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All in on try for half-cent sales tax hike?

Dixon unlikely to pursue increase at this time

Published: Tuesday, March 18, 2014 1:15 a.m. CDT • Updated: Tuesday, March 18, 2014 9:26 a.m. CDT

When Rock Falls Mayor Bill Wescott gave his State of the City address this month, he introduced the possibility of doubling the local half-cent sales tax.

The history of the tax in this area, however, also brings the issue to Sterling and Dixon.

In Rock Falls, the extra money would be used to fix roads that are in “terrible condition,” Wescott said during his address. Without more funding, the city won’t be able to make a dent in the problem, the mayor said.

“Perhaps it is time to get with Sterling and Dixon to revisit the half-cent sales tax, and ask you, the residents, by vote in a referendum, if you would support another increase to the maximum of 1 cent total,” Wescott said.

Rock Falls receives about $280,000 a year from the state’s motor fuel tax. For 5 more years, $140,000 of that money will be used to pay off a bond on the city’s West Second Street project.

“The remaining distribution is used for salt, patch for repairing potholes, gravel, sand, etc.,” Wescott said. “So the only funds that remain are the half-cent monies, which total approximately $405,000.”

History of the tax

The “local option sales tax,” its more official name, was instituted July 1, 2005, in the cities of Sterling, Rock Falls and Dixon.

It was no accident that the referendum appeared on all three cities’ ballots in the same year. A gentleman’s agreement among the three cities promised that posing the tax to the voters would be an all-or-none proposition. The cities didn’t want the tax increase to give retailers in any one city an advantage, so 10 years ago it appeared on the ballots of all three.

Voters in all three cities approved the tax incease in November 2004.

Local sales tax income is being used by many cash-strapped municipalities as an alternative to property tax increases for infrastructure projects. That includes roads, curb and gutter, sidewalks, and water and storm sewers. The tax is often considered more palatable than property tax increases because it is shared by others who don’t reside in the city.

“It’s a great way to raise funds, especially in in places like Dixon, where so many people are coming in off the interstate,” Dixon Mayor Jim Burke said.

All or none?

Sterling Mayor Skip Lee said he knew the tax would be part of Wescott’s address. He said the possibility of an increase has been talked about, off and on, for several years. While Lee said Sterling hasn’t decided to pursue a tax increase, he still believes it would be best for the cities to stick with the original plan.

“I think it would have the best chance of passing if we all do it,” Lee said. “Even if all three passed it at the same time, it doesn’t mean they all have to start using it at the same time.”

This election and the last one already had county sales tax referendums on the ballot, and officials feared that two tax increases on the same ballot could have killed both.

Lee says he has given enough thought to the idea to know how he’d use the extra money.

“Stormwater improvements and roads are on our radar,” Lee said. “We don’t have our own utilities, and there is some aging infrastructure.”

These types of infrastructure referendums tend to fare better than school referendums, Lee said.

“If a referendum is perceived to go for salary and benefits, whether that’s reality or not, it’s not as likely to pass,” the Sterling mayor said. “The brick-and-mortar projects have a much higher chance of passing than the school referendums.”

Other options for the infrastructure work in Sterling might be available, and Lee said those would first be explored by city officials.

“We will take a closer look at utility rates, and if we find those are comparatively low, maybe an increase there is a better option,” Lee said. “It’s important not to raise taxes unless you are very clear with the reasons.”

The half-cent is actually one half of 1 percent, amounting to 5 cents on every $10 spent on most purchases in that city. Voters also tend to have more tolerance for that type of tax because it is usually designated for very specific projects, oftentimes involving economic development.

In 2004, Sterling and Rock Falls’ referendums designated the extra money for general city infrastructure, while Dixon’s extra money went for improvements in the city water system.

In Dixon, 70.1 percent of voters said yes to the referendum. Sterling also passed it handily, with 61.5 percent of the vote. It was much closer in Rock Falls, with 52 percent opting for the sales tax increase.

The overwhelming support for the increase in Dixon was likely tied to a promise that voters would get something in return.

“It worked out very well for us before,” Burke said. “If it passed, we promised we wouldn’t increase water utility rates for 5 years, and we didn’t.”

Dixon did increase its water rates in 2010 to help pay for the city’s new water treatment facilities.

Different situation in Dixon

There has been no discussion about a tax increase between Burke and the two other mayors, or any discussion among Dixon officials, Burke said. The mayor believes Dixon’s financial situation looks good, and the city has the money for larger projects it is working on.

The downtown streetscape project, estimated to cost up to $6 million, can be paid for with money from the extended TIF district. A $2 million sewer project planned for next year will run from Galena Avenue to River Street. Most of that money will come from the general fund, Burke said, but some TIF money could be used for that work as well.

While he says he is open to discussing the tax increase with Wescott and Lee, Burke doesn’t believe the timing is right for Dixon.

“We’re in pretty good shape with the money we recently received, and we’ve already allocated money for streets,” Burke said.

“Unless there is a specific economic development target for this, I don’t know that the city is going to go for this,” Burke said. “We tried to get an increase for the sports complex, and that went no place.”

If Dixon were to opt out of the discussions, Burke doesn’t necessarily think it should be a deal-breaker for the two other cities.

“If they go ahead with it, I don’t think it would hurt them,” Burke said. “Rock Falls won’t be driving to Dixon for a half-cent sales tax break.”

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