Sales tax shift required to support flood protection
A 1 percent sales tax in Minot might be enough to pay the local share of a basinwide flood protection project, based on some preliminary calculations.
On Monday, a city ad hoc committee considered the assumptions and calculations prepared by Ryan Ackerman, administrator for the Souris River Joint Board. The committee is tasked with developing a recommendation for future sales tax allocations. Minot levies 2 percent in sales taxes, with just half of 1 percent – currently about $4.5 million a year – going to flood protection.
“At half a penny, we are way in the negative. It doesn’t do it,” Ackerman said of meeting the local obligation to construct a $1 billion flood protection project. A full penny appears better able to cover bonding and annual payments that peak at about $18 million a year, under his scenario. Even a 1 percent tax leaves little room should any assumptions turn out to be wrong, though.
“It barely cuts it,” Ackerman said. “If a lender were to look at it, I think there would be a lot of perceived risk. If we were to go to the open market for bonds, there’s a lot of volatility here.”
Ackerman made several broad assumptions in determining the feasibility of a 1 percent tax. The assumptions include a 65 percent state cost share and do not include any potential federal funds or account for inflation. It assumes sales tax growth of 3 percent a year, which is conservative based on past growth, even before the oil boom. Projecting a 30-year payback, borrowing would increase each year for the first 14 years until reaching bonding of $336 million. Based on a 3.5 percent interest rate, the annual payment would peak at $18.2 million.
“This would appear to be something that could potentially work,” Ackerman said. “One percent is minimalistically where I think it can cash flow.”
In its second meeting, the ad hoc committee also continued its review of current spending from the sales tax, taking a look at economic development and the Northwest Area Water Supply project.
The council had reduced the share of the first penny going to economic development from 40 percent to 15 percent in July 2014. The remainder of the tax goes to flood protection, capital improvements and property-tax relief.
Of the nearly $1.37 million projected to be collected for economic development this year, Minot Area Development Corp. will receive $365,000 for operating expenses. MADC has a total annual budget of about $600,000. It also receives $60,000 from Ward County and other funding from investors.
In addition, $90,000 of the $1.37 million is earmarked for Minot Air Force Base retention efforts and $14,259 to Souris Basin Planning Council. Some money is designated for administration, while $781,950 is projected to go to the MAGIC Fund, which currently contains $7.1 million.
Stephanie Hoffart, MADC president, said it is important to have some funding to compete with other communities, but business incentives aren’t the only use of the MAGIC Fund. One of the best uses of economic development money is a rotating loan fund, she said. MADC has been borrowing from the MAGIC Fund to develop infrastructure in industrial parks in east Minot. That infrastructure remains available even if a business goes away, Hoffart said.
She also stressed the need to partner with the community, especially when it comes to flood protection.
“Economic development can’t grow if the city is not protected. I do understand that, and I understand we all have to give and take at different times,” Hoffart said. “I will look at every avenue I can at MADC for ways we can partner and find funding in other arenas so we can be a part of flood protection.”
The NAWS project is not currently receiving sales tax dollars. About $34 million remains in the NAWS fund from previous tax collections. In 2011, voters re-directed the tax to infrastructure, community facilities and property tax relief. The finance director can revert the tax in part or full back to NAWS if more money is needed.
Public Works Director Dan Jonasson presented information showing the local share to complete NAWS could be as high as $74.6 million if cost sharing is required on construction of a biota treatment plant. If the plant is fully funded by the state and federal governments, the local cost share would be $46.6 million. In either case, more tax money would be required.
The committee plans to consider proposals for tax changes when it meets again Feb. 6. Committee member Bob Schempp said it needs to be made clear to the public that the options are an adjustment in the distribution or an increase in the sales tax if flood protection is to be fully funded.
In the meantime, Jonasson said, the Mouse River Enhanced Flood Protection Project needs to be in position to compete for state dollars because it appears the Legislature will not be earmarking money. Instead, there will be categories of money for those projects that are ready to go.
“It’s going to be important that, one, we have the funding set aside to move forward these projects and keep them moving forward, and two, that we get some of these projects designed and moving forward so when these funds are available, we can jump on these funds immediately,” he said.