Want to spruce up the city park? Erect a new county jail? Maybe fix a pothole problem, once and for all?
To create the cash for these projects, an unprecedented number of cities and counties across Minnesota are pushing to increase local sales taxes.
Gary Carlson, a lobbyist and finance expert at the League of Minnesota Cities, is tracking proposals from 31 cities and five counties — a record number of municipalities to seek a local sales tax hike in a single year, he said.
Local governments must get state lawmakers’ permission to pursue a local sales tax increase, a process that’s playing out at the State Capitol right now — and legislators sometimes block or make changes to a city or county’s proposal.
But ultimately, voters in each city or county have the final say on whether to enact a local tax hike.
If the Legislature advances all 36 proposals that Carlson is tracking, perhaps one-quarter of Minnesotans could encounter a local sales tax proposal on an upcoming ballot — including in three of the state’s five largest cities (Rochester, Bloomington and St. Paul) — to fund projects like trails, recreation centers, sports complexes or library improvements.
How Minnesota funds cities — and why that helps explain these sales tax proposals
Why is the state government involved in deciding the future of projects as hyperlocal as a trail or a wayside rest stop?
The reason stems from the 1971 package of laws known as the “Minnesota Miracle.” One basic idea of the overhaul was that the state should shoulder the responsibility for generating sales tax revenue, in part to relieve skyrocketing property tax bills.
The laws constrain cities’ and counties’ ability to collect sales taxes, but the state shares revenues it collects with cities through a program called Local Government Aid. Municipalities hoping to charge an additional sales tax are essentially bucking this arrangement — so they need the Legislature’s permission.
(For the record: Minnesota counties do have the power to enact sales taxes for transportation without legislative approval or a ballot measure.)
But in recent years, after waves of both cuts and restorations in state funding, cities’ funding from the Local Government Aid program has been effectively flat, Carlson said.
“Twenty years of lack of growth in [Local Government Aid] has really impacted city finances, and they’re looking for other ways to finance projects,” Carlson said during a recent panel discussion of the Greater St. Paul Chamber of Commerce.
Lawmakers are considering proposals to pump more money into the Local Government Aid formula.
A DFL-backed proposal in the Legislature would inject another $150 million into the formula — a 26% increase over last year. Gov. Tim Walz’s budget calls for a more modest $40 million increase to the formula, though the Legislature is also considering other one-time investments that could help cities.
Carlson doubts the state would commit to $150 in ongoing Local Government Aid. Plus, some city leaders have noted that a successive Legislature could slash this funding, anyway.
That’s one upside to a local sales tax hike: If enacted, it’s guaranteed to generate revenue for its entire lifespan.
Why are there so many proposals this year?
Under the “Minnesota Miracle” system, local governments cannot enact sales taxes for general purposes. State law says local governments must draw up plans for a specific project they hope to fund with the sales tax increase — and then convince lawmakers that this project would bring benefits beyond the borders of the city or county.
Last legislative session, this process of securing legislative approval ended in gridlock. That’s one big reason behind the record number of proposals at the Capitol this year: Carlson said most local sales tax pitches had won bipartisan support but did not pass after the Legislature adjourned without approving broader spending bills. Many of those same cities are back this year.
But Carlson also suspects the November 2022 election showed local governments that this hassle can be worth it. In 2021, the Legislature green-lit nearly two dozen sales tax proposals for the ballot. Of the 20 that went to the ballot the next year, 18 won approval from the voters.
“That fact garnered a lot of attention from cities to say, ‘Hey, we're hearing a lot from our property taxpayers about high property taxes,’” Carlson said in an interview. “Voters seem willing to vote for a sales tax to fund some of these projects rather than put it on the property tax rolls.”
The real reason there are so many more requests for money and tax hikes is Minnesotans and Americans have become addicted to TRILLIONS AND TRILLIONS of Federal dollars being printed and given out the past 2-3 years. Weaning off the “free” money will not be easy.
I personally would like to see local property tax referendums passed to fund these shortfalls and LGA, paid from the general fund, increased (perhaps not 1:1) to cities that vote yes to increased property taxes (to offset other costs, potentially allowing cities to decrease sales taxes) – perhaps also including a renters rebate/deduction increase comeasurate with the LGA increase to decrease the impact of the package on lower income folks without homeownership equity (assets beyond a 401k).
Sales taxes should go down, not up.
Except many are not cashing in on their home equity and many seniors do not qualify for state assistance as their income is right below the threshold, yet can’t afford increased property taxes. Most home owners are not wealthy. Many can opt not to shop in those communities with a higher sales tax and food, clothes are not included.
Please explain to me how they can’t afford increased property taxes but can afford increased sales taxes. If they can afford gas to drive to a different community to shop for lower sales taxes they can afford the higher taxes.
Sales taxes shouldn’t be allowed. They are one of the most regressive means of raising money. They fall mainly on lower income individuals. They are also an unfair means of shifting the burden of paying for local improvements onto outsiders who will not benefit from those improvements. If cities want to increase taxes let it be from their own citizens. They are free to increase property taxes. There should also be a means to levy local income taxes. The cities are wealthy in comparison to rural areas and it is a reluctance by their citizenry to pay what is rightfully their obligation that drives them to seek local sales taxes.
20 years ago when the rush was on to build ice arenas for all the girls programs need new refrigeration systems because of the phasing out of the refrigerants they were built with.
Leave it to a conservative to argue that girls shouldn’t play sports because it costs too much.
Some cities need to quit wasting money on pet projects.St Paul is spending money on Reparation .All department need to trim some fat.There are some duplicated services with the County.
St Paul has so many Rec centers and parks that are lightly used.Mpls have 2 more libraries than St Paul ,there 100000 more people in Mpls.
There is an old business saying: “Grow or die” not to say this is 100% spot on, but, stuff wears out, peoples demands increase and society changes. How communities meet these new challenges always involves investment, lack of investment usually means not forward looking folks, and no forward looking folks typically suggest a shrinking less dynamic community, and things may start spiraling in the less preferable direction, we all get to choose. .