By a 6-2 vote, the Rugby City Council has approved a first reading to increase the city sales tax from one to two percent, a decision motivated to collect additional funds toward the city’s estimated $5 million street improvement project this year.

The action was taken at a special meeting on April 9, and a second and final reading is still required. No date has been set when the council will act on a second reading.

The council debated the issue for quite some time before a motion was made by alderman Bill Hartl and seconded by Dave Bednarz. Six council members approved the increase – Hartl, Bednarz, Terry Wentz, Monte Schneibel, Steve Brossart and Bruce Rheault. Councilmen Gerry Jacobson and Jim Hoffert opposed it.

Karla Harmel, city auditor-administrator, said citizens have a window of time to refer the ordinance, if desired. That would require petition signatures.

If there is no opposition, the two percent sales tax would likely go into effect as early as July and as late as October, depending on paperwork filed with the state tax department, Harmel said.

Last year, the city took in $266,000 from its one percent sales tax, about nine percent higher than 2007. The five-year average collection has been $244,000.

So an additional one percent would equate to a yearly collection ranging from $480,000 to $520,000.

Of course, the initial collection would be mixed, with a little over half of the year at one percent and the second half at two percent.

Currently, 75 percent of the collection funds the Rugby Area Job Development Authority and economic development endeavors, with the remaining 25 percent used for city infrastructure maintenance and projects.

Harmel said that 75-25 ratio would change if a two percent sales tax is established. The JDA’s annual collection would amount to the same, in terms of dollars it has received over the years. However, the ratio would change. The proposal would have about 65 percent of sales tax funds go toward infrastructure and 35 percent toward JDA and economic development. Harmel said those figures need to be made before amending the sales tax ordinance through a final reading.

Harmel estimates the city’s annual share of the two percent collection each year would be a minimum of $240,000.

Harmel found that 123 cities across the state currently have a sales tax, and a surprising number have a two percent tax.

“It’s not just the ‘big four’ (Fargo, Bismarck, Grand Forks, Minot), Harmel learned.

Among them are neighboring Bottineau, Cando and Drake. Other towns like Garrison, Hillsboro and Devils Lake have also established a two percent tax to fund infrastructure maintenance and economic development and tourism projects.

Rugby’s current one percent sales tax was established in January of 1993 following a vote that prior fall which approved the city’s Home Rule Charter and the creation of a sales tax.

Seven years later, the council voted to permanently keep the tax, which they were allowed to do by law.

The one percent tax was set up to fund the job authority and economic development as well as provide funds toward city infrastructure maintenance.

The council is also considering whether to increase the infrastructure fee it currently collects on monthly water-sewer bills in the city. Currently, $3.75 is collected. Additional funds would also help to reduce the street improvement project’s costs and the assessment fee to property owners.