Hermantown hopes voters will approve sales tax hikeShoppers, many who live in other cities, would pay for the town’s infrastructure if Hermantown voters approve an increase in their sales tax.
By: Candace Renalls, Duluth News Tribune
It’s a no-brainer, really.
That’s what Hermantown city officials say about the .5 percent bump in the city’s sales tax they hope voters will approve Nov. 6. With mostly nonresidents paying for it, Hermantown could bring in $1 million more a year to pay for city infrastructure.
The increase would bring the city sales tax from .5 percent to 1 percent. That’s an increase from 50 cents to $1 for every $100 spent on retail in the city, excluding food, clothing and auto purchases.
The 2011 Minnesota Legislature OK’d it. But Hermantown voters must approve the tax by Dec. 31 for it to happen. So a referendum on the .5 percent sales tax hike will be on the Nov. 6 ballot in Hermantown.
“Here is our chance,” said City Administrator John Mulder, who calls the sales tax a tool for economic growth for the city of about 9,400. “This is an historic opportunity. This is a chance to move forward.”
And this way, the city can do it without raising property taxes.
Sixty percent of the extra revenue, or about $600,000 a year, would go to extending sewer and water lines and to protect surface and ground water; 40 percent would go toward reducing city debt from infrastructure costs.
“No one wants to talk about sewers,” Mulder told a gathering of the Hermantown Area Chamber of Commerce last month. “It’s not a sexy topic, but water and sewer are part of the basic building blocks.”
There’s no specific plan on where those sewer extensions would go. It will depend on where development wants to go, he said.
Either way, Mulder says, Hermantown voters will be making history with their vote. What they decide will affect Hermantown’s future and be talked about years from now.
“If we don’t take it, we will miss the opportunity,” he said.
Most shoppers interviewed last week were accepting.
“Well, we’re paying lots of taxes in a lot of different areas,” said Mike Nelson as he headed into Menards last week. “But I realize things are going up for government, too.”
It wouldn’t keep the Fredenberg Township man from shopping regularly at Walmart and Menards in Hermantown.
“I think you got to go with it,” he said.
Over at Walmart, Sue Spencer was unloading a cartful of purchases into her van. With a large family, she’s a Walmart regular, spending $100 to $200 with each visit.
She lives in Duluth but said she wouldn’t mind paying the additional 50 cents per $100 she spends at the Hermantown Walmart.
“A lot of people shop here,” she said. “If it’s something Hermantown needs, I think that’s a good idea. I don’t have any problem with that.”
If passed, the city’s 1 percent sales tax, coupled with a state sales tax of 6.8 percent, would bring the sales taxes in Hermantown to 7.8 percent.
That’s the same as in Duluth. But Duluth also has hospitality taxes for food, beverage and lodging, which can bring the total taxes paid by consumers to 13.3 percent at a large hotel. However, visitors to Duluth will get a slight break beginning in November when the hotel/motel tax goes down .5 percent, said Duluth city treasurer Brian Hansen.
With passage, Hermantown’s new .5 percent sales tax would go into effect April 1 and expire in 2026, the same time the current .5 percent sales tax expires.
Currently, 64 percent of sales tax revenue comes from nine big box retailers, including Menards, Walmart, Sam’s Club, Gander Mountain, Hom Furniture and Slumberland, Mulder said.
Hermantown’s current .5 percent sales tax was approved by 67.4 percent of Hermantown voters back in 1996. City officials could have sought the full 1 percent sales tax authorized that year by the Legislature for infrastructure expenses but instead sought .5 percent. Officials thought .5 percent had a better chance of passing as well as giving Hermantown a competitive advantage over Duluth’s 1 percent sales tax.
The current .5 percent sales tax has put about $1 million a year into city coffers. It’s paid for Hermantown’s new fire hall, police station and city hall, a water tower and 7.5 miles of municipal sanitary sewer trunk lines.
“Civic leaders had a vision of the community,” Mulder said. “Trunk lines allowed for a lot of existing homes to connect to a sewer.”
Moreover, without those trunk lines, several subdivisions and developments wouldn’t have happened, including Forest Ridge Estates, Keene Creek Townhomes, Hidden Creek Preserve, Stepping Stones for Living and Norway Pines Place, he said.
The return, he says, has been more than $73 million in an increased tax base.
Tax receipts down
The move for a sales tax increase in Hermantown comes as annual sales tax revenues have dropped 10 percent since a high of $1.17 million was collected in 2007.
So the need is there, officials say.
The Hermantown Area Chamber of Commerce board has endorsed the sales tax increase.
“The more we were able to dig into the topic, the better we came to appreciate the benefits of it,” said Mike Lundstrom, the chamber’s executive director.
He says the .5 increase to 1 percent won’t affect businesses in Hermantown, which are already collecting a city sales tax from customers; they’ll just collect a little more. And it won’t affect businesses’ bottom lines, because the tax doesn’t come out of the pocket of businesses.
“That is an investment into our community,” he said.
Rick Francisco, who lives and works in Hermantown, is supportive.
“This is a wonderful thing,” Francisco said. “Hermantown needs money. Why not get some of it from others who shop in Hermantown?”
How often, he asked, do you get the opportunity to get nonresidents to pay — to a large extent — for the services in your community?
“This is a tremendous value for the community of Hermantown,” he said.