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2019-09-04 City Council Work Session Meeting Packet
Agenda City Council Work Session City of Edina, Minnesota Community Room Wednesday, September 4, 2019 5:30 PM I.Call To Order II.Roll Call III.Water Treatment Plant No. 5 Concept Validation IV.Potential Partial Funding of Infrastructure with Local Option Sales Tax V.Adjournment The City of Edina wants all residents to be comfortable being part of the public process. If you need assistance in the way of hearing ampli(cation, an interpreter, large-print documents or something else, please call 952-927-8861 72 hours in advance of the meeting. Date: September 4, 2019 Agenda Item #: III. To:Mayor and City Council Item Type: Reports / Recommendation From:Chad A. Millner, P.E., Director of Engineering Item Activity: Subject:Water Treatment Plant No. 5 Concept Validation Action, Discussion CITY OF EDINA 4801 West 50th Street Edina, MN 55424 www.edinamn.gov ACTION REQUESTED: Provide feedback on the 2018 Snow Kreilich Architects architectural concept. INTRODUCTION: Snow Kreilich Architects collected suggestions from Council, members of the Southdale Area Working Group and others in 2018. Those suggestions were used to develop an initial concept for review. ATTACHMENTS: Description Consultant Presentation CITY COUNCIL WORK SESSION | SEPTEMBER 4, 2019 Edina Water Treatment Plant 5 SOUTHDALE CONCEPT VALIDATION OVERVIEW Project Overview Review Revised Preliminary Architectural Concept Southdale Concept Validation Study BACKGROUND Oct. 3, 2017: Reviewed study and selected Southdale Site Feb. 14, 2018: Planning Commission approved front yard setback variance Feb. 21, 2018: City Council reviewed 95% design architectural and approved front yard setback Requested enhanced architectural option March 2018: Council reviewed enhanced option, not approved April 2018: Hired Snow Krelich to develop architectural option October 2018: Council accepted Water Supply Plan* October 2018: Professional services to study Dublin Site December 2018: Work Session –selected Dublin Site June 2019: Work Session –expressed preference for Southdale Site September 2019: Work Session –Revised Architectural Concept ReviewWater Supply Plan UpdateRecent History: CIVIC INFRASTRUCTURE CONCEPTS MATERIALS, MASSING & LANDSCAPE MATERIALITY ELEVATED TRANSLUCENT BOX PUBLIC RAIN GARDEN OPTION STUDIES SELECTED OPTION SITE –FRANCE AVENUE SITE –SOUTHDALE RING ROAD SITE –PUBLIC RAIN GARDEN BUILDING PROGRAM –GROUND LEVEL BUILDING PROGRAM –UPPER LEVEL AXONOMETRIC VIEW AUTUMN GARDEN VIEW EVENING VIEW Southdale Concept Validation Study Edina WTP 5 Southdale Concept Validation Study –Concept Design Review Meetings •Various Stakeholders –Development of Architectural Concept •Exterior Architectural •Interior Layout •Confirm Accommodation of Water Treatment Function •Operation and Maintenance Review •Constructability Review –Prepare Architectural Renderings –Prepare Revised Opinion of Total Project Cost Southdale Concept Validation Study Edina WTP 5 Schedule –Project Initiation September 4, 2019 –Draft Validation Study November 22, 2019 THANK YOU! Edina City Council -Work Session September 4, 2019 Date: September 4, 2019 Agenda Item #: IV. To:Mayor and City Council Item Type: Reports / Recommendation From:Chad A. Millner, P.E., Director of Engineering Item Activity: Subject:Potential Partial Funding of Infrastructure with Local Option Sales Tax Discussion CITY OF EDINA 4801 West 50th Street Edina, MN 55424 www.edinamn.gov ACTION REQUESTED: None. Discussion Only. INTRODUCTION: Discuss the potential of partially funding local and Municipal State Aid street reconstruction, bridges, retaining walls and street lighting with a 0.5% Local Option Sales Tax. Staff asked the University of Minnesota to conduct a study on the amount of money that could be generated using 0.5% local option sales tax. Based on estimates from the Department of Revenue, the amount would be approximately $4.1 million. T he Local Option Sales Tax Analysis for Edina, MN (LOST) study, attached, also provided an estimate of non-resident vs. resident taxable sales at 59.7% and 40.3%, respectively. ATTACHMENTS: Description Staff Report: Potential Partial Funding of Infrastructure with Local Optional Sales Tax Scenario 1: No Phase In Financials Scenario 2: Phase In Financials Staff Report: City Council Retreat – Street Reconstruction Financing dated March 15, 2019 Local Option Sales Tax (LOST) Analysis for Edina Staff Presentation September 4, 2019 Mayor and City Council Chad A. Millner, PE, Director of Engineering, Potential Partial Funding of Infrastructure with Local Option Sales Tax Council Retreat Summary: On March 15, Council Members reviewed options available to finance street reconstruction. By the close of the discussion, all Council Members agree that if they were starting from scratch, they would not choose the current system. The overarching concern for all in considering any potential change is how to manage transition in an equitable way, especially for those who have been assessed in the final years pre-transition. All agree that any transition plan should simultaneously ramp down the current approach and ramp up any replacement that is approved as much as possible without overly-burdening the implementation system. If the current system were to change, most preferred a hybrid approach that included a partial assessment supplemented with a local option sales tax approach. Hydrid Approach Staff studied a hybrid approach of special assessments and local option sales tax revenue (STR). Assumptions and model results are noted below. Assumptions 1. Any hybrid approach will require continuous financial monitoring and most likely frequent changes to the assessment policy. 2. Inflation: 5% a. City of Edina Construction Inflation Rate 3% - 7%, 2018 National Engineering Construction Cost Index = 2.9% b. Inflation changes had large impacts on available funding. A 1% inflation change results in approximately a $900,000 change in fund balance over 20-years. 3. 0.5% Local Option Sales Tax Revenue: $4.0 million per year STAFF REPORT Page 2 a. Estimates provided by Department of Revenue b. Historical swings of 10-15% c. Suggested uses i. Supplement for Local Street Reconstruction ii. Supplement for MSA Street Reconstruction iii. Supplement for Structures and Street Lighting – bridges, retaining walls, and street lighting, new and rehab 4. Maintain Local Street Reconstruction Pace: approx. 4.0 miles per year to complete first replacement cycle in 20-years (remaining 80 miles out of 160 total miles) 5. Assume no growth in Edina’s MSA allotment from Highway Users Tax Distribution Fund 6. Without increased funding from the Highway Users Tax Distribution Fund, MSA construction pace will slow even when supplemented with local option sales tax revenue 7. Included $1M per year to begin to address new, rehabilitation and replacement needs of structures such as bridges and retaining walls and street lighting 8. Any reduction in the local assessment percentage would also correspond to an equal percentage reduction in the MSA assessments Recommendation Staff recommends seeking legislative approval to use for a 0.5% Local Option Sales Tax to fund a portion our local and MSA street reconstruction program and rehabilitation and new construction of bridges, retaining walls and street lighting. If approved by the state legislature, a voter-approved referendum would be required before implementation. Staff recommends a 50% sales tax revenue with 50% special assessment for the local street reconstruction program with a phase in period of 10-years (5% reduction per year in special assessment %). Staff recommends a 30% sales tax revenue with 10% special assessment and 60% MSA funds for the MSA street reconstruction program with a phase in period of 10-years (1% reduction per year in special assessment %). Remaining sales tax revenue would be programed for bridges, retaining walls and/or street lighting. Attachments 1. Staff Report: City Council Retreat – Street Reconstruction Financing dated March 15, 2019 50%50%30%10%60% Year Sales Tax Revenue Cost/ Mile Miles/ Year Cost/ Year Sales Tax Funded Special Assessment Funded Sales Tax Revenue Subbalance Cost/ Mile Miles/ Year Cost/ Year Sales Tax Funded Special Assessment Funded MSA Funded Sales Tax Revenue Subbalance Sales Tax Funded Sales Tax Revenue Subbalance 1 $ 4,000,000.00 $ 929,752.07 4.00 $ 3,719,008.26 $ 1,859,504.13 $ 1,859,504.13 2,140,495.87$ 2,000,000.00$ 1.00 $ 2,000,000.00 $ 600,000.00 $ 200,000.00 1,200,000.00$ 1,540,495.87$ 1,000,000.00$ 540,495.87$ 2 $ 4,000,000.00 $ 976,239.67 4.00 $ 3,904,958.68 $ 1,952,479.34 $ 1,952,479.34 2,047,520.66$ $ 2,100,000.00 0.96 $ 2,020,000.00 $ 606,000.00 $ 202,000.00 1,212,000.00$ 1,441,520.66$ 1,000,000.00$ 441,520.66$ 3 $ 4,000,000.00 $ 1,025,051.65 4.00 $ 4,100,206.61 $ 2,050,103.31 $ 2,050,103.31 1,949,896.69$ $ 2,205,000.00 0.93 $ 2,040,200.00 $ 612,060.00 $ 204,020.00 1,224,120.00$ 1,337,836.69$ 1,000,000.00$ 337,836.69$ 4 $ 4,000,000.00 $ 1,076,304.24 4.00 $ 4,305,216.94 $ 2,152,608.47 $ 2,152,608.47 1,847,391.53$ $ 2,315,250.00 0.89 $ 2,060,602.00 $ 618,180.60 $ 206,060.20 1,236,361.20$ 1,229,210.93$ 1,000,000.00$ 229,210.93$ 5 $ 4,000,000.00 $ 1,130,119.45 4.00 $ 4,520,477.79 $ 2,260,238.89 $ 2,260,238.89 1,739,761.11$ $ 2,431,012.50 0.86 $ 2,081,208.02 $ 624,362.41 $ 208,120.80 1,248,724.81$ 1,115,398.70$ 1,000,000.00$ 115,398.70$ 6 $ 4,000,000.00 $ 1,186,625.42 4.00 $ 4,746,501.68 $ 2,373,250.84 $ 2,373,250.84 1,626,749.16$ $ 2,552,563.13 0.82 $ 2,102,020.10 $ 630,606.03 $ 210,202.01 1,261,212.06$ 996,143.13$ 1,000,000.00$ (3,856.87)$ 7 $ 4,000,000.00 $ 1,245,956.69 4.00 $ 4,983,826.76 $ 2,491,913.38 $ 2,491,913.38 1,508,086.62$ $ 2,680,191.28 0.79 $ 2,123,040.30 $ 636,912.09 $ 212,304.03 1,273,824.18$ 871,174.53$ 1,000,000.00$ (128,825.47)$ 8 $ 4,000,000.00 $ 1,308,254.53 4.00 $ 5,233,018.10 $ 2,616,509.05 $ 2,616,509.05 1,383,490.95$ $ 2,814,200.85 0.76 $ 2,144,270.70 $ 643,281.21 $ 214,427.07 1,286,562.42$ 740,209.74$ 1,000,000.00$ (259,790.26)$ 9 $ 4,000,000.00 $ 1,373,667.25 4.00 $ 5,494,669.01 $ 2,747,334.50 $ 2,747,334.50 1,252,665.50$ $ 2,954,910.89 0.73 $ 2,165,713.41 $ 649,714.02 $ 216,571.34 1,299,428.05$ 602,951.47$ 1,000,000.00$ (397,048.53)$ 10 $ 4,000,000.00 $ 1,442,350.61 4.00 $ 5,769,402.46 $ 2,884,701.23 $ 2,884,701.23 1,115,298.77$ $ 3,102,656.43 0.70 $ 2,187,370.55 $ 656,211.16 $ 218,737.05 1,312,422.33$ 459,087.61$ 1,000,000.00$ (540,912.39)$ 11 $ 4,000,000.00 $ 1,514,468.14 4.00 $ 6,057,872.58 $ 3,028,936.29 $ 3,028,936.29 971,063.71$ $ 3,257,789.25 0.68 $ 2,209,244.25 $ 662,773.28 $ 220,924.43 1,325,546.55$ 308,290.44$ 1,000,000.00$ (691,709.56)$ 12 $ 4,000,000.00 $ 1,590,191.55 4.00 $ 6,360,766.21 $ 3,180,383.10 $ 3,180,383.10 819,616.90$ $ 3,420,678.72 0.65 $ 2,231,336.69 $ 669,401.01 $ 223,133.67 1,338,802.02$ 150,215.89$ 1,000,000.00$ (849,784.11)$ 13 $ 4,000,000.00 $ 1,669,701.13 4.00 $ 6,678,804.52 $ 3,339,402.26 $ 3,339,402.26 660,597.74$ $ 3,591,712.65 0.63 $ 2,253,650.06 $ 676,095.02 $ 225,365.01 1,352,190.04$ (15,497.28)$ 1,000,000.00$ (1,015,497.28)$ 14 $ 4,000,000.00 $ 1,753,186.19 4.00 $ 7,012,744.74 $ 3,506,372.37 $ 3,506,372.37 493,627.63$ $ 3,771,298.28 0.60 $ 2,276,186.56 $ 682,855.97 $ 227,618.66 1,365,711.94$ (189,228.34)$ 1,000,000.00$ (1,189,228.34)$ 15 $ 4,000,000.00 $ 1,840,845.50 4.00 $ 7,363,381.98 $ 3,681,690.99 $ 3,681,690.99 318,309.01$ $ 3,959,863.20 0.58 $ 2,298,948.43 $ 689,684.53 $ 229,894.84 1,379,369.06$ (371,375.52)$ 1,000,000.00$ (1,371,375.52)$ 16 $ 4,000,000.00 $ 1,932,887.77 4.00 $ 7,731,551.08 $ 3,865,775.54 $ 3,865,775.54 134,224.46$ $ 4,157,856.36 0.56 $ 2,321,937.91 $ 696,581.37 $ 232,193.79 1,393,162.75$ (562,356.91)$ 1,000,000.00$ (1,562,356.91)$ 17 $ 4,000,000.00 $ 2,029,532.16 4.00 $ 8,118,128.63 $ 4,059,064.32 $ 4,059,064.32 (59,064.32)$ $ 4,365,749.18 0.54 $ 2,345,157.29 $ 703,547.19 $ 234,515.73 1,407,094.37$ (762,611.50)$ 1,000,000.00$ (1,762,611.50)$ 18 $ 4,000,000.00 $ 2,131,008.77 4.00 $ 8,524,035.07 $ 4,262,017.53 $ 4,262,017.53 (262,017.53)$ $ 4,584,036.64 0.52 $ 2,368,608.86 $ 710,582.66 $ 236,860.89 1,421,165.32$ (972,600.19)$ 1,000,000.00$ (1,972,600.19)$ 19 $ 4,000,000.00 $ 2,237,559.20 4.00 $ 8,950,236.82 $ 4,475,118.41 $ 4,475,118.41 (475,118.41)$ $ 4,813,238.47 0.50 $ 2,392,294.95 $ 717,688.49 $ 239,229.50 1,435,376.97$ (1,192,806.90)$ 1,000,000.00$ (2,192,806.90)$ 20 $ 4,000,000.00 $ 2,349,437.17 4.00 $ 9,397,748.66 $ 4,698,874.33 $ 4,698,874.33 (698,874.33)$ $ 5,053,900.39 0.48 $ 2,416,217.90 $ 724,865.37 $ 241,621.79 1,449,730.74$ (1,423,739.70)$ 1,000,000.00$ (2,423,739.70)$ Local Streets Municipal State Aid Streets Bridges/Retaining Walls/ Street Lighting Scenario 1: No Phase In 80% Year Sales Tax Revenue Cost/ Mile Miles/ Year Cost/ Year Sales Tax % Sales Tax Funded Special Assessment % Special Assessment Funded Sales Tax Revenue Subbalance Cost/ Mile Miles/ Year Cost/ Year Sales Tax % Sales Tax Funded Special Assessment % Special Assessment Funded MSA Funded Sales Tax Revenue Subbalance Sales Tax Funded Sales Tax Revenue Subbalance 1 $ 4,000,000.00 $ 929,752.07 4.00 $ 3,719,008.26 5.0% $ 185,950.41 95.0% $ 3,533,057.85 3,814,049.59$ 2,000,000.00$ 0.75 $ 1,500,000.19 1.0% $ 15,000.00 19.0% $ 285,000.00 1,200,000.00$ 3,799,049.59$ 1,000,000.00$ 2,799,049.59$ 2 $ 4,000,000.00 $ 976,239.67 4.00 $ 3,904,958.68 10.0% $ 390,495.87 90.0% $ 3,514,462.81 3,609,504.13$ $ 2,100,000.00 0.72 $ 1,515,000.18 2.0% $ 30,300.00 18.0% $ 272,700.00 1,212,000.00$ 3,579,204.13$ 1,000,000.00$ 2,579,204.13$ 3 $ 4,000,000.00 $ 1,025,051.65 4.00 $ 4,100,206.61 15.0% $ 615,030.99 85.0% $ 3,485,175.62 3,384,969.01$ $ 2,205,000.00 0.69 $ 1,530,150.17 3.0% $ 45,904.50 17.0% $ 260,125.50 1,224,120.00$ 3,339,064.51$ 1,000,000.00$ 2,339,064.51$ 4 $ 4,000,000.00 $ 1,076,304.24 4.00 $ 4,305,216.94 20.0% $ 861,043.39 80.0% $ 3,444,173.55 3,138,956.61$ $ 2,315,250.00 0.67 $ 1,545,451.66 4.0% $ 61,818.06 16.0% $ 247,272.24 1,236,361.20$ 3,077,138.55$ 1,000,000.00$ 2,077,138.55$ 5 $ 4,000,000.00 $ 1,130,119.45 4.00 $ 4,520,477.79 25.0% $ 1,130,119.45 75.0% $ 3,390,358.34 2,869,880.55$ $ 2,431,012.50 0.64 $ 1,560,906.17 5.0% $ 78,045.30 15.0% $ 234,135.90 1,248,724.81$ 2,791,835.25$ 1,000,000.00$ 1,791,835.25$ 6 $ 4,000,000.00 $ 1,186,625.42 4.00 $ 4,746,501.68 30.0% $ 1,423,950.50 70.0% $ 3,322,551.18 2,576,049.50$ $ 2,552,563.13 0.62 $ 1,576,515.22 6.0% $ 94,590.90 14.0% $ 220,712.11 1,261,212.06$ 2,481,458.59$ 1,000,000.00$ 1,481,458.59$ 7 $ 4,000,000.00 $ 1,245,956.69 4.00 $ 4,983,826.76 40.0% $ 1,993,530.71 60.0% $ 2,990,296.06 2,006,469.29$ $ 2,680,191.28 0.59 $ 1,592,280.36 7.0% $ 111,459.62 13.0% $ 206,996.43 1,273,824.18$ 1,895,009.68$ 1,000,000.00$ 895,009.68$ 8 $ 4,000,000.00 $ 1,308,254.53 4.00 $ 5,233,018.10 45.0% $ 2,354,858.15 55.0% $ 2,878,159.96 1,645,141.85$ $ 2,814,200.85 0.57 $ 1,608,203.15 8.0% $ 128,656.24 12.0% $ 192,984.36 1,286,562.42$ 1,516,485.61$ 1,000,000.00$ 516,485.61$ 9 $ 4,000,000.00 $ 1,373,667.25 4.00 $ 5,494,669.01 50.0% $ 2,747,334.50 50.0% $ 2,747,334.50 1,252,665.50$ $ 2,954,910.89 0.55 $ 1,624,285.16 10.0% $ 162,428.51 10.0% $ 162,428.51 1,299,428.05$ 1,090,236.99$ 1,000,000.00$ 90,236.99$ 10 $ 4,000,000.00 $ 1,442,350.61 4.00 $ 5,769,402.46 50.0% $ 2,884,701.23 50.0% $ 2,884,701.23 1,115,298.77$ $ 3,102,656.43 0.53 $ 1,640,528.01 10.0% $ 164,052.79 10.0% $ 164,052.79 1,312,422.33$ 951,245.98$ 1,000,000.00$ (48,754.02)$ 11 $ 4,000,000.00 $ 1,514,468.14 4.00 $ 6,057,872.58 50.0% $ 3,028,936.29 50.0% $ 3,028,936.29 971,063.71$ $ 3,257,789.25 0.51 $ 1,656,933.29 10.0% $ 165,693.32 10.0% $ 165,693.32 1,325,546.55$ 805,370.39$ 1,000,000.00$ (194,629.61)$ 12 $ 4,000,000.00 $ 1,590,191.55 4.00 $ 6,360,766.21 50.0% $ 3,180,383.10 50.0% $ 3,180,383.10 819,616.90$ $ 3,420,678.72 0.49 $ 1,673,502.62 10.0% $ 167,350.25 10.0% $ 167,350.25 1,338,802.02$ 652,266.64$ 1,000,000.00$ (347,733.36)$ 13 $ 4,000,000.00 $ 1,669,701.13 4.00 $ 6,678,804.52 50.0% $ 3,339,402.26 50.0% $ 3,339,402.26 660,597.74$ $ 3,591,712.65 0.47 $ 1,690,237.65 10.0% $ 169,023.75 10.0% $ 169,023.75 1,352,190.04$ 491,573.99$ 1,000,000.00$ (508,426.01)$ 14 $ 4,000,000.00 $ 1,753,186.19 4.00 $ 7,012,744.74 50.0% $ 3,506,372.37 50.0% $ 3,506,372.37 493,627.63$ $ 3,771,298.28 0.45 $ 1,707,140.02 10.0% $ 170,713.99 10.0% $ 170,713.99 1,365,711.94$ 322,913.64$ 1,000,000.00$ (677,086.36)$ 15 $ 4,000,000.00 $ 1,840,845.50 4.00 $ 7,363,381.98 50.0% $ 3,681,690.99 50.0% $ 3,681,690.99 318,309.01$ $ 3,959,863.20 0.44 $ 1,724,211.42 10.0% $ 172,421.13 10.0% $ 172,421.13 1,379,369.06$ 145,887.88$ 1,000,000.00$ (854,112.12)$ 16 $ 4,000,000.00 $ 1,932,887.77 4.00 $ 7,731,551.08 50.0% $ 3,865,775.54 50.0% $ 3,865,775.54 134,224.46$ $ 4,157,856.36 0.42 $ 1,741,453.53 10.0% $ 174,145.34 10.0% $ 174,145.34 1,393,162.75$ (39,920.88)$ 1,000,000.00$ (1,039,920.88)$ 17 $ 4,000,000.00 $ 2,029,532.16 4.00 $ 8,118,128.63 50.0% $ 4,059,064.32 50.0% $ 4,059,064.32 (59,064.32)$ $ 4,365,749.18 0.40 $ 1,758,868.07 10.0% $ 175,886.80 10.0% $ 175,886.80 1,407,094.37$ (234,951.11)$ 1,000,000.00$ (1,234,951.11)$ 18 $ 4,000,000.00 $ 2,131,008.77 4.00 $ 8,524,035.07 50.0% $ 4,262,017.53 50.0% $ 4,262,017.53 (262,017.53)$ $ 4,584,036.64 0.39 $ 1,776,456.75 10.0% $ 177,645.66 10.0% $ 177,645.66 1,421,165.32$ (439,663.20)$ 1,000,000.00$ (1,439,663.20)$ 19 $ 4,000,000.00 $ 2,237,559.20 4.00 $ 8,950,236.82 50.0% $ 4,475,118.41 50.0% $ 4,475,118.41 (475,118.41)$ $ 4,813,238.47 0.37 $ 1,794,221.31 10.0% $ 179,422.12 10.0% $ 179,422.12 1,435,376.97$ (654,540.53)$ 1,000,000.00$ (1,654,540.53)$ 20 $ 4,000,000.00 $ 2,349,437.17 4.00 $ 9,397,748.66 50.0% $ 4,698,874.33 50.0% $ 4,698,874.33 (698,874.33)$ $ 5,053,900.39 0.36 $ 1,812,163.53 10.0% $ 181,216.34 10.0% $ 181,216.34 1,449,730.74$ (880,090.67)$ 1,000,000.00$ (1,880,090.67)$ Local Streets Municipal State Aid Streets Bridges/Retaining Walls/ Street Lighting Scenario 2: Phased In March 15, 2019 Mayor and City Council Chad A. Millner, PE, Director of Engineering, City of Edina City Council Retreat - Street Reconstruction Financing Information / Background: Edina’s transportation system provides the public pathways to key destinations. Trips along this system occur 24 hours a day, 7 days a week, in a variety of modes for a variety of reasons. Residents, businesses, emergency services and others expect that this system will meet their mobility needs safely, efficiently and effectively. . In order to achieve these goals, regular evaluation is needed to rehabilitate existing components and ensure these systems meet future demands. In 23 years, 80 of the 164 miles of local streets (or ~50%) have been reconstructed and funded by special assessments. If this pace continues, all local streets will be reconstructed in a period of 50 years. Although a majority of these streets were initially constructed in the 1950s and 1960s with a design life of 30 years, many have surpassed their intended design life due to reactive maintenance operations. Our goal with the street reconstruction program is to level out annual street reconstruction needs to better align with an industry-standard 50 year design life. A key component to reaching this goal was our recent fully-funded street maintenance program. In 18 years, 13 of the 42 miles of Municipal State Aid (MSA) designated streets (or ~30%) have been reconstructed and funded by a combination of MSA and special assessments. Current funding allows 0.5 mile of MSA reconstruction every year. At this pace, it will take 60 years to reconstruct the remaining 29 miles of MSA designated streets. This is a concern. Special Assessments: Local street reconstruction has been funded entirely with special assessments to benefitting properties. The average total amount assessed during the past 10 years was $4.5 million per year. Assessments are levied against properties that benefit from the project on a Residential Equivalent Unit (REU) basis; one REU being equivalent to one single-family residential property. Other ways to levy assessments exist, such as by the linear feet of front or side yard footage or property area. In recent years, Edina property owners have STAFF REPORT Page 2 challenged the property benefits of these assessments under MN State Statue Chapter 429. It is anticipated that this trend may continue without changes to how street reconstruction projects are funded. Street Financing Options: 1. Special Assessments a. Pros i. Continues past practice, fair for all residents ii. Property owner can see where their money goes iii. Accepted and legal process used by other cities iv. Project needs directly correspond to project costs and location v. Keeps taxes or other fees low b. Cons i. Property owners don’t like large assessments for a city street ii. Potential challenges regarding the benefit of improvement iii. Can only collect what is determined to be the benefit iv. Project approvals are subject to emotional public hearings v. Residents often challenge the need for projects based on financial impacts to them vi. Residents feel the street network is community good, not personal good vii. 40-50% of local streets have been completed 2. General Tax Dollars a. Pros i. Stable revenue stream ii. Residents may have favorable response to street projects iii. Smaller monthly or annual fees instead of large lump sum or 15-year financing iv. Collects money from all users of the system v. No need to prove benefit to property owner vi. Funds are directly used for corresponding service b. Cons i. Change in policy doesn’t benefit previously assessed properties ii. Greater tax levy amount iii. Funds are not directly tied to project costs or location 3. Franchise Fees a. Pros i. No increase to the tax levy ii. Stable revenue stream that can be adjusted iii. Collects from all street users including schools and non-profits iv. Smaller monthly fees instead of single larger amount on tax statement or assessment v. Collects money from renters, the actual users of the transportation system, not just the property owners STAFF REPORT Page 3 b. Cons i. These are already being used for PACS and CAS ii. Would require public outreach to describe the fee and process 4. Local Sales Tax a. Pros i. New steady revenue source ii. Could be used for bridges and retaining walls in additional to street reconstruction iii. No appeals iv. Vote needed to approve – if passed, should be supported – voters spoken v. Could assume linked to commercial development b. Cons i. Funding does not match project needs or location ii. Many steps / long process to get approval to use iii. Administration can be difficult iv. Business community push-back 5. Combination Options Options 1 – 4 above are the legal methods currently available to the city to fund street reconstruction. Any combination of methods that could be implemented to better meet the values identified by Council. Any example with a portion of the cost funded by special assessments would require an additional funding source to fill the gap: a. Set a specific % funded by special assessments (50% is common) b. Set a flat rate funded by special assessments (example: $8,000 per REU) c. Set a max rate funded by special assessments (example: all assessable project costs up to $10,000 per REU) d. Set special assessment amount to the market benefit based on appraisal letters e. Set special assessment amount based on lot size (tiered system) Questions 1. Should equity drive the decision? (The market benefit test makes this very difficult.) 2. If a change is considered, how is flexibility of revenue considered if over or under on project costs? 3. If a change is considered, what does the transition look it? EXTENSION CENTER FOR COMMUNITY VITALITY Local Option Sales Tax Analysis for Edina, MN ESTIMATED CONTRIBUTIONS OF RESIDENTS AND NON-RESIDENTS TO A LOCAL OPTION SALES TAX Authored by Ryan Pesch and Michael Darger PROGRAM SPONSORS: CITY OF EDINA, MINNESOTA Local Option Sales Tax Analysis for Edina, MN 1 Report Reviewers: Rani Bhattacharyya, Extension Educator, University of Minnesota Extension Center for Community Vitality Partners/Sponsors: City of Edina Local Option Sales Tax Analysis for Edina ESTIMATED CONTRIBUTIONS OF RESIDENTS AND NON-RESIDENTS TO A LOCAL OPTION SALES TAX August 2019 Authored by Ryan Pesch and Michael Darger, Extension Educators, University of Minnesota Extension Center for Community Vitality © 2019 Regents of the University of Minnesota. All rights reserved. University of Minnesota Extension is an equal opportunity educator and employer. In accordance with the Americans with Disabilities Act, this material is available in alternative formats upon request. Direct requests to 612-625-8233. Printed on recycled and recyclable paper with at least 10 percent postconsumer waste material. Local Option Sales Tax Analysis for Edina, MN 2 Table of Contents EXECUTIVE SUMMARY 3 BACKGROUND AND METHODOLOGY 6 TRADE AREA ANALYSIS BY MERCHANDISE CATEGORY 7 Vehicle and Parts 7 Furniture Stores 8 Electronics and Appliances 9 Building Materials 10 Food and Groceries 11 Health and Personal Items 12 Gas/Convenience Stores 13 Clothing 14 Leisure Goods 15 General Merchandise Stores 16 Miscellaneous Retail 17 Amusement and Recreation 18 Accommodations 19 Eating/Drinking Establishments 20 Repair and Maintenance 21 Personal Services/Laundry 22 Retail (Non-Store) and Other Services 23 Construction, Manufacturing, Others 24 APPENDIX A: RESEARCH ON EFFECTS OF LOCAL OPTION SALES TAX 25 APPENDIX B: DEFINITION OF TERMS 27 Local Option Sales Tax Analysis for Edina, MN 3 EXECUTIVE SUMMARY University of Minnesota Extension recently conducted a study to estimate overall tax proceeds and the proportion of tax proceeds generated by Edina residents. Comparing these results to non- residents using the most recent sales and use tax data available from the Minnesota Department of Revenue (MN Revenue), Extension estimated that non-residents account for 59.7 percent of taxable sales subject to a local option sales tax (LOST). Total taxable sales were $918 million in 2017, but MN Revenue analysts estimate that $820 million would be subject to a LOST. With 59.7 percent of sales derived from non-resident spending, Extension estimated that Edina residents spent $331 million of total taxable sales subject to a LOST. Edina residents would have contributed $1.65 million in taxes out of the total $4.1 million if the tax were in place in 2017. That would have required each resident to contribute $31.48 on average in 2017. The intent of this report was not to make recommendations to city officials about what actions to take, but rather determine the estimated sales tax proceeds from a local option tax program and what proportion of those dollars will likely be paid by year-round city residents versus non- residents. Extension initially generated a trade area analysis comparing actual taxable sales, based on Minnesota Revenue sales tax data1with a calculated “potential sales” amount. This amount was determined by multiplying the Edina population by the Minnesota average per capita sales and then adjusting for the city’s income factor. Doing so provided an estimate of retail and service purchases made by year-round Edina residents. For each merchandise group, the estimates for two types of purchasers—city residents and others—were considered and adjusted considering the area economy. These adjustments involved informed estimates and were aimed, in part, at reducing what otherwise might have been overestimates of the sales tax share falling to non-residents. Assumptions and calculations are shown for major retail and service categories so decision makers can adjust totals to accommodate local considerations. Several key factors and features in the Edina economy helped frame our analysis of the different merchandise categories: • The strength of Edina’s niche store mix attracts a significant number of regional residents to shop in the community. Select niche business categories are also strong enough to retain a majority of Edina residents’ spending for these particular goods and services. • Because of its job base, a large contingent of residents from other communities commute into Edina for work. We assume that these non-resident workers purchase goods and services in Edina due to convenience, especially in convenience businesses such as groceries and general merchandise. • We assume that Edina residents are pulled to other communities to shop, despite the strong retail mix in Edina. This is in part due to the number of residents that work outside of the community (nearly 20,000 according to Census figures) and the close proximity of competing shopping areas (Figure 1). 1. MN City Sales Tax Statistics. (2016). Minnesota Department of Revenue. Retrieved from http://www.revenue.state.mn.us/research_stats/Pages/Sales-and-Use-Tax-Statistics-and-Annual-Reports.aspx Local Option Sales Tax Analysis for Edina, MN 4 Figure 1: Edina worker in-flow and out-flow (Source: 2016 U.S. Census Bureau OnTheMap application, Longitudinal-Employer Household Dynamics Program, http://onthemap.ces.census.gov/) Figure 2 below shows the estimated percentage breakout—across all merchandise categories—for the adjusted analysis to more accurately reflect the city’s economic and consumption circumstances. Based on these findings, we estimate 40.3percent of all taxable retail and service sales would be made by permanent city residents, and the remaining 59.7 percent of taxable sales would be by non- residents. Figure 2: Estimated taxable sales using an adjusted trade area analysis The Minnesota Department of Revenue research division estimated the dollars that a 0.5 percent LOST would have been generated in 2017 and Extension estimated what residents would have paid compared to non-residents (Figure 3). Based on correspondence with analysts at the Minnesota Department of Revenue who reviewed the Edina’s 2016 sales tax statistics, approximately $820,000,000 of the total $918,260,233 taxable sales are subject to a local option sales tax and Extension based its estimates of projected tax proceeds on this figure. Taxable Sales Subject to LOST $millions Percentage of Sales Edina Residents $330.5 40.3% Non-residents $489.5 59.7% Totals $820.0 100% Local Option Sales Tax Analysis for Edina, MN 5 Edina could realize as much as $4,100,000 in tax proceeds if a half percent tax were enacted. If the city does realize $4,100,000, the proportion of the tax total paid by non-residents is estimated to be $2.4million, and the proportion paid by Edina residents is estimated to be $1.65 million. Figure 3: Estimated tax proceeds and who pays in dollars Dollars Dollars Total Paid By Paid By ESTIMATED Tax Edina Non- TAX PROCEEEDS Proceeds Residents Residents @ 1/2 of a Percent $4,100,000 $1,652,748 $2,447,252 Total Taxable Sales subject to LOST: $820,000,000 The total taxable sales in the city has decreased 13 percent from 2013 to 2017 from $1.1billion to $918 million. Since tax proceeds are calculated as a percentage of total taxable sales subject to the sales tax, this trend during the past 5 years gives some sense of stability if a tax were enacted. Figure 4: Total taxable sales in Edina from 2013 to 2017 (source: Minnesota Department of Revenue) Proceeds from use taxes would also be added to the estimated tax proceeds from a local option sales tax. Use taxes derive from city businesses purchasing products from out-of-state sources and in other Minnesota locations, which are often less consistent and more difficult to accurately estimate than sales taxes. Based on 2017 figures, city officials can expect an estimated additional $260,000 in use (not sales) tax proceeds. Edina policymakers are understandably concerned that enacting a sales tax in their community will cause a loss of consumer purchases to other counties. However, at a half a percent, a local option sales tax would add 50 cents to a $100 purchase. Extension examined records of 11 cities that have enacted a local option sales tax since 1999 available on the Minnesota Department of Revenue website. The records do not indicate a major purchasing change due to the additional sales tax, and $- $200,000,000 $400,000,000 $600,000,000 $800,000,000 $1,000,000,000 $1,200,000,000 2013 2014 2015 2016 2017 Local Option Sales Tax Analysis for Edina, MN 6 most of the jurisdictions have shown continued sales growth (see Appendix A), although these communities may not be comparable to Edina. All communities in the analysis reside outside of the Twin Cities metro area and may retain shoppers than in a competitive retail environment in the metro area where one could easily switch spending from one community to another. BACKGROUND AND METHODOLOGY Community economics educators at University of Minnesota Extension provide applied research and education to help community and business partners make better informed decisions. In recent years, Minnesota has adopted laws enabling local governments to enact a local option sales tax and Extension has assisted these administrations to estimate their potential tax proceeds and the portion of taxes paid by local residents. This report estimates the proportion of tax proceeds generated by year-round Edina residents compared to non-residents. The most recently available state sales tax data (2016) from the Minnesota Department of Revenue (MN Revenue) is used. Trade Area Analysis and Calculations Extension conducted a trade area analysis of retail and service sales in select merchandise categories, estimating the amount of taxable sales subject to sales taxes that were made by local residents, as well as those made by non-residents. Use tax is insignificant compared to sales tax proceeds and is calculated differently. Extension calculated potential sales for the city in each merchandise category and compared this calculation to actual taxable sales, as found in Minnesota Department of Revenue sales tax statistics for the same category. Actual sales greater than potential sales indicate the city attracts sales from outside the city or has sales greater than one would expect from only its residents. Extension used the difference between potential and actual sales to set reasonable estimates of spending by residents and non-residents across all categories. These estimates also helped inform adjustments for each category. Potential sales calculations are based on average statewide spending by merchandise category and the population of the city, then adjusted by the level of income in Hennepin County. Specifically, potential sales result from city population, state per capita taxable sales, and the index of income (see sidebar and Appendix B). The section that follows, “Trade Area Analysis by Merchandise Category,” details the initial and adjusted trade area calculations for all merchandise categories. The sections labeled “Analysis with Adjustments” lists the final estimate of sales generated by non-residents. A rationale for adjustments and conclusions is also included. Potential Sales estimate the dollar amounts for purchases made by local residents if local residents spend as much as the average Minnesota resident. Potential sales are calculated by the following formula: (T ÷ PMn) x PB x (YHC ÷YMn) = Potential Sales T = Total Minnesota taxable sales for a merchandise category PMn = 2017 Population of Minnesota (5,577,487) PB = 2017 Population of Edina (52,479) YHC = Per capita income of Hennepin County resident ($71,210) YMn = Per capita income of Minnesota resident ($54,351) Local Option Sales Tax Analysis for Edina, MN 7 TRADE AREA ANALYSIS BY MERCHANDISE CATEGORY Vehicles and Parts 0.7 percent of total taxable retail and service sales The 6 businesses in this retail category include repair parts, snowmobiles, boats, trailers, and recreational vehicles. Sales of cars and other on-road vehicles are not included in this category since they are subject to a different tax. ($Millions) Actual taxable sales $5.53 -Potential sales $37.00 = $ variance ($31.47) = as % of potential -85.1% Unadjusted Trade Area Analysis Potential taxable sales to residents $37.00 Surplus ($31.47) Total $5.53 Surplus percentage -569.3% Analysis with Adjustments Capture rate of Edina residents 13% Residents' $ share $4.98 Non-Residents' $ share $0.55 Total $5.53 Non-resident share per group 10.0% Analysis and Recommendations for Vehicles and Parts The trade area analysis estimates that the city falls far short of meeting expected sales. With this strong evidence that residents are shopping outside of the community in this category, Extension set the non-resident share at a modest 10% of actual sales, considering the number of non-residents who work in the city and the general cross-hauling of consumer spending in the metro region. Local Option Sales Tax Analysis for Edina, MN 8 Furniture Stores 12.4 percent of total taxable retail and service sales These 37 stores sell furniture, beds, carpeting, window coverings, lamps, china, kitchenware, and wood-burning stoves. ($Millions) Actual taxable sales $100.36 Potential sales $18.65 = $ variance $81.71 = as % of potential 538.1% Unadjusted Trade Area Analysis Potential sales to residents $18.65 Surplus $81.71 Total $100.36 Non-resident share per group 81.4% Analysis with Adjustments Capture Rate of Edina Residents 70% Residents' $ share $13.05 Non-Residents' $ share $87.32 Total $100.37 Non-resident share per group 87.0% Analysis and Recommendations for Furniture Stores Clearly, Edina is a destination for furniture, drawing in $82 million more than expected from our potential sales calculation. With such a niche in furniture, surely a majority of local residents would shop within Edina for this good. Extension assumes that other nearby and competing stores pull some portion of local residents outside of the community. Extension set the non-resident share at 87 percent of taxable sales, which has the city capturing 70 percent of local residents’ spending in this category. Local Option Sales Tax Analysis for Edina, MN 9 Electronics and Appliances 5.0 percent of total taxable retail and service sales These 20 establishments primarily include household-type appliances, sewing machines, cameras, computers, and other electronic goods. ($Millions) Actual taxable sales $40.95 -Potential sales $20.52 = $ variance $20.43 = as % of potential 99.6% Unadjusted Trade Area Analysis Potential sales to residents $20.52 Surplus $20.43 Total $40.95 Non-resident share per group 49.9% Analysis with Adjustments Capture Rate of Edina Residents 50% Residents' $ share $10.24 Non-residents' $ share $30.71 Total $40.95 Non-resident share per group 75.0% Analysis and Recommendations for Electronics and Appliances Potential sales calculations suggest that the city brings in $20 million more in taxable sales than expected from potential sales based on the population of Edina and the per capita income of its residents. This surplus is 50% of total taxable sales in this category, a proportion that we can safely assume is from non-residents. Some significant portion of resident spending in this category must go outside of Edina in the competitive metropolitan economy, especially when major big box electronic store are outside the community. Extension increased the non-resident share to 75% of total taxable sales. Local Option Sales Tax Analysis for Edina, MN 10 Building Materials 2.0 percent of total taxable retail and service sales These 11 establishments sell lumber, hardware, paint, wallpaper, tile, hardwood floors, roofing, fencing, ceiling fans, lawn equipment, and garden items. ($Millions) Actual taxable sales $16.63 Potential sales $72.80 = $ variance ($56.17) = as % of potential -77.2% Unadjusted Trade Area Analysis Potential sales to residents $72.80 Surplus ($56.17) Total $16.63 Non-resident share per group -337.8% Analysis with Adjustments Capture Rate of Edina Residents 21% Residents' $ share $14.96 Non-residents' $ share $1.66 Total $16.63 Non-resident share per group 10.0% Analysis and Recommendations for Building Materials Building materials is one of the categories in which Edina has less in actual sales than potential sales. Obviously local residents are attracted to other communities to shop for these goods because the city only houses hardware stores focused on convenience and has no large big box retailers or lumber yard. Extension set the non-local resident spending at 10 percent of building material sales. Local Option Sales Tax Analysis for Edina, MN 11 Food and Groceries 5.4 percent of total taxable retail and service sales The 25 stores in this merchandise group include grocery stores, delis, bakeries, and butcher shops that sell food to be prepared at home. Liquor stores are also included in this group. ($Millions) Actual taxable sales $44.23 - Potential sales $49.09 = $ variance ($4.85) = as % of potential -9.9% Unadjusted Trade Area Analysis Potential sales to residents $49.09 Surplus ($4.85) Total $44.23 Non-resident share per group -11.0% Analysis with Adjustments Capture Rate of Edina Residents 72% Residents' $ share $35.39 Non-residents' $ share $8.85 Total $44.23 Non-resident share per group 20.0% Analysis and Recommendations for Food and Groceries The trade area analysis estimates a modest surplus of $5 million less than expected in the food and liquor category. Key informants observed that major grocers are on the city border with Minneapolis and certainly attract non-Edina residents. Coupled with the large number of non-residents who work in Edina who would likely purchase convenience goods in this category, Extension set the non- resident share at 20 percent. Local Option Sales Tax Analysis for Edina, MN 12 Health & Personal Items 3.8 percent of total taxable retail and service sales Stores selling prescription drugs, food supplements, vision supplies, cosmetics, and hearing aids are among the 42 shops included in this merchandise group. ($Millions) Actual taxable sales $30.56 Potential sales $8.61 = $ variance $21.94 = as % of potential 254.8% Unadjusted Trade Area Analysis Potential sales to residents $8.61 Surplus $21.94 Total $30.56 Non-resident share per group 71.8% Analysis with Adjustments Capture Rate of Edina Residents 71% Residents' $ share $6.11 Non-residents' $ share $24.45 Total $30.56 Non-resident share per group 80.0% Analysis and Recommendations for Health and Personal Items There is clear evidence that a very large portion of total spending comes from non-residents. This category pulls in over $22 million more than expected based on a potential sales calculation. Extension set the sales from non-residents at 80 percent of total sales. Local Option Sales Tax Analysis for Edina, MN 13 Gas/Convenience Stores 0.5 percent of total taxable retail and service sales This merchandise group covers 6 retailers selling convenience items at a store that also sells fuel. ($Millions) Actual taxable sales $3.77 -Potential sales $15.76 = $ variance ($11.99) = as % of potential -76.0% Unadjusted Trade Area Analysis Potential sales to residents $15.76 Surplus (local preference and non-residents) ($11.99) Total $3.77 Non-resident share per group -317.5% Analysis with Adjustments Capture Rate of Edina Residents 19% Residents' $ share $3.02 Non-residents' $ share $0.75 Total $3.77 Non-resident share per group 20.0% Analysis and Recommendations for Gas Station/Convenience Stores The trade area analysis indicates that Edina loses a large portion of its taxable sales to nearby communities, in part due to few establishments in this category. Considering the significant portion of working-age adults who commute outside of the community for work and the large portion of non-residents working and shopping in Edina, Extension set the non-resident sales at 20 percent for this minor category. Local Option Sales Tax Analysis for Edina, MN 14 Apparel/Clothing 10.4 of total taxable retail and service sales This merchandise group includes 109 stores selling new clothing and accessories, jewelry, shoes, bridal items, clocks, and luggage. ($Millions) Actual taxable sales $84.76 Potential sales $11.85 = $ variance $72.91 = as % of potential 615.3% Unadjusted Trade Area Analysis Potential sales to residents $11.85 Surplus (local preference and non-residents) $72.91 Total $84.76 Non-resident share per group 86.0% Analysis with Adjustments Capture Rate of Edina Residents 72% Residents' $ share $8.48 Non-residents' $ share $76.28 Total $84.76 Non-resident share per group 90.0% Analysis and Recommendations for Apparel/Clothing With 109 stores and merchandise that lends itself to comparative shopping in a cluster of stores, clothing is a category that clearly attracts non-residents to Edina. The trade area analysis estimates that nearly 86 percent of total taxable clothing sales are from non-residents. Considering that it’s unrealistic to think that the city captures even 80 percent of residents’ clothing spending with nearby competition, Extension set the non-resident share at 90%. Local Option Sales Tax Analysis for Edina, MN 15 Leisure Goods 1.7 percent of total taxable retail and service sales The 33 firms in this merchandise group sell sporting goods, books, music, hobby items, fabrics, and toys. ($Millions) Actual taxable sales $13.76 Potential sales $14.38 = $ variance ($0.62) = as % of potential -4.3% Unadjusted Trade Area Analysis Potential sales to residents $14.38 Surplus (local preference and non- residents) ($0.62) Total $13.76 Non-resident share per group -4.5% Analysis with Adjustments Capture Rate of Edina Residents 67% Residents' $ share $9.63 Non-Residents' $ share $4.13 Total $13.76 Non-resident share per group 30.0% Analysis and Recommendations for Leisure Goods Leisure goods, like clothing, are the kinds of goods that attract shoppers to districts or areas where they can compare goods across many stores, brands, and price points. With 33 firms, this category nearly breaks even, but may have a niche in a competitive landscape that would still bringing in non- residents. Key informants pointed to some sporting goods stores that concentrate on hockey equipment that pull in non-residents to shop. Considering these factors, Extension raised the share of non-resident spending to 30 percent. Local Option Sales Tax Analysis for Edina, MN 16 General Merchandise Stores 7.5 percent of total taxable retail and service sales The 6 stores in this category sell general merchandise and are unique because they have the equipment and staff needed to sell a large variety of goods from a single location. This includes department stores, superstores, dollar stores, and variety stores. ($Millions) Actual taxable sales $61.15 potential sales $71.39 = $ variance ($10.24) = as % of potential -14.3% Unadjusted Trade Area Analysis Potential sales to residents $71.39 Surplus (local preference and non-residents) ($10.24) Total $61.15 Non-resident share per group -16.7% Analysis with Adjustments Capture Rate of Edina Residents 69% Residents' $ share $48.92 Non-Residents' $ share $12.23 Total $61.15 Non-resident share per group 20.0% Analysis and Recommendations for General Merchandise Stores With only six stores in this category dominated by large big box stores like Wal-mart and Target, Edina is losing a portion of its sales to nearby competition. However, like the grocery category where it’s a safe assumption to think that non-resident workers and others are making purchases for these convenience goods in the city even as Edina residents are pulled elsewhere. Extension set the non- resident share at 20 percent, conservatively assuming that this small base of store retains nearly 70 percent of local residents’ spending. Local Option Sales Tax Analysis for Edina, MN 17 Miscellaneous Retail 3.3 percent of total taxable retail and service sales 86 establishments are part of this group, including florists, used merchandise stores, pet supply stores, and other retailers. ($Millions) Actual taxable sales $26.63 Potential sales $19.51 = $ variance $7.12 = as % of potential 36.5% Unadjusted Trade Area Analysis Potential sales to residents $19.51 Surplus $7.12 Total $26.63 Non-resident share per group 26.7% Analysis with Adjustments Capture Rate of Edina Residents 68% Residents' $ share $13.31 Non-residents' $ share $13.31 Total $26.63 Non-resident share per group 50.0% Analysis and Recommendations for Miscellaneous Retail The category currently brings in approximately $7 million more in taxable sales than one would expect. Non-residents must make up at least 27 percent of the taxable sales to explain such a large surplus. Extension increased the non-resident share to 50 percent, considering the metro-wide competition for some of these goods and the out-commuting of many working-age adults. Local Option Sales Tax Analysis for Edina, MN 18 Amusement and Recreation 3.4 percent of total taxable retail and service sales The 21 establishments in this group include casinos, bowling lanes, water parks, amusement parks, arcades, bingo halls, golf courses, ski slopes, marinas, dance or fitness centers, recreational clubs, ice rinks, swimming pools, roller rinks, etc. ($Millions) Actual taxable sales $27.65 Potential sales $21.18 = $ variance $6.47 = as % of potential 30.6% Unadjusted Trade Area Analysis Potential sales to residents $21.18 Surplus $6.47 Total $27.65 Non-resident share per group 23.4% Analysis with Adjustments Capture Rate of Edina Residents 46% Residents' $ share $9.68 Non-residents' $ share $17.97 Total $27.65 Non-resident share per group 65.0% Analysis and Recommendations for Amusement and Recreation The 21 establishments in this category are bringing in a surplus of taxable sales, 23 percent more than expected. Based on interviews with key informants, there reason to assume a strong niche in this category with notable businesses including the Edina Country Club and Minnesota Made Hockey. These destination amusement facilities attract many non-residents in a metro region where specialization in retail and services allows for significant cross-hauling. With this as context, Extension set the share for non-resident sales at 65 percent. Local Option Sales Tax Analysis for Edina, MN 19 Accommodations 2.3 percent of total taxable retail and service sales These 7 businesses provide lodging or short-term accommodations for travelers, vacationers, and others. Included are hotels, motels, lodges, bed & breakfasts, campgrounds, fraternities, boarding houses, and dormitories. ($Millions) Actual taxable sales $18.76 Potential sales $27.83 = $ variance ($9.06) = as % of potential -32.6% Unadjusted Trade Area Analysis Potential sales to residents $27.83 Surplus ($9.06) Total $18.76 Non-resident share per group -48.3% Analysis with Adjustments Capture Rate of Edina Residents 7% Residents' $ share $1.88 Non-residents' $ share $16.89 Total $18.76 Non-resident share per group 90.0% Analysis and Recommendations for Accommodations Logically, a vast majority of lodging sales are from non-residents visiting area attractions, traveling from MSP airport, or in town for business. Extension has set the non-resident share at 90% of sales in past communities to allow for resident spending for events, facility charges, and ‘staycations.’ Local Option Sales Tax Analysis for Edina, MN 20 Eating/Drinking Establishments 22.2 percent of total taxable retail and service sales These 125 businesses sell food at full-service or limited-service establishments. The group includes cafeterias, bagel shops, ice cream parlors, snack bars, food service contractors, caterers, lunch wagons, and street vendors. It also includes bars, taverns, and nightclubs. ($Millions) Actual taxable sales $179.90 Potential sales $115.14 = $ variance $64.76 = as % of potential 56.2% Unadjusted Trade Area Analysis Potential sales to residents $115.14 Surplus $64.76 Total $179.90 Non-resident share per group 36.0% Analysis with Adjustments Capture Rate of Edina Residents 70% Residents' $ share $80.96 Non-residents' $ share $98.95 Total $179.90 Non-resident share per group 55.0% Analysis and Recommendations for Eating/Drinking Establishments According to the potential sales estimates, Edina pulls in 56 percent more sales into the city than expected. With such a large contingent (125 businesses) this mass of operations attracts guests from outside the community and feeds visitors to the retail businesses concentrated in the city. Since such a large percentage of workers commute outside of the city for work, Extension decreased the resident share of sales in the category down and increased non-resident share up to 55 percent of taxable sales.. Local Option Sales Tax Analysis for Edina, MN 21 Repair and Maintenance 1.2 percent of total taxable retail and service sales The 28 stores in this group restore machinery, equipment, and other products. The group does not include plumbing or electrical repair services but does encompass auto repair, cameras, radio, television, computers, copiers, appliances, lawn mowers, specialized equipment, small engines, furniture, shoes, guns, etc. ($Millions) Actual taxable sales $9.82 Potential sales $17.32 = $ variance ($7.50) = as % of potential -43.3% Unadjusted Trade Area Analysis Potential sales to residents $17.32 Surplus ($7.50) Total $9.82 Non-resident share per group -76.5% Analysis with Adjustments Capture Rate of Edina Residents 51% Residents' $ share $8.83 Non-residents' $ share $0.98 Total $9.82 Non-resident share per group 10.0% Analysis and Recommendations for Repair and Maintenance Many of the businesses in this category typically serve a very local market. With a significant deficit at 43 percent lower than potential sales, residents are spending elsewhere in this relatively minor category. Even with a deficit, Extension set the non-resident share at 10 percent due to the proximity of these businesses to nearby communities. Local Option Sales Tax Analysis for Edina, MN 22 Personal Services/Laundry 3.3 percent of total taxable retail and service sales The 125 stores in this merchandise group include barber shops and beauty parlors, death care services, laundry and dry-cleaning services, and a wide range of other personal services, such as pet care (except veterinary), photofinishing, temporary parking, and dating services. ($Millions) Actual taxable sales $26.46 Potential sales $11.03 = $ variance $15.43 = as % of potential 139.9% Unadjusted Trade Area Analysis Potential sales to residents $11.03 Surplus $15.43 Total $26.46 Non-resident share per group 58.3% Analysis with Adjustments Capture Rate of Edina Residents 79% Residents' $ share $8.73 Non-residents' $ share $17.73 Total $26.46 Non-resident share per group 67.0% Analysis and Recommendations for Personal Services/Laundry Much like the preceding repair and maintenance category, many of the services in this category such as salons and laundromats typically serve a very local market. In this case, however, the 125 businesses must have created a niche in this category within the region. Actual sales are 140 percent higher than potential sales, so, obviously, non-residents are attracted to the community. Key informants pointed to the many salons and spas that complement retail in Edina as explanation for this niche. Extension increased the non-resident share to 67 percent, which set the local capture rate at nearly eighty percent. Local Option Sales Tax Analysis for Edina, MN 23 Retail (non-store) and Other Services (North American Industrial Classification System 511-813 Sales Amounts Released by MN Revenue) ($Millions) Actual taxable sales $120,840,498 % of total taxable retail and service sales 14.9% Analysis with Adjustments ($Millions) Residents' $ share $48.43 Non-residents' $ share $72.64 Total $121.06 Non-resident share per group 60% Analysis and Recommendations for Retail and Other Services This group includes non-store retailers (such as direct selling operations), healthcare, waste management, rental/lease services, administrative support, and the performing arts. Some of these categories serve primarily a local market, whereas categories like 541 (professional and technical services) serve a non-local market. This mix of business types is too diverse to run a trade area analysis, but Extension assumes and aggregate 60 percent of these sales are to non-resident customers. Category Taxable Sales 454 RETL -NONSTORE RETAILERS $5,126,536 511 INFO -PUBLISHING INDUSTRY $26,358 512 INFO -MOVIES, MUSIC IND $11,055,599 517 INFO -TELECOMMUNICATIONS $6,001,952 518 INFO -INTERNET SERVICE $3,500,362 519 INFO -OTHER SERVICES $2,538,533 522 CREDIT INTERMEDIATION $12,138,873 523 SECURITIES, COMMODITIES $0 524 INSURANCE CARRIERS $345,633 531 REAL ESTATE $2,279,694 532 RENTAL, LEASING SERVICES $15,204,695 541 PROF,SCIENTIFIC,TECH SERV $34,974,233 551 MGMT OF COMPANIES $0 561 ADMIN, SUPPORT SERVICES $20,816,599 611 EDUCATIONAL SERVICES $1,477,064 621 HEALTH -AMBULATORY CARE $5,082,819 623 HEALTH -NURSING,HOME CARE $77,864 624 HEALTH -SOCIAL ASSISTANCE $57,655 711 PERF ART, SPECTATOR SPRTS $136,029 Local Option Sales Tax Analysis for Edina, MN 24 Construction, Manufacturing, Wholesale Operations, Transportation, and Sales Information Suppressed for Business Confidentiality The above industries and services generate $106.3 million in taxable sales, a measurable portion of total taxable sales in Edina (11.6%). A significant portion of this amount will be subject to any new sales taxes, including a local option sales tax. A diverse mix of businesses fall into these non-retail categories and a portion of sales are within a suppressed or non-disclosed subcategory, although utilities must be within this category since their sales are not broken out in the sales tax report. Utilities serve a local market and are subject to a local option sales tax. This diversity makes it difficult to understand the customer mix of these businesses, however Extension broke out each known subcategory and assigned assumptions: Subcategory 2017 taxable sales Non-local estimate Construction $7,504,391 60% Manufacturing $10,227,489 90% Wholesale $26,244,420 70% Undesignated $62,295,116 50% Total $106,271,416 59% Extension estimated that overall 59 percent of sales are to non-residents. Extension assumed that some subcategories such as manufacturing sell primarily (90%) to non-resident customers, whereas subcategories like undesignated and construction split their sales between resident and non-resident customers. ($Millions) Residents’ $ share $43.57 Non-residents $ share $62.70 Total $106.27 Non-resident share 59% Local Option Sales Tax Analysis for Edina, MN 25 APPENDIX A: RESEARCH ON THE EFFECTS OF LOCAL OPTION SALES TAX City of Edina policymakers are understandably concerned that enacting a local sales tax will result in a loss of consumer purchases to neighboring communities that have not adopted the tax. The Minnesota Department of Revenue records the tax collected from Minnesota jurisdictions that have enacted a local sales or use tax within the last 10 years. Most of these cities show continued sales growth. A comparison that includes eleven Minnesota cities that have adopted a .5 percent local option sales tax is offered below (see Figures 7, 8, 9, and 10). None of the example communities are in the Twin Cities metro, however, which limits the comparison. Decision-makers should decide on the best allowable method to raise revenue. One option is raising property taxes, which is not directly related to a household’s current income and raises the financial burden of low-income or retired homeowners. Sales taxes raise revenues based on household expenditures, which excludes the basic necessities of food and clothing. However, since a sales tax raises revenues from non-residents who shop in Edina, local contributions to tax revenues are significantly lower than a tax generated exclusively by local residents. Policymakers should carefully consider each of the above factors before making a decision about enacting a local sales tax. Figure 5: Taxable retail and service sales by communities that began collecting a local option sales tax between 1999-2007 Figure 6: Data table for example communities, taxable retail and service sales (in millions) $0 $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000 $600,000,000 $700,000,000 $800,000,000 $900,000,000 $1,000,000,000 1990 1995 2000 2003 2004 2005 2006 2007 2008 2009 2010 2015 Albert Lea Baxter Bemidji New Ulm Worthington Town Name 2015 Population Year LOST 90 95 00 03 04 05 06 07 08 09 10 15 Albert Lea 18,356 2006 $264 $344 $397 $407 $521 $502 $551 $555 $588 $519 $541 $696 Baxter 8,065 2006 $432 $473 $556 $605 $650 $630 $612 $676 $900 Bemidji 11,917 2005 $257 $362 $457 $428 $410 $437 $495 $596 $570 $563 $581 $837 New Ulm 13,594 1999 $109 $165 $204 $233 $236 $259 $261 $280 $303 $295 $329 $417 Worthington 11,283 2005 $77 $77 $91 $99 $102 $103 $103 $108 $107 $108 $114 $121 Local Option Sales Tax Analysis for Edina, MN 26 Figure 7: Taxable retail and service sales by communities that began collecting a local option sales tax between 2011- 2012 Figure 8: Data table for example communities, taxable retail and service sales (in millions) Town Name 2015 Pop Year LOST 90 95 00 05 09 10 11 12 13 14 15 Brainerd 13,178 2011 $302 $479 $623 $458 $362 $324 $311 $330 $332 $338 $341 Cloquet 11,201 2011 $93 $124 $175 $244 $260 $273 $290 $303 $296 $308 $284 Fergus Falls 13,471 2011 $192 $263 $386 $523 $467 $486 $551 $591 $568 $558 $534 Hermantown 7,448 1996 - increase 2012 $43 $164 $137 $430 $393 $423 $489 $576 $607 $637 $659 Hutchinson 13,080 2011 $122 $191 $269 $471 $609 $374 $425 $409 $389 $415 $424 Marshall 12,735 2011 $176 $283 $343 $398 $371 $380 $440 $447 $457 $463 $428 $0 $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000 $600,000,000 $700,000,000 1990 1995 2000 2005 2009 2010 2011 2012 2013 2014 2015 Brainerd Cloquet Fergus Falls Hermantown Hutchinson Marshall Local Option Sales Tax Analysis for Edina, MN 27 APPENDIX B: DEFINITIONS OF TERMS Gross Sales Gross sales include taxable sales and exempt businesses with sales and use tax permits. This is the most inclusive indicator of business activity for the reporting jurisdictions, but it can be misleading when used in comparisons. At times, non-taxable commodity items (e.g., gasoline) can have large price variations, creating huge swings in gross sales. Taxable Sales Taxable sales are those sales subject to sales tax. Taxable sales exclude exempt items, items sold for resale, items sold for exempt purposes, and items sold to exempt organizations. For the purpose of this study, taxable sales were the focus of the analysis. For more information on what is taxed in Minnesota, see the "Minnesota Sales and Use Tax Instruction Booklet" available at http://www.revenue.state.mn.us/Forms_and_Instructions/sales_tax_booklet.pdf Taxable Retail and Service Sales In this study and other retail trade analyses conducted by University of Minnesota Extension, the term “taxable retail and service sales” refers to the North American Industry Classification System (NAICS) numbers of 441 to 454 (retail) and 511 to 812 (most service industries) released by the Minnesota Department of Revenue for a geographic area. Current and Constant Dollar Sales Current dollar (or “nominal dollar”) sales are those reported by the state. No adjustment has been made for price inflation. In general, this measure of sales is not satisfactory for comparisons over long periods of time since it does not account for changes in population, inflation, or the state's economy. Constant dollar (or “real dollar”) sales reflect changes in price inflation by adjusting current dollar sales according to the Consumer Price Index (CPI). Constant dollar sales indicate the real sales level with respect to a base year. This is a more realistic method of evaluating sales over time than current dollar comparisons, but it still does not take into consideration changes in population or the state’s economy. Number of Businesses The number of sales and use tax permit holders who filed one or more tax returns for the year. Index of Income This index provides a relative measure of income, calculated by dividing local per capita income by state per capita income. The base is 1.00. For example, a 1.20 index of income indicates that per capita income in the area is 20 percent above the state average. Potential Sales Potential sales are an estimate of the amount of money spent on retail goods and services by residents of a county. It is the product of county population, state per capita sales, and the index of income. Potential sales for counties is similar to expected sales for cities. Potential sales, however, do not utilize a measure of average pulling power (like the typical pull factor used in the expected sales equation). Since a county is a relatively large region where retail business takes place, counties are compared without adjustments for trade area size. Actual Sales For this study, the Minnesota Department of Revenue’s 2016 sales data for City of Edina provides the actual sales numbers used. Local Option Sales Tax Analysis for Edina, MN 28 Variance between Actual and Potential Sales The variance between actual and expected sales is the difference in sales from the “norm” (i.e., the amount above or below the standard established by the expected sales formula). When actual sales exceed expected sales, the county has a “surplus” of retail sales. When actual sales fall short of expected sales, the county has a retail sales “leakage.” Discrepancies between expected and actual sales occur for a variety of reasons. For this study, we use potential sales per merchandise group to create a first-cut estimate of residents’ purchase activities. Cautions Gross Sales Gross sales are a comprehensive measure of business activity, but it should be noted the numbers in this report are self-reported. Furthermore, gross sales are not audited by the State of Minnesota. It is believed gross sales figures are generally reliable, but there is the possibility of distortions, especially in smaller cities where misreporting may have occurred. Misclassification Holders of sales and use tax permits select the North American Industry Classification System (NAICS) category that best fits their business. Regardless of who makes this classification, errors are occasionally made. Also, sometimes a business will start out as one type but evolve over time to a considerably different type. Misclassifications can distort sales among business categories, especially in smaller cities. For example, a furniture store that is classified as a general merchandise store will under-report sales in the furniture store category and over-report sales in the general merchandise category. Suppressed Data The sales data for merchandise categories that have less than four reporting firms are not reported. This is a measure taken by most states to protect the confidentiality of sales tax permit holders. Sales for suppressed retail categories are placed into the miscellaneous retail category (NAICS 999) and included in total sales but not total sales of a typical retail trade analysis. For this report, however, all taxable sales—including NAICS 999—are part of calculating the amount of special taxes collected. Consolidated Reporting Vendors with more than one location in Minnesota have the option of filing a separate return for each location or filing one consolidated return for all locations. The consolidated return shows sales made, tax due, and location by city and county for each business. Data for consolidated filers are combined with data for single-location filers to produce the figures in this report. Occasionally, consolidated reports may not be properly deconstructed, and all sales for a company may be reported for one town or city. Whenever misreporting is discovered, the Minnesota Department of Revenue is contacted to clarify the situation. City Council Work Session Local Option Sales Tax September 4, 2019 Agenda •Retreat Debrief •Financing Projections •Discussion www.EdinaMN.gov 2 Retreat Debrief Options 1.Special Assessments 2.General Tax Dollars 3.Franchise Fees 4.Local Sales Tax • www.EdinaMN.gov 3 Retreat Debrief Options •If starting over, would not choose current system •Overarching concern –how to manage transition •Agreed ramp down current and ramp up new •Most preferred a hybrid approach of special assessments and local option sales tax • www.EdinaMN.gov 4 Financial Assumptions •Hybrid requires continuous financial monitoring and most likely frequent changes to the policy (i.e. assessment %’s) •0.5% Sales Tax = ~$4.0 million revenue •Inflation = 5% (Edina range 3% -7%) 1% Change = approximately $900,000 change in financials •Hold 4 miles per year pace with local streets –20 year completion •No increase to Highway Users Fund Allotment for MSA •Equal assessment reductions for local and MSA 50% local = 10% MSA (from 20%) •www.EdinaMN.gov 5 U of MN Extension Office Study •Trade Area Analysis •Taxable Sales and Sales Subject to a Local Option Sales Tax •Estimated Tax Proceeds Edina Residents Non-Residents • www.EdinaMN.gov 6 Trade Area Analysis www.EdinaMN.gov 7 Taxable Sales www.EdinaMN.gov 8 $ Millions % of Sales Total $918.2 Subject to LOST $820.0 100% Edina Residents $330.5 40.3% Non-Residents $489.5 59.7% Source: MN Revenue -2017 Estimated Tax Proceeds www.EdinaMN.gov 9 Total Tax Edina Residents $1,652,748 Non-Residents $2,447,252 @ ½ of a 1%$4,100,000 Sales Tax Uses •Reduce Special Assessments Local Street at 50% (after transition) MSA Streets at 10% (after transition) •Structures New and Rehabilitation Bridges –vehicle and pedestrian Retaining Walls •Street Lighting Usually assessed when included with street reconstruction • www.EdinaMN.gov 10 Financing Projections • www.EdinaMN.gov 11 Financing Projections • www.EdinaMN.gov 12 Recommendation •Seek legislative authority to use Local Option Sales Tax •Lobby during 2020 Session •If granted, conduct required referendum 2020/2021 •Discussion? www.EdinaMN.gov 13