Sales tax helps diversify city's revenue stream
Property tax funds a portion of city infrastructure and operations, but other funding is needed to address ongoing needs.
Oh wise and all knowing one: Can you tell me what our property taxes are used for? I always thought they covered streets and sidewalks, fire and police, things we all benefit from, but now the city wants a sales tax extension to, in part, cover infrastructure.
In light of the recent St. Paul ruling, will our city council get the message?
Looking forward to your explanation. — Unhappy Taxpayer
All taxes, as well as other city revenue, aren’t created equal.
Rochester’s 2022 property tax levy will collect $86.8 million, which covers approximately 17% of the city’s planned expenses for the year.
You are correct that the property tax revenue largely covers things that benefit the community as whole, but those particular tax dollars don’t cover the entire cost.
Approximately $59 million of the property taxes collected go into the city’s general fund, which is budgeted at $101.2 million this year. Of that, 58.1% of the expense is tied to public safety, 16.5% is for public works, 16.6% is used for general government operations and the remaining 8.8% supports several other things, including arts, economic development and community reinvestment.
Outside the general fund, 10.5% of the property tax revenue supports city parks and recreation, 8.5% funds the Rochester Public Library, 3.6% covers debt payments for a variety of past projects and 0.7% is used to support Rochester International Airport.
That leaves less than $7.6 million to be contributed to a planned $148.5 million in improvement projects for the year.
In the case of city streets, the city is hoping to generate $50 million from sales tax in extra funds to catch up on a backlog of street replacement projects.
Current funding has the city replacing one to two miles of city streets a year, meaning it would take 250 years to replace all city streets as they deteriorate over their anticipated 50-year lifespans.
Replacing the city’s more than 490 miles of streets in a 50-year period would cost an estimated $20 million a year.
Replacement of deteriorating streets is different from the work addressed in the St. Paul lawsuit, where a judge ruled residents shouldn’t be assessed for routine maintenance of streets abutting their property.
Rochester doesn’t assess property owners for the regular resurfacing of city streets.
Assessments are used to cover a portion of the costs for upgrades and replacements, which are considered to add value to adjacent properties.
The proposed sales tax extension, however, is not an assessment. It would be a continued diversification of city revenue.
The city has received approval to generate $335.6 million in sales taxes since 1983 to upgrade and build a variety of projects that would otherwise have gone undone or required a boost to property taxes. Among them are flood control efforts, new facilities and a variety of infrastructure.
The city could opt to end the sales tax in 2024, when the current dedication is complete.
If that happens, the Rochester City Council would likely have a few options – continue to delay upgrades to streets and flood control, increase property taxes by up to $12 million to $13 million to replace the lost sales tax revenue or find a magic lamp and start rubbing in the hope that a genie appears.
The sales tax option is an effort to disperse costs beyond property owners. It collects funds from everyone who makes taxable purchases in the city, meaning renters, employees who live outside Rochester and visitors, all of whom benefit from good streets and flood protection.
It’s one of the reasons the state Legislature weighs in on whether projects are appropriate and have a regional benefit.
The legislative verdict is still out on the current $205 million request. If any portion of the request is approved, city residents will be asked to vote on the tax extension in November.
That would leave the council with time to start looking for that magic lamp, if needed.
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