At the September 27 City Council meeting, the Council discussed a possible request for special legislation to levy a sales tax. At that meeting, the Council raised several questions regarding how a local sales tax would impact the community. At the October 25 City Council meeting, Staff provided background data regarding the impacts of a local sales tax on residents, businesses, and the City's finances. Details on those responses are included below.
If a request to the legislature for a sales tax levy is to be submitted by the January 31 deadline, the Council will need to pass a resolution supporting the request at the January 24 meeting.
If a request is made and granted by the legislature, the community would then need to approve a referendum to establish the levy. The soonest a sales tax could be implemented given this timeline would be 2024.
As part of the community engagement efforts related to the 2040 Comprehensive Plan, the Opportunity Site master planning, and the Community Center Master Plan, it is clear that the community desires more robust, culturally inclusive, and accessible recreation programming and facilities. Community input has consistently indicated a desire for a regionally significant attraction on the Opportunity Site that can function as an anchor to the overall development and a gathering place and point of pride for the community. In addition, community input has indicated a need for more diversity of recreation options for young people, young families, and seniors in the community, specifically related to expanding facilities and programming at the community center. A sales tax levy offers an opportunity to fund public purpose projects which respond to the community's needs.
Year-round Adventure Park
The City has been exploring public purpose projects which have the opportunity to provide broader regional significance. One such project has been an indoor/outdoor, year-round, regional recreation facility that could be located within the Opportunity Site master planning area. The City began exploring this concept three years ago as part of the overall master planning work, and in response to early community engagement, which called for a regional entertainment draw that could benefit both residents and the wider region, and create an attraction which would bring people to the community and anchor the Opportunity Site development area.
The concept is modeled after the U.S. White Water Rafting Center in Charlotte, North Carolina (https://whitewater.org/). Owned and operated by a nonprofit organization dedicated to expanding opportunities for play to people of all ages and abilities, the U.S. White Water Rafting Center offers a wide array of outdoor adventure activities, dining, entertainment, and convention services eight months out of the year. The facility provides free access to its grounds, while participants pay a fee to access activities. Weekly concerts and other entertainment are provided at no cost to visitors.
The operators of this facility have expressed interest in seeking a northern location for a similar facility in order to provide year-round activities that include winter adventure and sports as well as summer activities. A feasibility study was completed on the concept, which found it to be financially viable. Staff began talks the owner/operator of the facility in Charlotte, North Carolina, and how a similar use might adapt to fit into Brooklyn Center and the Twin Cities region.
The City began exploring funding concepts through various public, private, and philanthropic partners when the pandemic began. The result was that the project was shelved and other options for the site began to be explored. The details of an ownership/operation model had not been sorted out at that point, and continued discussions would be needed to determine what the best option would be for ownership of such a facility, as well as who would be best suited to operate it.
Additional information and images of the concept are attached to this packet.
Cultural Community Wellness Center
In addition to a regional recreation facility, the City has begun a master planning process to consider a new or expanded community center. Components of that process have included identifying community needs in terms of recreation and community center facilities, as well as a broader look at the surrounding market and potential regional demand for community center space. As part of the planning process, potential partners have been identified which could be leveraged to achieve a larger, more regionally significant, community and wellness center.
The City completed an initial analysis of the spacing needs and potential partners, and then moved into a second phase to develop fit plans and more solid cost estimates. Several iterations of the plan have been worked through in order to find a balance that provides the types of activities that will most benefit community, will draw outside users to the new community center, can be implemented over multiple phases, and ensures a feasible and cost effective plan. One key aspect of the new community center will be that it can serve as a host facility for regional tournaments. Tournaments not only bring new people to the community that generate positive economic impact, but the revenue generated from tournaments help offset operating costs of such a facility.
The City has submitted an application to the state for bonding dollars to support the build out of a new community center. That request is for $44 million, with a city match of $17 million. The total cost of the new community center is estimated at roughly $80 million. It is not likely that the City would receive its full request of $44 million in state bonding. However, the City can go in for state bonding for the community center over multiple years, with the hope of generating more funding and reducing the reliance on a local sales tax. That said, regardless of whether the project receives state bonding or not, the City will need to find alternate funding sources to complete the center.
Response to Council Questions
At the September 27 meeting, Council raised a number of questions related to a sales tax levy. Staff has worked with Ehlers to respond to those questions. Jason Aarsvold, the City's public financial consultant with Ehlers, will be present at the work session to provide these responses. Below is a summary of the questions asked by Council.
What is the impact to retailers in community with a sales tax levy?
Attached is a study from the University of Minnesota which was commissioned by the City of St. Louis Park on this question. The study found that there was no measurable impact on retailer's profits or their decision on where to locate.
What would be the impact to Brooklyn Center residents with a sales tax levy? What would the impact be to Brooklyn Center residents if the projects were funded through property tax supported debt?
Attached is an analysis by Ehlers that identifies impact on shoppers at varying income levels and with different sales tax levies. The analysis also compares what the financial impact would also be to the average Brooklyn Center homeowner if the same amount of dollars generated by the sales tax levy were to be funded instead by property tax levies (this assumes that instead of sales taxes, the same amount is generated through property tax support debt, such as bonds). The analysis finds that the sales tax option is more favorable to Brooklyn Center residents.
What other cities have sales tax levies, how much are they, and what do they fund?
Attached is a list of recently approved sales tax levies in other communities, how much they were approved for, and what projects will be, or have been, funded.
How much of the sales tax generated would be held back by the Department of Revenue to cover administration costs?
According to the DOR, the amount would be between 1%-2% of the total amount levied. They indicated that there is a fixed cost to fund the administrative activity for all local sales taxes. This fixed cost is spread across all communities that have a local sales tax. It is based (mostly) on each city’s proportional share of local sales tax collections each month. There are other factors as well, such as how many returns each community has. The amount charged monthly can vary. They indicated they are working on a more predictable and fixed model for this, but are not there yet.
There is also a “start-up” cost for a newly approved sales tax. This covers the cost of the setting it up in their system, notifying retailers and everything else that goes into initiating the tax. This is between $15,000 and $20,000 (one time) and is netted out of the first few settlements that would come to the city.
The purpose of this work session discussion is to provide responses to the Council's questions about a sales tax levy and confirm the Council's interest in moving ahead with a request.
The next step would be that staff would begin to gather information about each project in order to prepare the request. This would include documentation to demonstrate regional significance of the projects and financial information to determine the need. A resolution would be prepared and brought back to Council for the request.
The Council is being asked to consider a resolution which would support a request to the state legislature to authorize the City to levy a local sales tax of .5 percent. This would generate an estimated $44 million dollars which can be used to support regionally significant capital investments. The alternative to a sales tax would be to bond locally and impose a property tax levy on Brooklyn Center residents, shifting the burden of these facilities entirely to residents.
If the resolution this evening is approved, the City will submit a formal request for special legislation by the January 31 deadline. if that request is approved, the decision on whether to actually levy the sales tax option would go to the community via a citywide referendum. This process would involve an extensive communication and engagement campaign.