St. Paul mayor's plan to raise sales tax by 1% is no slam dunk

Nneka Constantino took to Twitter on Wednesday to say what she thinks of her former preschool classmate Melvin Carter's idea to raise St. Paul's sales tax by 1 %.

"I like the mayor. But I would like him to propose something different," she said of Carter's proposal, which he unveiled Tuesday afternoon and is estimated to generate an additional $1 billion over two decades for the city to maintain roads and parks.

Constantino, whose family owns Elsa's House of Sleep on University Avenue in St. Paul, said she fears an increased sales tax would push shoppers into the suburbs — customers that St. Paul small businesses say they need to build back from the pandemic and past unrest.

"Why can't the city do what they expect their residents to do when they have a revenue shortfall: cut expenses," Constantino said. "I don't want to pay more to shop in my neighborhood."

Carter's sales tax proposal comes weeks after city leaders approved an $805 million budget for 2023 that includes a nearly 15% increase in property tax collections. About half of that would be offset by a decrease in residents' street maintenance bills, following a May court ruling that said routine services must be funded by taxes instead of fees.

The city's current sales tax is 7.875%, compared with 8.025% in Minneapolis, according to the Minnesota Department of Revenue's "Local Sales and Use Tax Rate Guide." The increase would give St. Paul one of the highest sales tax rates in the state, alongside Duluth and Walker.

Reaction to Carter's plan has been mixed. Several City Council members have come out in support of it, while many residents took to social media to praise or pan the plan.

The proposal is no slam dunk. It needs backing from the Legislature in order to go to St. Paul voters.

St. Paul Area Chamber of Commerce CEO B Kyle wrote in an email that while "I understand the thinking" behind Carter's proposal, the group believes an increase in state aid to local governments "should be the city's first priority."

Cities in Minnesota seeking to collect sales taxes need a series of permissions: first from lawmakers, who have indicated they aren't always keen on local sales taxes for roads. Then it must be approved in a citywide vote. Traditionally, said Gary Carlson of the League of Minnesota Cities, voters have been more likely to support sales taxes since they're seen as raising revenue from visitors.

St. Paul leaders have until Jan. 31 to submit their request for a sales tax increase to key lawmakers. State statute requires cities to establish a sunset date on any local sales tax and to show a regional benefit for the earmarked projects.

"The first city that had a local sales tax was the city of Duluth. That authorization was granted in the late 1970s," said Carlson, the League's director of intergovernmental relations. Interest has grown since then, he said, with "a rather growing number of cities interested in local sales taxes to finance projects, especially projects that are producing benefits that fall beyond the immediate citizenry of the community. The examples we use quite frequently are community hockey arenas and libraries."

St. Paul's parks system, which includes Como Zoo, ice arenas and regional parks and trails, draws visitors from across the region and state.

Carlson said the Legislature has been more divided about using local sales taxes for roads.

In 2021, lawmakers rejected St. Cloud's request to collect more than $80 million in local sales taxes for road projects but approved the city's request to collect $21 million for an athletic complex, Carlson said.

They also rejected Waite Park's request for a local sale tax to fund transportation corridors but allowed a nearly $30 million sales tax for trail connections and a public safety facility.

The Legislature has approved sales taxes for roads about a dozen times in all, Carlson said.

In an interview Wednesday, Carter said the refusal by previous mayors to raise taxes left St. Paul's streets woefully behind the city's ability to fix them. A sales tax increase is a fairer way to spread the cost of rebuilding St. Paul's roads, he said, because it spreads the cost to the people from across the state who use them.

"It's clearly beyond the scope of what we can address at the local level," Carter said. St. Paul's current ability to rebuild its arterial streets is on a 124-year cycle, and, he said, the "quality of our streets is a direct function of our willingness to invest in them."

Lindsay Ferris Martin, a 2019 candidate for the St. Paul City Council, said rising crime and increased taxes drove her family to move to Forest Lake a year ago. She said she has watched eight to 10 former neighbors on her West Side block leave for the same reasons. She can understand Carter's rationale, she said, but it's "too much."

"The pandemic hurt this city, and people are still staying away," Ferris Martin said. "This is just going to keep them away."

The measure could be presented to voters as early as next November if the DFL-controlled Legislature approves it in the session that starts next week.

In the 2021 tax bill signed by Gov. Tim Walz, there were 21 city projects to be funded by local sales taxes pending voter approval.

"Eighteen of those were approved by voters," Carlson said.

Frank Douma, researcher with the Institute for Urban and Regional Infrastructure Finance at the University of Minnesota's Humphrey School of Public Affairs, said Carter and the plan's supporters are clearly searching for revenue — and realize many residents are feeling the weight of double-digit property tax hikes.

"Being able to spread the tax burden a bit wider than relying solely on the property owners is in the interest of the city," Douma said.

On that point, Carter has an ally in Simon Taghioff.

Taghioff challenged the way St. Paul once charged homeowners street assessments to help pay for regular maintenance. He succeeded in helping persuade the Supreme Court to toss the program. The move left a hole in the budget for St. Paul, where about 20% of properties are tax-exempt.

Taghioff said Carter's new plan is a more fair approach.

"The reality is we have to pay for our streets," he said.

Staff writer Kyeland Jackson contributed to this report.