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Council OKs final reading on sales tax increase

By Staff | May 5, 2009

The Rugby City Council passed a second and final reading to amend the sales tax ordinance, increasing the city sales tax collection from one to two percent.

The decision came at the council’s May 4 meeting, and like the first reading, the same six council members supported the sales tax increase; and the same two opposed it.

Councilmen Bruce Rheault, Steve Brossart, Dave Bednarz, Bill Hartl, Monte Schneibel and Terry Wentz approved the second reading. Councilmen Gerry Jacobson and Jim Hoffert opposed it.

Supporters see it as a way to generate additional revenue sources to fund capital improvements, including this year’s city-wide street improvement project. Other maintenance in the street, sewer and water departments in the future could be funded using the money. And the money is collected from residents and non-residents.

Opponents say the tax hurts businesses, and could deter out-of-town residents to shop in Rugby due rising sales taxes. And sales numbers often fluctuate. Hoffert, ward three councilman, earlier said he was more in favor of increase the infrastructure collection fee on monthly water bills, than increasing the sales tax.

It’s estimated the two percent collection would net the city, on average, between $480,000 and $520,000 annually.

The existing one percent sales tax has 75 percent of the collection given to the Rugby Area Job Development Authority and fund economic development. The remaining 25 percent goes to the city for infrastructure needs.

As part of the amended ordinance, that percentage will change. Sixty-five percent of the collected funds will now go to the city; while 35 percent will fund the JDA and economic development. City officials have said the JDA will still receive approximately the same amount of money.

During discussion of the amendment, councilman Hoffert questioned why only a vote would terminate the two percent collection. If the council could initiate the increase in sales tax, couldn’t also reduce it?

After consulting with Mark Butz, city attorney, a motion was made to include language in a section of the ordinance would allow a vote, or council action to change/decrease the sales tax percentage.

The city has collected a sales tax since 1993, following approval of Home Rule charter. And while Rugby had kept its sale tax at one percent for that time, several other cities, large and small, which have sales tax collections, have it set at two percent.

Citizens who oppose the amendment change, have 30 days to collect referendum petitions. Petitions would need to be signed only b qualified voters of the city equal in number to at least 20 percent of the total vote cast in the city’s must recent presidential election, which occurred last November. Once the petitions are submitted to the city auditor, the office has 20 days to review the signatures. If they are sufficient, a special election could be called to allow voters to approve or disapprove the ordinance change relating to the sales tax. The council could repeal or change its passed amendment. If the petitions are insufficient, then the amended ordinance would take effect.

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