Local tax pleases Rochester, Kato

City manager thinks New Ulm would benefit from half-cent proposal

By CHRIS VETTER

Journal Staff Writer

ROCHESTER -- Gary Neumann is a proponent of local option sales tax increases. Neumann, Rochester city manager and former New Ulm resident, says he has seen the positive effects of the tax in Rochester.

Furthermore, Neumann believes those same positive results would be replicated in New Ulm.

In 20 days, New Ulm residents will vote on a half-percent sales tax increase referendum. The new revenue would fund a new ice rink and exhibit space facility at the Brown County fairgrounds, renovations at Vogel Arena and a large addition at the Senior Center.

While the idea is fairly new to New Ulm, Rochester has been funding new facilities with local sales tax revenue for nearly 20 years.

Rochester first passed a one percent local sales tax in 1982. Neumann explained that the money was needed to pay for a flood control project. Rochester had been hit hard by a flood in 1978, and needed to fund the project to prevent future disasters.

"We needed to come up with a way to fund that," Neumann said Tuesday. "And to put that on property taxes would have put a drastic burden on taxpayers."

The 1982 sales tax revenue also paid for the town's civic center.

When a town receives approval for a local option sales tax increase, it sells bonds to generate revenue. The bonds are then repaid over time by the sales tax proceeds.

In Rochester's case, the bonds were paid by 1991. The Rochester City Council then sought a second local option sales tax, this time for only half a percent. Voters again passed the hike, which paid for a new fire station, a library, and a new city hall, Neumann said.

Those bonds were again paid by 1998. Rochester voters then approved -- for the third time in 16 years -- a sales tax increase, which now pays for renovations at the civic center, the community college, airport expansion, the city share of a highway project, and sewer line improvements. The current project totals $71.5 million in improvements.

"It's been very successful," Neumann said. "They'd rather do it with sales tax, when they pay a bit of it at a time."

Neumann said Rochester officials have never closely examined what percentage of money generated from the sales tax increase comes from visitors to town. He guesses the number is 40 percent from outside sources, but quickly adds that number is conservative.

"There is a sizeable share that comes from people who are not from our community," Neumann said. "It seems to be a fair way to pay for facilities that serve the whole area."

New Ulm could also benefit from a sales tax increase, Neumann believes.

"I think it can work for any sizeable freestanding community, which I see New Ulm as being," he said.

Area merchants shouldn't be concerned about a drop in business, Neumann contends. During the 18 years of a local sales tax in Rochester, Neumann said he had not heard a complaint about area businesses suffering due to the tax.

"I think it's been a non-factor," he said.

Pat Hentges, Mankato city manager, echoes Neumann's comments.

"It has been a wonderful tool from a financing standpoint to help our community and area to develop regionally significant projects, like the civic center and the Mankato airport," Hentges said.

Mankato passed a half-percent sales tax increase in 1993, modeling the proposal after Rochester's referendum, Hentges said. The revenue initially paid for the civic center; the airport improvements were added in 1996.

"Ultimately, it has generated $2.8 million a year," Hentges said. Since the tax began, the city has raised more than $6 million for the airport and $21 million for the Midwest Wireless Center.

"These facilities have heavily benefitted the region," Hentges said. "The civic center is a number one identifier for visitors to Mankato."

The new facilities have helped businesses in Mankato, Hentges adds. The city estimates that an additional $18-20 million is spent a year by visitors to Mankato, at hotels and restaurants, since the civic center was built.

Hentges also believes that a sales tax increase could be successful for New Ulm.

"I was in New Ulm two weeks ago for Oktoberfest," Hentges said, noting that his wife spent money at gift shops downtown. "That's money that would not be from the community."

Hentges said Mankato officials estimate that more than half the sales tax -- up to 60 percent -- is now paid by visitors and tourists to town. However, that visitor percentile includes North Mankato residents.

Several opponents of the sales tax in New Ulm disagree with Hentges and Neumann. Peter Buckley of New Ulm has written numerous letters to The Journal, asking voters to reject the sales tax proposal.

"I disagree that we have the capacity to support this over the long term," Buckley said. "We are not a wealthy city."

If the New Ulm referendum passes, the bonds will not be completely repaid for 15-17 years. Buckley believes that timeframe is too long.

"We cannot accurately project the economy for 20 years," Buckley said.

Comparing New Ulm to Mankato, Rochester and Duluth is unfair because those cities have a significantly larger population, Buckley added.