At the September 15, 2015 City Council meeting, City Council passed the Home Rule Sales Tax (“HRST”), 0.5% of sales for “the purpose of funding capital projects, reducing debt obligations, and replenishing cash reserves with a sunset provision terminating the home rule sales tax as of January 1, 2018 unless extended by the City Council by October 1, 2017.” So the tax was clearly intended to be temporary in nature, to last two years, with the sole purpose of strengthening the City’s financial position through reducing debt and increasing cash reserves.
We’ve previously written about the tax effectively being used for operating expenses, as approximately $3.8 million in operating expenses in 2016 were transferred to the capital budget in 2017, meaning that amount would not be used to reduce debt but pay what were previously classified as operating expenses. (The $3.8 million was previously partially offset by $1 million in revenue to the capital budget, but that revenue was later moved into the General Fund, so the amount is now the full $3.8 million.)
The debt reduction isn’t materializing. This City Council was elected in April of 2015, and took office in May of that year, so the first budget this Council passed was for Calendar 2016. On December 31, 2015, the City’s non-Enterprise debt balance was $116.4 million. In 2016, the City borrowed $15.9 million and retired $9.5 million, for an increase of $6.4 million. In 2017, the City will borrow approximately $7 million and pay off about $13 million, for a reduction of about $6 million, resulting in an estimated December 31, 2017 debt balance of approximately $116.8 million, or about the same amount as on the day the HRST became effective.
It does seem pretty clear that the tax was supposed to “sunset”, or expire, on December 31, 2017, unless extended by October 1, 2017. Councilman Coyne reading the ordinance which was approved at the September 15, 2015 Council meeting:
Councilman Coyne referencing the sunset provision:
Councilman Gallaher on the sunset:
Strong stuff there. Councilman Gallaher "won't hesitate to terminate the sales tax sooner than the sunset…the City should collect what it needs and not one nickel more."
So the HRST was passed as a defined term tax to be used only to reduce debt and build reserves and clearly passed with a definitive sunset date. It would seem pretty clear that the HRST is set to expire, correct?
Well, maybe not. From the November 28, 2016 City Council workshop on the 2017 Budget:
There seems to be a lack of clarity on whether or not the tax sunsets or is simply “reviewed’ after two years, but according to Doug Krieger, City Manager, “we’re going to spend some time on it during next year’s budget process.” Since the HRST clearly sunsets, and if the intent is to allow that to happen, what is there “to spend some time on?” No action required, Mr. Krieger. (In fairness, we wouldn’t necessarily expect the Mayor to remember the details of the sunset provision, but it’s reasonable to expect the City Manager to know, since this is $8.5 million a year in tax revenue set to "sunset" at the end of 2017.)
Mr. Krieger has mastered the art of replying to a question without answering it, so call us suspicious that “we’re going to spend some time on it” means something other than the clear intent of the law’s sunset on December 31, 2017. Something like ‘reviewing’ it and extending it. After all, the 'Lower Taxes' crowd can say they're not raising taxes if the tax is already in place, right?
Clarity of each candidate’s (Coyne, Gallaher, Krummen, Brodhead) position on the HRST during the upcoming City Council Candidate Forums (beginning February 8 at City Hall) would be welcome. Do they support the sunset of HRST, or are they in favor extending it?
The ‘Lower Taxes’ crowd wouldn’t cancel a ‘sunset,’ would they?