A growing number of metro suburbs, struggling with the cost of repairs and upgrades to aging community centers, ice rinks, parks and city buildings, are seeking legislative approval for citywide sales taxes so out-of-town visitors who enjoy those amenities can share in the burden of maintaining them.
More Twin Cities suburbs see a local sales tax as a funding fix
They want out-of-town visitors to help pay for amenities, but the Legislature and voters need to approve.
February 5, 2022 at 11:20PM
One of the suburbs is Edina, where half a million hockey players, ice skaters and fans use the city's Braemar Arena each year. City officials say it only makes sense for them to help the city's 52,000 residents shoulder the cost of keeping up the regional attraction.
"It's a prominent place with a prominent history and we want to be good stewards of that history," said Edina City Manager Scott Neal.
Bloomington, Golden Valley, Roseville and Brooklyn Center are among about a dozen Minnesota cities with regional attractions that want to enact a local sales tax on top of the 6.875% sales tax the state already collects to pay for capital projects. Most local sales taxes amount to a half-cent, though they can vary.
The suburbs are taking a page from the playbook in greater Minnesota, where more than 40 cities have received legislative permission to enact a sales tax, according to the League of Minnesota Cities.
That trend has moved to the metro area, where Excelsior and West St. Paul were among the first suburbs to pass a city sales tax in the past few years. Minneapolis and St. Paul enacted sales taxes in the 1980s.
"More and more cities are trying to be a bit more strategic in how they approach financing facilities that do have a demonstrated spillover benefit," said Gary Carlson, lobbyist with the League of Minnesota Cities.
Enacting a sales tax is a two-step process. First a city needs to get the legislative OK, then voters need to approve a specific project to be funded by the tax. All the sales taxes have sunset dates.
Last year, the Legislature gave the green light for local sales taxes in three metro suburbs and 13 cities outside the metro area. Oakdale will ask voters this fall to approve a tax to build a new police station and public works facility, and Maple Grove is seeking voter approval to renovate its community center.
Roseville leaders are asking lawmakers to let them charge a half-cent city sales tax to pay for a $42 million maintenance facility to store snowplows and road equipment, a $7 million passport office and a $16 million pedestrian bridge over Hwy. 36 at Snelling Avenue. The sales tax would collect an estimated $5.4 million a year for 16 years.
About 36,000 people live in Roseville, but city leaders say more than double that number are in the city at any given time shopping and working. Rosedale Center alone attracts 14 million visitors annually.
"The thing we have definitely heard from our residents is to look for ways for folks who are visiting and shopping in Roseville to support the services we are providing and now supporting with property tax dollars," said Roseville City Manager Patrick Trudgeon.
He added that once the city gets legislative permission, voters will have to approve each project individually.
Carlson said he has heard from some legislators representing small communities that the rush to add sales taxes may unfairly benefit cities with more retail. The League of Minnesota Cities in the past has supported a bill to remove the need for legislative approval and let city leaders take sales tax questions directly to voters.
But that doesn't mean a local sales tax will necessarily be a good fit for a city that lacks the pull of tourism or a strong retail economy.
Legislators have twice rejected Edina's requests to generate sales tax revenue for street improvements and a parks project, saying that neither provided enough of a regional benefit.
But last year the Legislature gave Edina permission to ask voters for a half-cent sales tax to fund nearly $40 million in improvements at Fred Richards Park and at Braemar Park, which includes Braemar Golf Course, Braemar Arena and Courtney Fields.
"This session, we are asking the Legislature to increase the amount for the Braemar Park project to allow for more improvements at Braemar Arena, including a new fourth sheet of indoor ice," according to a statement from Edina spokeswoman Jennifer Bennerotte. The arena is home to one of the largest youth hockey associations in the country.
According to a University of Minnesota study, the sales tax would generate an estimated $80 million over 20 years, which city leaders said would be more than enough to cover all the projects. The final project list approved by state lawmakers will go to Edina voters this fall.
Carlson said voters typically approve city sales taxes because it takes pressure off property taxpayers who pay to maintain facilities, often for the benefit of visitors. Analyses conducted by the University of Minnesota Extension found that nonresidents do provide the majority of sales tax collections in metro cities.
For instance, in Bloomington, home to the Mall of America, about 75% of the city's annual sales tax revenue of $11 million is estimated to come from visitors.
Bloomington Mayor Tim Busse said officials expect the local sales tax to generate $150 million over the next 20 years to renovate the city's Ice Garden, build a new health and wellness center, expand the Center for the Arts and upgrade Dwan Golf Course. "They've outlived their useful life," he said.
If Bloomington wanted to raise the same amount of money using property taxes, Busse said, residents would pay about $210 a year rather than an estimated $72 per household in sales taxes.
Roseville Mayor Dan Roe makes the same argument in lobbying for a local sales tax. "If we do not go for a sales tax request," he said, "this will have to be borne 100 percent by city property taxpayers."
Golden Valley Mayor Shep Harris said that with companies such as General Mills and Honeywell drawing employees to his city from across the metro area, nonresidents "should have some skin in the game" when it comes to funding local projects.
Extension educator Ryan Pesch said a local sales tax doesn't work for some communities with great needs, but that it does take advantage of nonresident traffic in metro cities and other regional centers.
"Everybody likes a tax where somebody else pays," Pesch said.
Staff writer Tim Harlow contributed to this report.
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