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THE CITY OF DULUTH, MINNESOTA

Frequently Asked Questions answered by Emily

How will this 1/2% sales tax be used?

It will be dedicated entirely to streets and sidewalks, with the vast majority of that being streets. We expect it to generate about $7 million annually. We would add our current streets dedication of $2.8, bringing the total to an expected $10 million. All told, we have over 450 miles of roads and more than 400 miles of sidewalks. We can certainly put these funds to good use!

Why is it proposed to only be for 25 years? Won’t there still be a need to fix streets then?

Because funding mechanisms can and do change. The City has had 4 different methods for paying for streets in the past 10 years alone – some based on opportunity, others from necessity. All the more reason to rely on a dedicated source to reliably meet our needs. Also, this is an innovative ask from the legislature and we wanted to be mindful of the many other considerations they need to balance when working with cities. While we are not requesting money from them, they do need to grant us approval.

Has this been done before?

Yes. The Legislature has approved dedicated Sales Tax opportunities for many counties and an increasing number of cities. Hermantown and Proctor recently were approved for 1% sales tax, for instance. St. Louis County has activated their Transportation Sales Tax to meet broad County needs and has invested $15+ Million in the past three years on County roads within the City of Duluth. That’s three times more than what we ourselves have been able to accomplish with existing funding.

Will this money be used to build bike trails?

No. It will not be used for any trails. It is only going to be used for streets and sidewalks.

If voters support this referendum, does it automatically go into effect?

No. If it passes, we need to work with the Legislature next session to get approval. There are no guarantees, but there would certainly be no ability to even make the ask if we did not have broad community support.

What happens if we don’t get it?

If the community says no, or the Legislature says no, it’s likely we will have both cuts in services and higher property taxes starting next year. We will make streets a continued priority, and it will mean that other priorities will need to change.

What impact will this increased sales tax have on businesses?

Duluth currently collects a 1% undesignated sales tax that helps pay for public safety and other core service – this was established 49 years ago. This would be in addition, but is different because it would be dedicated and has a sunset. While sales taxes absolutely add up, so does the disrepair of our streets. We believe the investment is well worth the additional cost.

Don’t my taxes already pay for this?

Yes, they do. Your taxes provide $2.8 million for streets. Generating the kind of revenue, we need would increase the property tax burden for residents between 35-40% for a built infrastructure intended to serve an additional 35,000 daily commuters and 6.7 million annual tourists. Our City budget is 82% people: salaries, benefits and health care. We manage each of these elements as closely as we can. As Mayor, I have demonstrated a commitment to increased street investments twice in my two years in office: a one-time $800,000 infusion from excess sales tax in 2016 and the proposed budget being issued on August 14 which allocates additional resources.

If we can’t pay for our roads, why are we spending money building trails?

Because they are paid for from different sources of revenue. Money for trails and parks come from the Parks Fund – a fund that legally has to be spent on things such as trails and parks, Legacy Funds, grants from outside sources, St. Louis River Corridor investments or donations. These dollars cannot be used for streets. It is frustrating for residents to see shiny new wonderful trails and deteriorating potholed streets. People don’t necessarily care how funds can’t be used, they just want to know why streets aren’t getting done. I get it, and that’s why we are doing this. Trails and parks generate specific and dedicated revenue sources to cover their costs. That’s a good thing. Now we need to do the same for streets.

Sometimes a road is torn up one year for water main fixes and then another year for street fixes. It’s frustrating.

You’re right. Currently, when a water line needs a repair, we don’t have any ability to seize that opportunity to also address streets. Because there is no money available. Our current system is completely reactionary and does not allow us to be efficient. It’s one of the reasons we want to address long term streets funding. If we can secure the sales tax, we will be able to plan a streets system that aligns with utilities. Imagine that!

What is my Return on Investment for this 1/2% sales tax?

The League of Minnesota Cities found that every $1 spent on street maintenance saves $7 on repairs. Additionally, the American Society of Civil Engineers estimates that driving on roads in need of repair in Minnesota costs each driver $480 per year. We need to find ways to get ahead of the deterioration. We think this combined return makes sense, and we think that residents will too.

What about state and federal funding? Can’t they help us with streets?

We’d love that! But it’s not happening, and we’re not going to wait any longer for a rescue. If they pass transportation funding, it’s likely state and federal resources will focus their efforts on their own state and federal highways and bridges, and not on municipal streets.

Do nonprofits pay taxes, or will they participate in the dedicated sales tax?

Nonprofits can apply for tax-exempt status. This means they do not pay property tax and can be exempted from sales tax. While on the surface this can be initially frustrating for tax payers, we have found that the amount of money that would be generated by nonprofits through a taxation system is currently not as significant as in many other communities, like St. Paul, for instance. Additionally, they provide important sets of services that government can’t sustain, so we appreciate their partnership.

Why sales tax for streets and not other revenue sources such as tourism tax?

Because currently 86,296 Duluth residents are paying for a built infrastructure that supports themselves, 35,000 daily commuters and 6.7 million annual tourists, and sales tax is a fair and equitable way to have all beneficiaries co-invest in the solution. Although a sales tax does require legislative approval, state law does not allow us to use tourism tax on streets.

I hear a lot about “bonding” and “bond payments” for streets but I’m not sure what it means.

Bonding is a form of financing, like a loan. You draw down a front payment and then pay it back gradually over the term of the bond. It can work really well in a lot of scenarios – a home mortgage can be a very good thing, for instance, as long as it’s within your means. But you want to avoid taking out loans for smaller items that lose their value – you would not want to take a loan out for a new stove, for instance. The same is true for government – streets tend to lose value, since they need constant care and attention, and if you bond without a pre-dedicated plan to repay those bonds, you end up paying interest and taking money away from other budget areas to pay for a street that will probably need to be redone by the time you make that last payment. That’s why we are committed to a “pay as you go” model. It is hard to get the money upfront, but it can save more later. Some counties and cities have chosen to bond against the transportation sales tax revenues collections to jump start street work - in the right lending environment, and with the right bond rating, this can work.

When I budget in my family I have to make really hard choices in order to make ends meet. I can’t just “raise” my income like government raises taxes. Why can’t you do the same thing?

We do. Every year, it is pretty standard for a government entity to start with a deficit. We deliver services but do not sell items to make up for those increased costs. We don’t directly charge for your police calls, for instance, but the cost of that call goes up every year because of the cost of body cameras, health insurance increases or new training requirements. All are good things. We just need to pay for them. Multiply that reality by eight city divisions delivering utilities, library books, public safety, building inspections, criminal investigations and more. This year we started our budgeting process in April. Together, we made some very difficult decisions to translate your priority for streets. We value your investment in the City, we recognize you work hard to do the right thing and pay your taxes and we believe we do a good job of giving you good value. We don’t like raising your taxes any more than you like paying them.

How can I find out more about the proposed dedicated sales tax or the City budget?

In addition to the public website where you can find information and leave a comment (http://duluthmn.gov/better-streets) regarding the sale tax, we are holding three public meetings to present the “State of the Streets.” These dates and times are:
  • Wednesday, August 16 – Harrison Community Center, 3002 West 3rd St. @ 5:30-7 PM
  • Wednesday, September 20 – Morgan Park Community Center, 1242 88th Ave West @ 5:30 -7 PM
  • Thursday, October 26 – Duluth Heights Community Center, 33 West Mulberry St. @ 5:30-7 PM

I will present my budget to the City Council at 6pm on August 14th – this is a public meeting, and you are welcome to attend it in Council Chambers. The presentation will be recorded and will be made available on our city website.

What happens next?

On August 14th, the City Council will hear the budget proposal for 2018 and determine whether or not to put the referendum on the ballot for November. These are two separate tasks.

We will be hosting three public (“State of the Streets”) meetings prior to the November 7th election where voters will weigh in with their support or denial of the dedicated tax. If supported, we will focus efforts on establishing support within the state legislature for their approval. If allowed, the 1/2% dedicated sales tax would likely go into effect in August or November of 2018.

In regards to the budget, the council will review my proposal on August 14th, which begins the public process of decision making. After months of consideration and reflecting the needs of our organization, my team and I will already have made our budget determinations – the Council will then get to make theirs. They have ultimate authority on the property tax levy and will commit to levy percentage on or before September 30th. We then move into finalizing the budget for 2018, and will be locked into a “not to exceed” levy, meaning it can go down from what was set at the end of September before the final 2018 budget is approved by Council at the end of December, but not above. It is common to have things move around a little bit – sometimes there are unexpected expenses or revenues.



 

City Hall, Room 403
411 West First Street
Duluth, MN 55802
218-730-5000

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Read more about street improvement projects:

 

Street Improvement Program Plan

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