The Free Press, Mankato, MN

June 13, 2014

Blue Earth Co. looks at adding sales tax for roads

Could generate more than $7 million

By Mark Fischenich
mfischenich@mankatofreepress.com

---- — MANKATO — The Blue Earth County Board is considering adopting a local sales tax to finance backlogged road maintenance, new construction and property tax relief.

Four of the five commissioners expressed at least some interest in the idea and the fifth was noncommittal during a discussion this week — enough of a signal that county staff will begin the work of preparing detailed options, with a decision possibly coming later this year.

A county-imposed sales tax of up to one-half of 1 percent, along with the opportunity to impose a $10 per vehicle wheelage tax, was first made available to counties by the Minnesota Legislature in 2013. Of Minnesota's 87 counties, 47 chose to impose the wheelage tax in the first year, including every county in south-central Minnesota other than Blue Earth and Nicollet.

But when Blue Earth County discussed the sales tax alternative in July of last year, no outstate counties had imposed that potentially more lucrative source of revenue for roads, bridges, transit and other transportation-related spending. Ultimately, the board decided to forgo either tax in 2013, while not ruling out the option in 2014 or beyond.

"We had some discussion, but we decided not to move forward at that time," said County Administrator Bob Meyer.

Like a year ago, Commissioners Vance Stuehrenberg and Drew Campbell were clearly interested in the sales tax idea.

Campbell said Mankato's status as a regional retail, service and employment center means people from throughout south-central Minnesota and even northern Iowa are using the county's roads, but local property owners are being hit with most of the burden of repairing and expanding them. The sales tax would allow road funding to be collected from those visitors and commuters.

"It seems like you'd get some funding from the larger area that Mankato is serving instead of (solely) the local taxpayers," Campbell said.

"Let the people from Iowa pay ...," Stuehrenberg added.

Meyer also pointed out that the city of Mankato already has a half-percent local option sales tax. Restaurant meals and drinks in the city have an additional half-percent added. So if the county imposed another half-percent on top of the Mankato tax and the 6.875 percent statewide sales tax, the Mankato rate would be pushing 8 percent for most goods — higher for dinners and drinks.

"That would put our area at one of the highest rates in the state," Meyer said. "... Our economy is very strong, and we wouldn't want to negatively affect that."

A year ago, Commissioners Kip Bruender, Will Purvis and Mark Piepho were skeptical of imposing the sales tax for those reasons and also uninterested in rushing into the new tax before any comparable counties had. Now, Beltrami, Wadena, Olmsted, Rice, Douglas and Becker have imposed the tax, Meyer said. And the estimated revenue available to Blue Earth County continues to only grow.

The Minnesota Transportation Alliance estimates a full half-percent tax would generate $7.4 million a year here, County Public Works Director Al Forsberg said.

Forsberg also laid out the need for more funding. Currently, the county levies $5.2 million in property taxes for its road and bridge fund, with about $2 million of it being used for construction.

Even when supplemented by state transportation aid, the county is falling behind in maintaining its road system. For instance, based on the anticipated lifespan of the county's paved roads, major rehabilitation should be done on about 20 miles of county highway each year to keep pace. But with that intensive reconstruction costing about $600,000 per mile, only 12 to 15 miles are actually completed, Forsberg said.

Maintenance and repair for the county's gravel roads, road expansions required by the growing Mankato area, needed upgrades to four 50-year-old highway maintenance shops around the county, and aging bridges only add to the funding gap.

"So there is a need out there," Forsberg said. "It's a pretty well documented need."

Stuehrenberg said Beltrami County, before passing its sales tax, laid out the needed transportation projects in the Bemidji area, and most business owners and residents alike ended up supporting the tax.

"They set up public meetings before they passed it and explained what this would be used for ... transportation needs and not wants," Stuehrenberg said.

The board is already seeking input from the business community via Greater Mankato Growth, which serves as the Chamber of Commerce and as an economic development organization in the Mankato area.

Greater Mankato Growth, as with other controversial government issues, hasn't taken a stance as an organization on the local option transportation sales tax, said Patrick Baker, director of government and institutional affairs for GMG. But surveys of members and conversations with major employers have shown a strong recognition of the importance of good roads, a realization that funding isn't keeping up with demand and some willingness to support the local funding options.

"Deteriorating infrastructure and lack of infrastructure does more harm to some of our businesses than (collection of) increased tax revenue does," Baker said.

About half the workforce at the largest local companies drives to work from homes outside Mankato and North Mankato, Baker said. In all, between 10,000 and 20,000 commuters drive to jobs in those two cities but live elsewhere — which further emphasizes the Mankato economy's reliance on the wider road system.

In a survey of more than 100 GMG members, 69 percent agreed or strongly agreed with a statement that Minnesota needs additional revenue to keep the transportation system safe, effective and properly maintained. In a question specifically about the local option transportation sales tax and the wheelage tax, 31 percent opposed enacting either, but 47 percent supported enacting one or the other, or both.

Baker said several retailers commented that they would be more supportive of the sales tax if online retailers were also required to collect sales taxes. Businesses would also be more supportive if there was uniformity in sales taxes between Blue Earth and Nicollet counties.

"We don't want to have significant disparities with cities just across the river," he said.

As the county explores the sales tax idea, the plan is to involve the Regional Economic Development Alliance to get a wider perspective — including from Nicollet County and North Mankato.

The board is also very interested in using a portion of any sales tax revenue to offset part of the road and bridge property tax levy. Bruender said his potential vote for a local sales tax would be contingent on property taxes falling as a result. He also indicated he would be more likely to support a tax that was somewhat less than the full half-percent allowed by law.

"If you coordinate the two of those together, I might support some of this," he said.

Board Chairman Will Purvis said property tax relief would be key to his willingness to vote for a sales tax. Commissioner Mark Piepho said only that he wants to see the details of how the property tax reductions would be accomplished. The wheelage tax, which would generate roughly $500,000 a year in Blue Earth County, appears to have much less interest among board members.

With at least the prospect of majority support for the sales tax, Meyer said staff would spend the time and effort to look at the sales tax idea in more depth.

"Now we'll jump into the planning process," he said.