Can Rochester use sales tax for DMC planning?

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State officials may nix Rochester's plan to use money from its local-option sales tax to pay for Destination Medical Center planning costs, leaving the city scrambling to come up with a new source for the $7 million.

Rochester officials are considering extending the half-cent sales tax or increasing it by 0.25 percent to raise the money needed for consulting fees and operation expenses of the DMC Economic Development Agency.

The EDA is responsible for putting together the overall, 20-year DMC development plan, and is in the process of hiring consultants to help it with that task. An early draft of its 2014 budget dedicated $7 million to the task, and it is unknown what its expenses could be beyond, said Rochester City Administrator Steve Kvenvold.

In recent conversations with Rochester administrative and legal staff, officials in the Minnesota Department of Employment and Economic Development and the Minnesota Attorney General's office said the local-option sales tax can only be used only for capital projects, not planning purposes, Kvenvold said. However, he said DEED and Attorney General officials were not certain and will be getting back to him with a final answer soon. Rochester requires DEED's approval to move ahead with the sales tax plan.

In the meantime, Kvenvold has postponed a Feb. 3 public hearing to get input and provide information about using the sales tax to fund the EDA's planning efforts. Until the city knows whether the option is legal, it makes sense to hold off on the public hearing, Kvenvold said.


In addition, there is some question as to whether the funding Rochester puts toward planning expenses will be considered part of its $128 million obligation to the DMC initiative, he said. He's waiting to hear from state officials on that question as well.

If it can't use a new sales tax increase to raise money for planning expenses, the city might have to divert money from the $20 million being raised by the current sales tax for DMC, money that city officials hope will fund capital projects. Voters extended the current sales tax in 2012 to raise $139.5 million for 10 projects, including the DMC.

Once the $20 million is gone, however, Kvenvold said he's not sure how Rochester would come up with funds to pay further planning costs.

"We'd either have to use general financial resources, which could be property taxes, or you go back to the Legislature and try to fix something. At this point, we just don't know," he said.

The uncertainty exists, but City Council President Randy Staver said he's not concerned yet.

"It's still in the discussion stage, so I just don't know enough yet to know whether we've got a problem or not," he said.

Staver said he wasn't surprised when he heard about the possible glitch, given how complex the DMC legislation is and how many versions were written until the final one passed.

"So, the fact that we're wrestling with a few of those details now is not surprising. It might be a little frustrating to people, and we'd all like to get it resolved, and I think we're very close," he said.

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