Hermantown seeks sales tax increase to raise $28 million for hockey arena

Hermantown is looking at increasing its sales tax to pay for a new hockey arena, trails and other athletic facilities.

The City Council voted Tuesday night to ask the state Legislature if it can raise up to $28 million over the next 20 years with a 0.5% sales tax increase.

If the Legislature says yes, the city will then ask voters for approval. If it goes into effect, the sales tax in city limits, where several big-box retailers are located, would increase to 8.875%. That would tie Hermantown with Duluth and Walker as having the highest rate in the state.

The city is proposing a second indoor ice sheet and upgrades to the existing arena at 4309 Ugstad Road, with improvements to nearby baseball fields and a new basketball court, skatepark and playground also planned. A paved trail between the Essentia Wellness Center and Proctor would also be part of the project. Together the work would cost $19 million, and with borrowing costs and interest the total comes to $28 million.

An economic impact study paid for by the Hermantown Amateur Hockey Association found the expanded arena could pump an additional $2.3 million into the local economy every year.

The sales tax is expected to raise $1.5 million per year and would sunset when it reaches $28 million or 20 years, whichever comes first.

A draft of the city's pitch to legislators said the "payback on this investment is immeasurable."

The process for cities asking to increase their sales tax changed with the legislation that allowed Duluth to increase its sales tax last year. Instead of first holding a vote and presenting voter opinion to the Legislature, St. Paul must now sign off before the issue is placed on a ballot.