades that would align with the city’s transportation priorities, said city spokesperson Jacque Smith.
“Even paying for the basics alone would encumber all of the city’s available funding and create a $30 million gap between 2030 and 2035,” Smith said. “A local option sales tax would dramatically reduce the future funding gap. It would also spread costs among everyone who uses the roads, not just St. Louis Park residents.”
A University of Minnesota Extension Center for Community Vitality study estimated that a 0.25%, or quarter-cent, city sales tax would have brought in $2.5 million if the tax were in place in 2017. A 0.5%, or half-cent, tax would have raised $5 million in proceeds.
Based on the estimates, each city resident would have paid an additional $23.07 for the year for the quarter-cent tax or $46.15 for the year for a half-cent tax.
However, nonresidents would have contributed more than residents since, according to the study, nearly 55% of sales in the city are derived from nonresident spending.
Council members have floated the idea as a way to bring in funding from nonresidents.
“Off the top, it looks as if this is a great tool to capture revenue for the city,” Councilmember Anne Mavity said during a December council study session on the topic.
Newly elected Councilmember Larry Kraft, who participated in the study session before formally joining the council, said that Minneapolis has continued to have growing sales despite having a city sales tax. However, he wondered if people would drive a bit further to shop in a city that didn’t have the local tax if St. Louis Park adopted one.
Michael Darger, director of business retention and expansion with the University of Minnesota Extension service, said that, as a Minneapolis resident, he does not consider the city sales tax while shopping.
“It’s unlikely most people will think about that except on a big-ticket item,” Darger said.
St. Louis Park receives about $1.4 million per year in state aid for streets with regional significance. City Manager Tom Harmening said in an interview, “That’s not nearly enough to pay these costs, so in the past our local taxpayers had to bear the gap, so to speak.”
More than 40,000 people come into St. Louis Park on a daily basis, using major roads along the way, Harmening said.
“Our thought is we need to help share that cost with those that use those roads, and this sales tax could be a way of doing that,” he said.
City officials said the state aid will lag further behind needs within a decade.
Councilmember Margaret Rog asked during the December study session whether the state would have to address the state aid issue since it will affect many cities in the state.
“Are we getting ahead of ourselves?” she asked.
Engineering Director Debra Heiser responded, “In my 25 years as a city engineer, every year there is a request to find a sustainable source for transportation funding.”
Harmening added at the time, “I think we’re looking out for ourselves rather than getting ahead of ourselves. We know there’s this real need. Those streets exist. At some point, they need to be rebuilt, and we’re on our own when it comes to that.”
Referring to residents of other cities, Mayor Jake Spano said, “We want them to be welcome here, but it’s also reasonable for us to sort of build a path, an option, that helps to defray some of the costs of the new construction that they use.”
Councilmember Rachel Harris said roads could deteriorate and become less safe to travel if funding becomes a problem in the future.
“So, we’re looking for proactive measures to maintain our roads,” Harris said.
The city would have to either consider a sales tax or add to the city’s levy to pay for roads in the future, Councilmember Anne Mavity said.
She disagreed with the state law requirement that voters would have to approve a referendum for the city sales tax.
“I’m not happy with this requirement, but if this is a requirement then I think we do it,” Mavity said. “I don’t think that’s how our community would prefer us to make decisions. I think they entrust us to make those decisions.”
Councilmember Tim Brausen said he sees a city sales tax as a way to spread out the cost of roads.
“It all makes sense to me,” he said.
Spano said he is comfortable with the list of projects staff presented.
“I’ve brought it up a few times with this group, so I’m encouraged we’re looking at it,” the mayor said.
The city has a 3% lodging tax at its hotels that supports Discover St. Louis Park but does not have its own city sales tax, Harmening noted in the interview.
The most recent legislation regarding local city sales taxes requires legislative approval before cities can call a referendum, limits the tax to up to five projects of regional significance and must include a sunset after which collection of the tax would end.
After the sunset, Harmening said, “The only way we could continue a sales tax or create a new sales tax would be to go through and get legislative approval and go through a referendum again. It’s a very thorough process of vetting out what the sales tax is to be used for both by the state and then by our local residents.”
The city would have to request a vote from residents within two years of receiving legislative approval. The soonest the issue could go to voters would be this November. If approved, the city would not receive revenue from the tax until 2021 or 2022.
“The good thing is we’re not in an emergency situation because of the really good planning, capital planning, our engineering and finance staff do,” Harmening said.
Road funding is projected to become a sizable issue in 10-15 years, he said. State aid comes from the gas tax, a source of funding that could decline in the future amid efforts in St. Louis Park and elsewhere to reduce greenhouse gases.
Harmening said, “We also understand that can have an impact on the gas tax, but we think the need to cut carbon emissions is critically important.”
Council members were set to conduct another study session on the city sales issue Jan. 13, after this edition went to press. According to Smith, discussion at the study session will determine whether it is on the council’s agenda for its regular meeting Tuesday, Jan. 21.