A total of $35-$36 million to use on city infrastructure and facilities projects over the next 25 years: That is what the Detroit Lakes City Council is hoping to gain from a new half-cent local option sales tax that they could put before voters for approval as early as this November.

Three different options for a capital finance plan that would be funded by the proposed tax were presented by City Administrator Kelcey Klemm at a special council meeting on Tuesday.

WDAY logo
listen live
watch live
Newsletter signup for email alerts

Though the $34 million wastewater treatment plant that is slated to be built in 2019 was included in the list of projects to be financed through the proposed tax, Klemm said the tax would not be the principal source of funding for the plant.

"Then there would only be one project on this list," he said, referring to the plant's hefty price tag, which is a result of the stringent new standards for phosphorus removal that the MPCA is imposing on the city.

Public Utilities Manager Vernell Roberts said that, as state regulations currently stand, the city would be eligible for $4 million in water infrastructure financing from the state and another $3 million from a point source implementation grant, for a total of $7 million.

If the city is not able to increase that amount, that would mean they would need to get a $22 million loan to finance the rest of the project, Roberts noted; in order to pay off the bonds within 20 years, that would require the city to pay back $1.35 million per year, which, if it had to be funded entirely through utility rates paid by city residents, would result in an increase that would be in the neighborhood of $80 per month.

This would be well over the "affordability threshold" of $48 per month, Roberts said, noting that this amount was calculated by taking 1.4 percent of the community's current median income of $39,786.

This is where a sales tax might come in handy, Klemm noted, adding that it could be used to subsidize the cost of the project. He estimated that about $8 million of the overall cost of the wastewater plant could be funded through the sales tax, as a "backup plan."

The other two main areas of development that could potentially be funded through a new sales tax, Klemm said, were the establishment of a lakeshore development district along West Lake Drive and North Shore Drive, and facility improvements such as a new public works building and city police department, renovations to city hall and eventual replacement of the Pavilion.

If the state doesn't come through with additional funding and part of the cost of the wastewater project has to be funded through a sales tax, Klemm noted, that means the first thing that will likely be taken off the list is the lakefront district.

Alderman Barb Schiller asked where the city's established food and beverage tax, as well as the county's half-cent sales tax, fit into the mix.

Klemm said that the 1 percent food and beverage tax that is already levied by the city is specifically earmarked for parking and trail improvements, aquatic invasive species prevention and downtown redevelopment... because that was what was included in the special legislation authorizing the tax.

Likewise, the county's half-cent tax is specifically allocated to road projects, he added.

No decisions were made at Tuesday's meeting, but Klemm said that there would likely be a resolution requesting the tax from the Legislature included in the agenda for the council's February meeting.

Even if the Legislature passes the special legislation authorizing the tax however, it would still need to go to the voters for final approval.