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For streets' sake: No certainty Duluth’s sales tax passes Legislature this year

A vehicle drives past a pothole on Grand Avenue in Duluth in 2015. File / News Tribune

Duluth leaders are optimistic the Legislature will approve a local sales tax increase to help rebuild the city's roads.

History shows they should be nervous.

Sales tax requests have been scuttled by lawmakers plenty of times in the past 20 years, according to the Minnesota House of Representatives Research Department.

"Several local sales taxes were requested several years in a row before they were eventually passed, often in a modified form," Legislative Analyst Pat Dalton wrote in a recent memo.

In many cases the requests will pass one chamber but fail to make the cut when the House and Senate merge their bills; just last year Detroit Lakes and Excelsior failed to get their proposed sales taxes into the final tax bill.

With another tax issue set to dominate discussions in St. Paul this session — conforming state laws with federal tax reform — it's possible Duluth, too, gets left out this year.

Rep. Greg Davids

"Conformity is big; it takes precedence over everything else at this point," said Rep. Greg Davids, a Preston Republican and chair of the House tax committee. "If it doesn't happen in '18, you go forward to a normal tax year, which would be '19."

Will they or won't they?

Duluth voters are more than ready to give the city the highest sales tax in the state — 8.875 percent — to get better streets in return. In November the half-percent sales tax passed with 76 percent of the vote.

How soon the city can start raking in the extra $7 million a year the tax would generate likely depends on how smoothly things go during the short legislative session. Considering the session will begin in the partisan ashes of last year's legislative funding dispute, smooth may be a relative term.

"The first thing we have to do is get the Legislature funded — otherwise it will be a very short session," Davids said.

Provided that happens, Duluth's sales tax will, at the very least, get a hearing.

Rep. Steve Drazkowski

"We'll definitely hear the bill," said Rep. Steve Drazkowski, chair of the House property tax and local government finance subcommittee.

The Republican from Mazeppa said the measure will likely get bundled with a comprehensive tax bill — whether that will be a conformity bill or a separate tax bill is unknown.

"Small tax provisions like this, we rarely run through by themselves — I prefer to do it that way, but that's not the consensus," he said. "It practically has to be part of a bigger bill."

So it's good for Duluth's thirsty coffers and broken streets that legislators will be tackling tax issues this year. Unless the sales tax turns into a bargaining chip as a Republican-controlled Legislature tries to present a bill that DFL Gov. Mark Dayton will sign.

"There will be some horse trading going around," Drazkowski said.

Meanwhile, the Senate tax committee chairman sounded a positive note.

Sen. Roger Chamberlain

"Sales tax requests are usually fairly routine. If they want to pay the tax, who am I to say no?" Sen. Roger Chamberlain, R-Lino Lakes, told the News Tribune. "We make sure they are within the guidelines of statutory requirements."

That's precisely what derailed several sales tax requests in the past.

By the book?

"The generally accepted purpose for granting local sales tax authority to a city or county has been to fund brick and mortar projects of regional significance," wrote Dalton, the legislative analyst. "Since sales tax falls on nonresidents that shop in the area as well as residents and businesses in the jurisdiction, the expectation is that the nonresidents will also reap benefits from the capital project(s) funded from the sales tax revenue."

While Chamberlain said a high percentage of requests do meet the letter of the law, Dalton lists four major reasons that have led to denials or delays in approving local sales taxes:

  • Regional significance was not established.
  • Projects were not specific enough to judge regional significance.
  • Tax would increase fiscal inequities between cities.
  • Request came from a suburb.

It appears Duluth's efforts have been by the book. The council passed a resolution with the proposed rate, revenue estimate, use and expiration date; public forums were properly held to elucidate the proposal; and three out of four voters said go for it.

Legislation to approve the sales tax was filed Thursday ahead of the session's Feb. 20 start. The bill ties the tax to the Duluth Street Improvement Program finalized in August, which gives the proposal a specificity that other approved local sales taxes have demonstrated, according to data from the House Research Department. The street program lists half a billion dollars in identified projects, including 452 miles of roads from Abbotsford to Zimmerly avenues and 85 bridges.

However, the regional significance of such an undertaking, Dalton writes, is "in the eye of the beholder." And the focus of the sales tax will be residential streets, the Street Improvement Program makes clear.

Rep. Jennifer Schultz

Still, local lawmakers have expressed continued confidence the measure will pass this year and go into effect in 2019.

"I don't see a problem with us getting this through," said Duluth DFL Rep. Jennifer Schultz, who is on the House tax committee.

Brooks Johnson

Brooks is an investigative/enterprise reporter and business columnist at the Duluth News Tribune.

(218) 723-5329
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