Leery of new property tax hikes, St. Paul leaders want to impose a 1% city sales tax to pay for repairs to crumbling streets, develop more affordable housing and launch prekindergarten programs citywide.
St. Paul council members are expected to pass a resolution that commits the city to exploring a new local option sales tax and asks Mayor Melvin Carter to hire a lobbyist to suss out state support during the upcoming legislative session.
Sales tax dollars could raise about $36 million a year, and would allow the city to complete big projects that could attract new businesses and residents, said Council Member Rebecca Noecker, one of the measure's co-authors. The resolution will likely be ready for a vote Feb. 5, Noecker said.
"St. Paul could be a much stronger contributor to regional growth," she said.
Even if the Legislature gives St. Paul authority to impose the tax, it would have to go before city voters in a referendum. The council resolution mentions a 1% tax, though that amount could change, Noecker said. The new sales tax would be in addition to an existing 0.5% local sales tax that pays for economic development projects, including the Xcel Energy Center and CHS Field. Of Minnesota cities that levy their own sales taxes, only Duluth and Walker have total local tax rates of 1.5%.
Minneapolis collects a half-cent sales tax and has used the money for projects including the convention center and U.S. Bank Stadium.
St. Paul relies heavily on property tax revenue to pay for city operations and services. In December, a divided council approved a $9 million property tax bump as part of the 2020 budget — the sixth consecutive increase in as many years.
Council Member Jane Prince, who voted against the budget and levy and is co-authoring the sales tax resolution, said city leaders have been talking for months about finding new revenue sources to address the city's biggest challenges.
"We definitely need an infusion of some type of revenue, and property taxes are just not sustainable," she said.
The sales tax would address pressing city needs that are beyond the capacity of the general fund, Noecker said. Last year, council members called on the state for support after a report from the Public Works Department showed the city would have to double its maintenance spending to stay ahead of potholes and pavement failures throughout its 869 miles of city, county and state thoroughfares.
Getting state permission
Minnesota law prevents cities from levying a sales tax unless the state gives them permission. Currently, 43 cities impose local sales taxes, according to the Minnesota House Research department.
Last year, legislators changed the law that governs local sales taxes to require state approval in advance of a referendum. Local governments can propose up to five capital projects with "regional significance" to be funded by the tax, and voters must approve each one individually.
Senate Tax Committee Chairman Roger Chamberlain, R-Lino Lakes, said changes to the law were intended to balance local control with state oversight. In previous years the state was essentially "rubber-stamping" new sales taxes when local governments came to the state after holding a referendum, he said.
"It's a double-edged sword," Chamberlain said. "We believe in local control to the extent that that can be, but if we want a civil operating society and economy, there have to be some limits to that."
Virginia, Minn., turned to a local sales tax to finance a new event and convention center to avoid "having to raise people's taxes to the extent where they couldn't afford it," said Mayor Larry Cuffe.
In 2018, Virginia voters approved a 1% sales tax that will pay off $30 million in bond debt over 20 years. The sales tax went into effect Jan. 1, and construction is expected to start in April, Cuffe said.
West St. Paul also imposed a new sales tax Jan. 1 — a half-cent charge that's expected to generate about $1.3 million a year for road projects over 20 years, said Mayor Dave Napier. After rebuilding Robert Street, he said, the city was going to have to put money toward paying off debt from that project instead of funding repairs to other roads.
"We felt by going after the users of Robert Street — so in other words, anybody coming into our city to spend money at our retail outlets — it kind of spreads the tax burden across the users of that street," Napier said. "When we explain it to the residents and they can understand how they got to this point where we were considering it, I haven't heard a lot of negatives."