By B Kyle and Chad Kulas
The St. Paul Area and Midway Chambers have reservations about St. Paul’s 1% sales tax referendum, which we’re voting on in a week. While the intention is commendable — funding road repairs and improving park amenities — the repercussions cannot be overlooked.
St. Paul businesses already have been subject to numerous new tax increases this year, including but not limited to the 1% seven-county metro sales tax for transit and housing, delivery fee, increased tab fees, gas-tax indexing, and 0.07% payroll tax to support paid family medical leave. We’re at the point where our members are saying “enough.” In fact, through surveying our members, both membership groups reported back a 77% opposition to the tax proposal.
There are funding alternatives to increasing the local sales tax rate to the highest in the state, many of which are dedicated to core municipal services and street improvements. While these options might not be a panacea, they must be acknowledged and discussed.
First, St. Paul will get almost $8 million annually in increased Local Government Aid funding due to legislative action. Local Government Aid is state funding to assist cities in providing core services like infrastructure and public safety.
The city also is estimated to receive $11.8 million through fiscal year 2027 from the new transportation taxes enumerated above. And once all the revenue increases are fully phased in, St. Paul will receive even more funding on an annual basis. Additionally, Ramsey County will receive an allotment of these transportation funds that will support the repair of county roads in St. Paul.
While these solutions don’t get us to the targeted $1 billion over 20 years, we do have new revenue available to start chipping away at the city’s infrastructure needs.
The City has provided a map that shows the projects to be funded with sales tax revenues. With over 1,800 lane miles of roads, these 22 projects are a drop in the bucket. If you don’t live adjacent to these roads, your property still will be assessed if and when your street gets rebuilt. This sales tax revenue also CAN’T be used for pothole maintenance on residential streets, per state statute.
Again, while we agree with the need to improve St. Paul’s streets, this is not a new problem. Infrastructure investments have not been prioritized through the past several administrations, and the delay in addressing until this year has further compounded the gap. Where is the City’s long-term plan to address the infrastructure needs above these 22 projects?
Furthermore, any sales tax increase has an undeniable impact on businesses, particularly small and locally owned enterprises.
An additional 1% tax on their goods and services will drive some customers to surrounding communities with a lower sales tax rate, while forcing those who are least transit-connected and least able to afford the new taxes to spend more of their money. The sales tax proposal is a regressive tax, disproportionately impacting low-income households. For those living paycheck to paycheck, every dollar counts, and a 1% increase in the cost of necessities can significantly strain their financial stability.
Small business is the backbone of our local economy; as such, we should prioritize supporting growth rather than adopting measures that hamper their success.
With the availability of online shopping and neighboring areas with lower sales taxes, some shoppers may opt to purchase goods and services elsewhere, hurting local businesses and diminishing tax revenue. A drop in local consumption would exacerbate the very challenges this tax aims to address.
Implementing a sales tax hike is not the most effective way to address St. Paul’s infrastructure and public service needs. It is essential to evaluate existing budget allocations, new funding appropriations, and potential cost-saving measures before resorting to tax increases. Responsible fiscal management should include prioritizing core city services, and ensuring taxpayer dollars are spent efficiently and effectively.
An alternative approach to revenue growth such that we can better fund infrastructure improvements lies in driving private investment and expanding the property tax base, even in the face of uncertainty around the current rent control ordinance. Moreover, focusing on economic development and job creation should be at the forefront of our strategy. By attracting new businesses and industries to St. Paul, we can expand our tax base and generate more revenue without resorting to a sales tax hike to fund core government services.
While the intent behind St. Paul’s proposed 1% sales tax initiative is understandable, we must consider the potential negative impacts on businesses, consumers, and the local economy, not to mention the limited scope of its impact to repair our street infrastructure. Instead, let us explore alternative solutions, such as supporting new development, leveraging the new revenue headed St. Paul’s way, and focusing on core city services in the budget process to address our city’s needs without overburdening our residents.
By working together to foster a resilient and thriving economy, we can build a better future for all of St. Paul’s residents.
B Kyle is the president and CEO of the St. Paul Area Chamber. Chad Kulas is the executive director of the Midway Chamber of Commerce.