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Council ponders taxing questions

BEMIDJI -- Would a half-cent sales tax be more palatable to the public than a hospitality tax?

The Bemidji City Council briefly pondered that question during a Monday evening work session as council members met with city staff to discuss the 2015 budget.

"There's actually a better appetite for approving a half-cent sales tax for regional centers," said council member Ron Johnson. "That could be a real option."

His comments referenced the Beltrami County Board of Commissioners, which late last year approved a half-cent sales tax to fund road improvements. That new tax will prompt the discontinuation of its $10 wheelage tax.

In recent years, the city has been promoting the idea of a hospitality tax for purchases made at hotels and restaurants. It also has been working toward the creation of a fire district, which would be funded by fees to all property owners, including nonprofits.

But neither proposal has been widely embraced by the greater community.

"Neither one of those will likely have an impact to the 2015 budget, but I would strongly suggest the council as a whole really focus on whether or not they want to support those two items and if they do to get community support ... develop that support so that when we go the legislative session next year it has legs," said Ron Eischens, city finance director. "Either one of them could add significant stability to city finances and have a potential to reduce property taxes. I think more than anything, as a council, those are two things you should look at."

Johnson, though, wondered whether a half-cent sales tax would be more welcome to the community than either of the previously tried options.

Councilor Reed Olson said he would rather see a half-cent sales tax over a hospitality tax and suggested the city include such a question on this fall's ballot.

"Regardless of where it would go, the fact is it would free up $2.2 million of our budget so whether it was earmarked for streets or the south shore or wherever, I am all for that in lieu of a 1 percent hospitality tax," he said.

City Manager John Chattin said Bemidji Area Chamber of Commerce representatives have told him they are more likely to support a sales tax than a hospitality tax.

Mayor Rita Albrecht suggested the city develop a list of potential options and then work with legislators.

One potential roadblock, Chattin noted, was that half-cent sales tax approvals granted by the Legislature must be for regional projects and not operational costs, so the city could not decide to use such funds to operate and maintain the Sanford Center.

The Sanford Center was discussed at length Monday as councilors weighed whether they believe future expected expenditures at the city-owned events center should be included in annual budgets.

"We've brought it up several years in a row, the building's four-years-old, we haven't set aside anything," Eischens said. "From a finance director's perspective, I'm getting more concerned."

Chattin said the city has never funded depreciation of its buildings before.

"We have a public works building that is about six- or seven-years-old and we don't put any money away for that," he said. "I think it precipitates a larger discussion. ... If we put money away for the Sanford Center, that's funding deprecation and future maintenance."

For council member Nancy Erickson, she said setting aside funds for future needs at the Sanford Center was her top concern.

"This Sanford Center is nothing like a city hall or nothing like a public works building; it's a pseudo-enterprise operation and you are trying to encourage people to come here," she said. "If that is not a top-notch building, if it isn't functioning at top-notch and if it doesn't look top-notch, we are just hurting ourselves because no one will want to come."

Eischens said the Neilson-Reise Arena is a "perfect example" of why one should set aside such funds. Neilson-Reise is now undergoing a study to determine its future needs at its ice plant.

"We're looking at, give or take, $1 million to upgrade that," he said. "We don't have any seed money to offset any of those costs at this point."

Looking at the numbers

The budget discussion was broken into two main parts: the "required," or strongly recommended, portion -- and that which is more optional.

Required adjustments for next year include such items as the already approved 2 percent cost of living increases and FICA/PERA payroll taxes; funds for replacing the Police Department's auto theft grant, if it is not reauthorized; and $50,000 for the creation of the trail along 30th Street, which already was supported by previous council action.

The required adjustments by themselves total nearly $185,000 in new expenditures for 2015.

It was the latter half of the budget that prompted the most discussion. In March, city staff presented a list of 15 items that have not before been budgeted, but staff believed should at least be considered. That list included items such as the cost for the creation of the south shore park and beach, the costs to address the "significant" updates that will be needed at Neilson-Reise, and the prospective costs to construct an additional fire station.

Eischen's budget included some of those items -- such as $148,000 for three positions that would be created if the city opts to enact the second phase of Northern Township annexation next year -- but many did not make the list.

Some items will be tweaked in the weeks to come, such as $80,000 that was suggested for traffic-calming efforts near the Lake Bemidji waterfront. Albrecht pointed out that those funds -- the city's portion of a grant -- will not be needed until 2017 so it can be spread over several years.

Even those items that were listed are not guaranteed to make the final budget. For example, $51,000 is included for the creation of a fire marshal position but the council could opt to cut that -- or any other item -- by the time the final budget is adopted.

The council must adopt a preliminary budget and levy by Sept. 15. Whatever is supported at that time can be lowered, but not raised, by the time a final budget is adopted in December.

The council is next set to meet in a budget work session in mid-August.