TAX NEWS - June 2010

St. Cloud Tax: Area cities short on sales tax collections

Area cities have seen a nearly 9 percent decrease in local sales tax revenues in the last two years.

A sluggish economy has meant less money spent at area businesses. Even if revenues from the local half-cent sales tax increased 3 percent through 2018, area cities would still see $4.5 million less than anticipated.

The half-cent St. Cloud Area Local Sales Tax is used to pay the debt on the St. Cloud Public Library and a St. Cloud Regional Airport land purchase, to fund parks and trails and to pay for roads. Leaders say it will someday be used to build an aquatic center.

The local sales tax started in 2003. Voters in 2004 approved extending the sales tax for 17 years to fund those projects. The Legislature limited the extension to 13 years, starting in 2006.

That extension applies in the cities of St. Cloud, Waite Park, St. Joseph, St. Augusta, Sauk Rapids and Sartell. The tax revenue is divided among St. Cloud Public Library, St. Cloud Regional Airport and each city that collects it.

The first $900,000 collected each year goes to pay off debt on the new St. Cloud Public Library. The rest of the funds are divided among the cities using a formula that considers the city's population and how much of the tax is collected in each city.

The formula is updated each year.


Limited growth

When St. Cloud did initial projections for the growth of the tax, it looked at a 3 percent increase each year. The city came up with that number after looking at the growth shown by a similar tax in Duluth and Rochester.

St. Cloud Finance Director John Norman said the 3 percent increase is a conservative number. From 2006 to 2007, the tax saw a 6 percent increase.

"Three percent wasn't unreasonable," Norman said.

But the city could not have predicted the financial collapse that would mean people would be tightening their budgets.

Even if the city starts to see 3 percent increases in 2010 and beyond, the city still will be short $4.5 million by the end of 2018 when the tax expires, Norman said. The city anticipated collecting $81.4 million over the tax's lifetime.

But Norman and St. Cloud Mayor Dave Kleis say they think there will be more than 3 percent growth over the lifetime of the tax to make up some, if not all, of that $4.5 million.

"I'm confident that it will rebound as it has historically," Kleis said. He said he will likely go back to the Legislature to extend the tax four more years, which is what voters approved.


Building projects

For now, the $4.5 million is made up by taking it out of the $10 million planned for the aquatics center. But Kleis insists that doesn't mean the project is on hold or won't be done.

"Everything is still on track," he said. "It will be built."

The aquatics center was always planned to be the last project done with the sales tax money, Kleis said. And a 2009 feasibility study showed that to build a 108,000-square-foot indoor aquatic and community recreation center would cost $26.5 million. The center would operate annually for $500,000.

At that price, the city would need partnerships to build and operate the center, Kleis said. The economy put the project on hold, but Kleis said a task force will start work on the project later this year or early next year.

Residents already can look around the city and see the benefits of the tax. The debt for the new library building is being paid off with that money. Eastman Park improvements, the greenhouse at Munsinger/Clemens Gardens, and the Minnesota Highway 23 road and bridge projects received sales tax money.

Parks and Recreation Director Scott Zlotnik said the sales tax money has been instrumental in getting park improvement projects done.

A matching funds program, like the one used for the Eastman Park project, encourages partnerships between private groups and the city, he said.

St. Cloud Rotary Club donated funds for the project that the city matched on a 2-to-1 basis. The project will dramatically change the look of Eastman Park and Lake George by adding trails, improving the access and building a granite plaza. The project will be completed next summer.

"It's been very beneficial," Kleis said of the tax.