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Arena sales tax collection likely to begin in 2012
Published 10:59am Thursday, July 28, 2011The city of Fergus Falls will likely begin collecting its ice arena sales tax money around the first of next year, City Administrator Mark Sievert reported at a finance committee meeting on Wednesday. The city must also consider how much it wants to bond to pay for the project.
Now that the sales tax has been approved by the legislature, the city needs to pass a resolution supporting it.
“We submit that along with a certification of the (2010 public) vote into the state,” Sievert said. The finance committee recommended the ordinance to the council.
After that, the city needs to pass an ordinance enacting the tax within city limits. City Attorney Rolf Nycklemoe is currently working on putting one together.
“We’ll have that on the agenda, asking you to have the first reading on that (at Monday’s council meeting),” Sievert commented.
When the resolution and ordinance are both passed, the city will notify the Minnesota Department of Revenue. The department will then set up the process for collecting the tax and notify local business owners, a process that must legally take at least 90 days. The department will then collect the sales tax and issue payments to the city on a monthly basis.
“It looks like it will be somewhere around the first of the year when (the department) should start receiving payments,” Sievert said.
Sievert also told the city that Finance Director Bill Sonmor is currently studying how much the city should bond for, and over what period. Up until now, the city has been paying for ice arena work out of pocket because of uncertainty about whether the sales tax would be passed. The bond amount and length for a property tax-supported project would be very different from a sales tax-supported one.
The sales tax bill as passed by the Legislature allows the city to raise up to $6.6 million to accommodate for bond interest and the failure of some fundraisers to follow through on their pledged donations (the city’s base commitment is $4 million). Sonmor is considering a bond that is repayable in five years, but city staff is unsure yet how much the bond should be for. Sievert said it depends on projections of how much a sales tax will collect and how quickly donations come in.
Sievert added that some have questioned why the city doesn’t continue to pay for the arena out of its investment portfolio instead of issuing bonds. He said the reasons are two-fold: first, the city will be able to issue the bonds at a very good interest rate of 1 percent, and second, the investment portfolio is dedicated to other city needs, not the ice arena.
“As much as it’s nice to be able to do some things with cash, we think it makes more sense to borrow the money at relatively low interest rate (and accrue) a minimum amount of interest and not tap into our investment portfolio,” he said. “Also, we just like to express the concern that when we look at our investment portfolio, those monies are dedicated for various certain projects. As much as you do have the ability to borrow from that, if you start doing that on a significant basis, it comes time to tap into those dollars for specified budgets and some of the dollars may not be there.”
The bonds will likely be issued this fall.
Tags: finance personnel and development committee, ice arena
