Detroit Lakes asks state to allow for 1% local sales tax
Although details are up in the air at this point, the Detroit Lakes City Council has authorized city staff to submit a request to the State Legislature allowing the city to enact an up to 1 percent local sales tax.
The city of Grand Rapids is also requesting the authorization, and city administrator Bob Louiseau said strength may come in numbers.
"With the interest of two cities asking, it would be better than one city asking," he said.
The main reason for the local sales tax, which would mirror state sales tax so none would be collected on food or clothing, is to replace the dwindling local government aid. The state has been cutting LGA funds over the last several years.
This year, the state said it would give Detroit Lakes $983,000 in aid, but Finance Officer Lou Guzek said he only budgeted for $550,000 because each year it gets unallotted even more. The city used to receive about $1.5 million in LGA.
If the city were to enact the 1 percent sales tax, which the council could do with a simple majority vote (six in favor) and not take it to the general public for vote, it would raise about $2 million a year. Those funds would replace the $1 million the city receives in LGA, and the council would then determine where the remainder would be spent. If the sales tax passed, the city would no longer receive any LGA.
The vote on Friday in favor of asking legislators to allow the tax is just to give the city the option to enact the tax. It didn't enact the tax, and the outline of how the tax would be spent hasn't been set yet. Most of the council members agreed though that the remainder should be used for street assessments, and would therefore lower taxes for individuals and commercial properties.
The deadline for sending the request to the Legislature is March 7, which was the reason for the urgent need to hold a special council meeting.
"We've tried to cut services, increase property taxes, and our thought is if we can raise funds through another revenue source... it's not to expand city operations, but reduce reliance on property tax," City Administrator Bob Louiseau said.
Guzek said after the LGA funds are replaced, the leftover funds should be earmarked for something like infrastructure.
"If we do this, we need to spell out better where the money is going," Alderman Ron Zeman said.
"The arguments we put forth in the food and beverage tax are valid for this tax as well," Alderman Jim Anderson said.
Which brings forth another point to argue about the local sale tax: would the new tax do away with the food and beverage tax that was approved in November by the public? It will start being collected April 1.
Louiseau said that if the city asks for the full 1 percent local sales tax, the food and beverage tax could be eliminated because the sales tax would generate enough money to cover both the LGA cuts and the food and beverage tax monies. If the council would ask for a less than 1 percent sales tax, the food and beverage tax would need to stay in place or there wouldn't be money for the extra projects.
The food and beverage tax was passed to fund flowering rush control, public parking, non-motorized recreational trails and the development of the crescent area.
"I think we should have a vote of the people," Zeman said of enacting the sales tax.
He also suggested the city wait and see what the state is going to do because if the state raises a tax, it would be too much for the city to have one as well.
Alderman Bruce Imholte, who has always supported the local sales tax over the food and beverage tax, said he's still in favor of the sales tax but thinks the council is rushing into it and should wait until next year to make the request to legislators.
"I'm personally not ready to vote on this," he said.
Alderman Madalyn Sukke said she's in favor of asking for the tax if the remainder of the money goes to assessments.
Alderman Jamie Marks Erickson agreed with Sukke when she made the motion to allow staff to send a request to Rep. Paul Marquart and Sen. Keith Langseth, asking them to introduce a bill that legislators would allow the city to enact the local sale tax.
If approved, the city would then have the option to actually enact it, or not.
"You have the ability to shape the request how you want," Louiseau said of the details of how the money will be spent.
The motion passed 5-2, with Zeman and Imholte voting against it.