Sales tax revenues indicate healthy retail in New Ulm

By RON LARSEN

Journal Staff Writer

NEW ULM -- When City Manager Brian Gramentz informed the City Council earlier this year that the sales tax referendum fund finished 2003 with a deficit, the shock wave spread throughout the room.

How could that be? The projections for sales tax collection were considered to be ultra-conservative.

"Yes, it was pretty hard to understand; it was even difficult for some of the council members," Gramentz recalled.

The half-cent sales tax is paying for the renovation of Vogel Fieldhouse, the remodeling and expansion of the Community Center and the construction of New Ulm Civic Center.

Turns out, however, that sales tax collections are growing at a healthy rate even though, on paper, they're falling behind budgeted annual collection amounts.

Confused? So are the folks in City Hall.

"That's why I've told (City Clerk-Treasurer) Reg (Vorwerk) that we should scrap trying to budget a revenue number and go with a known number which is the debt service number (for the particular budget year).

As an example, in 2003 when the "paper" deficit occurred, sales and use tax collections totaled $768,333 and the debt service on the bonds was $658,190. Yet, the $722,844 in sales tax was only 93.51 percent of the budgeted amount ($773,005).

The same thing is true in every year since the city began paying off the bonds in 2001. So, instead of having tax collections falling behind, the city is actually building quite a hefty surplus in the sales tax referendum fund, Gramentz said.

In 2001, the city took in $581,091 (with a debt service of $126,139) in sales and use tax collections. Then, in 2002, that total grew to $745,780 (with debt service of $633,970).

"Everybody is saying that retail is declining in New Ulm, but the amount of tax coming in is growing every year. That doesn't sound like a decline in retail to me," Gramentz said.

The big surprise has been the amount of use tax, primarily from the sale of automobiles, collected.

In 2001, $14,000 was budgeted and $36,530 was collected, over two and one-half times the amount budgeted. In 2002, use tax collection grew to $44,972, 187.38 percent of the budgeted $24,000.

Then, in 2003, there was a smaller increase as collections totaled $45,489, but that was still 189.54 percent over the budgeted $24,000.

For 2004, the debt service on the bonds amounts to $723,910. However, starting in 2005 and continuing until the bonds are paid off in 2020, the annual debt service payments will range from a low of $742,778.78 in 2005 to a high of $759,610 in 2017.

If sales tax collections continue as they are now, that means there will be a hefty surplus in the account when the bonds are paid off. While the funds can only be used for debt retirement until 2020, Gramentz said the city will be able to use the surplus for maintenance, replacements and improvements connected with the three sales tax referendum projects.

"So, sales tax collections couldn't be better. We just need to change how we're handling it in the budget," Gramentz said.