City explores local sales tax
The Alexandria City Council is exploring the idea of enacting a local sales tax.
City Administrator Jim Taddei broached the topic at Monday night's council meeting as a way of dealing with cuts in local government aid (LGA).
Taddei said that based on information from the state, the city was expecting to receive the same amount of LGA this year that it received last year.
However, a recent House research department printout showed Alexandria's projected 2012 LGA at $1,094,247 - $110,700 less than it received in 2011.
A city's population is a key factor in determining LGA. Taddei asked, and received, the council's authority to contact state officials and request that the city's recent "phase 4" annexation population be included in the projected 2012 formula and that Alexandria should be designated as a regional center.
This would increase the LGA by $60 per person - giving the city a $364,000 boost.
Mayor Dan Ness expressed disappointment that the state has not yet designated Alexandria as a regional center. "I'm sure we meet every test to be a regional center," he said.
"It's a matter of fairness - no question," agreed Taddei.
A local sales tax, which would have to be approved though a local referendum election, is another option for making up for the LGA cut, Taddei said.
It could be used to fund regional services such as law enforcement, fire protection and city street maintenance. This differs from local sales taxes enacted in other cities where the money was used for specific building projects.
A 2 percent sales tax would generate an estimated $7 million per year in Alexandria.
Another option is to increase the current sales tax from 6.875 percent to 7 percent. This would generate about $450,000 a year.
Taddei said that either sales tax option would have to be carried by local legislators, approved by the Legislature and put before voters.
Council member Virgil Batesole said he would support a sales tax, which he views as a user tax. He said it's a fair tax that wouldn't impact senior citizens as much because they don't spend as much. He said if the state continues to cut LGA, the city will have to make reductions and find new revenue and a sales tax would be worth looking into.
Council member Elroy Frank suggested referring the sales tax idea to a work session where the council could take more time to review its options.
Council member Sara Carlson agreed, adding that the city should also contact local legislators about the possibility. She said the council could also find out how local sales taxes have worked in other cities such as Fergus Falls and Hutchinson.
Taddei noted that the city is under a time crunch for enacting a sales tax. It would have to get legislative approval before the session ends this May.
Mayor Ness said the city's legislative committee would meet and discuss the sales tax. He added that the city must be careful about how it communicates the sales tax.
"If we talk about LGA going away, it could be a self-fulfilling prophecy," he said.
The council addressed a variety of other topics at Monday night's meeting, including the 2011 annual report from the building department. See Friday's Echo Press for more council news.