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St. Paul’s proposed sales tax hike: What it would pay for, and why Melvin Carter wants to send the idea to voters

The mayor says a 1% increase to the sales tax would help the city fix streets and improve parks, but the idea must first get legislative approval before heading to voters.

These potholes on Hamline Avenue are not scheduled for maintenance for at least five years. St. Paul’s streets are on a 124-year replacement cycle, double the standard for good quality streets.
These potholes on Hamline Avenue are not scheduled for maintenance for at least five years. St. Paul’s streets are on a 124-year replacement cycle, double the standard for good quality streets.
MinnPost photo by Bill Lindeke

State lawmakers — they’re just like us! Which is to say: completely fed up with potholes on the streets of Minnesota’s capital city.

Last week, three members of the Minnesota House went out for ice cream on St. Paul’s Grand Avenue. Driving home, Dassel Republican Dawn Gillman popped a tire — and her companion on the trip blew a fuse.

“Fix [the] damn roads,” Rep. Mary Franson, R-Alexandra, tweeted at St. Paul’s mayor, Melvin Carter. She added: “The roads look like they belong in a war torn country.”

A day-and-a-half later, Carter responded with an apology — and a plea.

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“We really do need to fix these darn roads,” he replied to Franson. “Luckily, we have a #SalesTax proposal at the legislature right now to do exactly that! Can we count on you to support our bill?”

What St. Paul wants & why

Before Minnesota cities can ask voters for permission to raise local sales taxes, they need the Legislature’s permission. This year, the League of Minnesota Cities’ Gary Carlson said a “record” number of local governments — 31 cities and 5 counties — have brought sales tax hikes to the Legislature.

The capital city’s request is arguably the biggest. St. Paul’s leaders have proposed a 1% increase to the sales tax, one of only six proposals in the Legislature for an increase of one cent or greater. No other municipality’s proposal would generate as much revenue as St. Paul’s: $984 million over 20 years.

Though one-quarter of the funds would pay for park improvements, most of the sales tax revenue ($738 million) would pay for repairs to St. Paul’s arterial streets. Carter argues that — in part because previous city leaders resisted tax increases over the last decade — St. Paul hasn’t generated enough funding to replace roads in a timely fashion.

“Everybody hates our streets and knows how much they need significant investment,” Carter said during a recent virtual roundtable discussion with the Greater St. Paul Chamber of Commerce. “Everybody loves our parks and doesn’t realize the extent to which they need significant investment to keep us from falling into the type of place that we’re talking about [with] our streets right now.”

What critics think of the proposal

But even if St. Paul gets legislative approval, are the city’s voters too tapped out to vote for a sales tax hike? Inflation has already squeezed many households — plus, in December, the City Council approved Carter’s call for a 15% property tax hike (though about half of that increase came from the city shifting certain fees to property owners’ tax bills).

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The lone vote on the City Council against pursuing a sales tax hike was Jane Prince, who argued city leaders were rushing the  idea, blindsiding the business community. She said St. Paul ought to focus on lobbying for more ongoing funding through the Local Government Aid formula — the state’s primary means of sharing revenue with municipalities.

“I’m not opposed to a sales tax out of hand,” Prince said, but “we could be providing some meaningful property tax relief if we can get Local Government Aid in a better place for the future.”

St. Paul likely is in line for a multi-million-dollar boost to its annual Local Government Aid allocation this year. However, Carter argues that future Legislatures could also cut this funding source at their discretion; a local sales tax would generate revenues throughout its lifespan.

Is there any alternative to a sales tax?

State lawmakers’ preferences about how to fund road projects might also affect St. Paul’s proposal, Carlson said.

In exchange for permission to increase sales taxes locally, Minnesota law asks cities to specify a capital project that the revenues will fund — like a park, a trail or a building — and convince the Legislature that the project will have benefits beyond the city’s borders. Local street improvements aren’t listed as an example of a “regionally significant” project.

In recent years, leaders of some cities — like Waite Park, which borders St. Cloud — have struggled to convince lawmakers to advance local sales taxes that would pay for road improvements. But other, bigger cities — like Rochester — have had no such trouble getting taxes through.

Carlson noted the Legislature went on record in 2019 as preferring that the costs of road repairs get passed directly to vehicle users through the gas tax or the motor vehicle sales tax. It’s a much more efficient means of collecting the revenue, said Martha Njolomole, an economist with the conservative Center for the American Experiment think tank.

“User fees are a better way to collect revenues for things like infrastructure. They’re a direct connection between users and the service that they use — so they’re very efficient, they’re not distortionary,” said Njolomole, who also participated in that St. Paul chamber’s roundtable in late February.

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Though Minnesota exempts groceries, clothing and drugs, sales taxes are also inherently regressive; lower-income people have a harder time covering the additional cost of a higher sales tax — a downside that Carter acknowledged: “We don’t really love this structure.”

But there’s no more viable alternative than a sales tax, he argued.

“We are going to have to invest in our streets one way or another,” Carter said. “If it doesn’t come from sales taxes, it will have to come from somewhere else … The ‘somewhere else’ we have access to is property taxes. We should consider sales tax as property tax relief for St. Paul property owners and business leaders.”