Local option sales tax may be explored for future city funding
The City of Woodbury is exploring the idea of local option sales tax to relieve residents of some of the city’s tax burden. But pursuing that option might be tricky.
The subject came up as part of the Woodbury City Council’s workshop to review the city’s 2016 legislative initiatives. Among the financial priorities for this year’s Minnesota legislative session, the City of Woodbury is seeking support for a local option sales tax to diversify the way the city collects revenue.
Legislative consultant Patrick Hynes of Messerli & Kramer was asked to give council members feedback on an idea to use local option sales tax as a way to generate revenue to cover some of the city’s public safety operations cost.
While the Minnesota Legislature has approved local option sales tax for 27 other cities, none of those communities are using the funding generated to cover operational costs. That’s because, Hynes said, Minnesota statute deems that the funding from local option sales tax can only be allocated to specific capital expenditures like buildings, roads or infrastructure.
Typically, the state requires communities to first bring the local option sales tax question to the voters for approval. Such a tax would allow Woodbury to collect from people who shop in the community — even if the shoppers are not from Woodbury — but it would also result in an additional tax for residents. However, if a local option sales tax could be utilized, it could lead to lower property taxes.
If the option is approved by local voters, it goes on to the legislature for approval. But at this time, Hynes does not see legislators backing a local option sales tax for operations funding.
“Usually (local option sales tax) is tied to a specific project,” he said. “Using it for operations would be a big change and difficult to achieve.”
In his report, Hynes said he spoke with several of Woodbury’s legislators, who understand the need for public safety funding options. Both Republican state Rep. Kelly Fenton and Democrat state Sen. Susan Kent indicated they would be willing to discuss such a bill with the city.
“(Kent) said she was very open to discussing the bill and agreed that Woodbury faces unique challenges as an anchor for the east metro and a significant thoroughway for traffic from Wisconsin,” the report reads.
In the report, Hynes concluded that expanding the use of local sales tax proceeds would likely be hard to pass as part of the 2016 legislative session. A sales tax proposal, he said, may have to wait until 2017.
Hynes also explored the idea of using local lodging tax city operations funding. There again, state statute mandates how local lodging tax dollars can be used — 95 percent of that funding must be used for tourism within the community. Therefore, Woodbury is ineligible to use local lodging tax.
For the second year in a row, the City of Woodbury has developed a list of its key legislative priorities. This practice, Mayor Mary Giuliani Stephens said, provides a document for herself and City Administrator Clint Gridley to use when talking to legislators.
The three key areas for the 2016 session are categorized as financial, transportation and water resource management.
In addition to seeking support for a local option sales tax, Woodbury officials are also pursuing support for: no levy limits; expanding the state sales tax exemption parameters; and moving back the preliminary Truth in Taxation property tax levy from Sept. 15 to Sept. 30.
For transportation, Woodbury asks for support for a comprehensive transportation funding package, and removal of state control of local, nonresidential speed limits. At the same time, Woodbury supports 2015 House File 1617, which seeks $3 million in Gateway Corridor Commission grant funding.
In water resource management area, Woodbury supports legislation for more flexible approaches to regulations to meet economic and environmental goals. The city supports legislative action for for a variety of changes in water use practices and irrigation standards. However, the city opposes funding of any implementation cost with the Department of Natural Resources north and east metro study, particularly in connection to surface water for northeastern metro cities.
“What this is,” Gridley said, “is us saying we don’t want to pay for items that do not affect our community.”
The legislative initiatives were introduced at the workshop, and will be placed on an upcoming Woodbury City Council agenda for approval.