Q+A with Mayor Brown: Sales tax.

Here, we will share a weekly update addressing Mayor Brown’s questions, which are probably your questions, too. (And, if you’re still puzzled, be sure to comment directly on this post or ask us here. We want to be on the same page.) Answers to questions 1 & 2 regarding location can be found here. The answer to question 3 regarding demographics can be found here.

Mayor Brown’s Question 4: I initially questioned the impact of a 1% sales tax increase on our local economy. I have since heard information from sources like the Retail Task Force/Buxton Report that perhaps the impact isn’t a deal breaker. Has there been any other information suggesting this?

Library Board’s A: The Mayor has asked what effect the increased sales tax might have on business in Grand Forks. The answer is that it is likely to have very little impact on shopping habits.

Some of the reasons for this conclusion are as follows:

• In Fargo, consumers pay an additional ½-cent county sales tax recently levied by Cass County. For the first six months, Grand Forks will enjoy a sales tax advantage over Fargo of ¾ cents. For nine months following that, Fargo’s sales tax will be ¼ cent lower than Grand Forks’. Then for 23 months Fargo will be ¾ cents lower than Grand Forks, unless Fargo is forced to raise its sales tax further to pay for the rapidly escalating cost of flood protection.

• However, if you figure in what you spend on gas and depreciation, it would make no economic sense to spend two and a half hours driving 150 miles just to pay a lower sales tax unless you were going to spend over $10,000 in one trip.

• The Buxton retail study found that choice and variety of merchandise are perhaps the most important determinants in making decisions about where one shops.

• A recent study in California by a well-known municipal tax consultant found that sales tax increases in more than two dozen California cities had no measurable effect on sales.

• An economist with Beacon Economics in California said that “in the long run people don’t base their buying decisions on sales tax rates.” They tend to shop in places they enjoy because of the atmosphere and amenities. “One of the highest sales taxes you might pay in Los Angeles County is in the city of Santa Monica, which has a 9.75% sales tax. But people flock there to shop because they like going there.”

• One advantage of the 1-cent sales tax is that we would be finished paying for it much sooner than with a ¾ cent or ½ cent tax. At current collection rates, a 1-cent tax pays off the cost of the new library in about 32 months (a little over 2.5 years). The other two would be with us for about 42 months (3.5 years) or 64 months (5.3 years).

• A new library will enhance the business climate in Grand Forks. It will be one more reason to be proud of what the city has to offer. The greater the attachment to Grand Forks, the more likely one is to shop there. Also, weekend reading events and exhibits at the library are another reason for patrons to stay in the city.

• If the new library were not paid for by the sales tax, we would have to make repairs to the current library’s electrical, air conditioning, heating and roof systems. The current elevator must be replaced by the year 2013, and there is also an urgent need to bring the current library into compliance with ADA (Americans with Disabilities Act) standards. An approximate estimate for those updates is a cost between $2 and $5 million. This would have to be paid for with property taxes, which most people find more burdensome than sales taxes.