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New sales tax for Fairmont streets nixed

FAIRMONT — The Minnesota Legislature has put the brakes on a proposed half-cent local option sales tax that could have generated about $600,000 per year for Fairmont street projects.

“I think about 20 cities had bills in for local option sales taxes. Cities were all over the board in things that they were asking for, but none of them are going to be included in the tax bill,” said Mark Sievert, Fairmont’s interim city administrator. “For right now, it’s dead.”

“What the Legislature is looking at doing is putting a short-term moratorium on local option sales taxes and forming a study group that would look at, in a more concentrated way, what they want to have as criteria or for what types of projects they would allow local option sales taxes to be used for.”

Over the past few years, local option sales taxes have become a popular way for communities to generate revenue for specific projects, whether it’s fixing roads, expanding parks and trails, infrastructure or buildings. Because it is considered a state sales tax, all proposed local option taxes must be approved by the Legislature.

There have been lawmakers who support that type of tax, Sievert says, and those who oppose it, usually those representing numerous small communities that do not have a retail base large enough to generate significant funds.

Lawmakers tried to set a standard by requiring that the tax fund a project of regional significance, but that still allowed for wide interpretation and deviation. They hope the study group/task force will define clear and specific benchmarks that all projects must meet.

“If Fairmont or any other city wants to try this again, they’re just going to have to basically start all over,” Sievert said. “There will be new criteria, and that might push us out to 2022 or 2023. That actually is the time frame some have been talking about.”

In an effort to develop different approaches to generating funds for street projects, Fairmont has considered a local option sales tax as well as a utility franchise fee or user fee, methods that would spread the financial burden over a wider base than assessing abutting property owners.

Fairmont currently has a half-cent local option sales tax that generates about $600,000 per year, with funds earmarked for a proposed community center. In April 2016, the City Council started the multi-step process by approving a resolution to develop the tax, and voters registered their support by 61-38 percent seven months later in the general election.

The tax proposal then went to the state Legislature where it was passed into law and signed by the governor. After getting approval from the Minnesota Secretary of State and the Department of Revenue, the council gave its final approval in June 2017 to have the tax go into effect Oct. 1, 2017. The tax will be in effect for 25 years, until Dec. 1, 2042, or until the sum of $15 million is raised.

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