Saroj Jerath, Grand Forks, column: How a GF library sales tax would work
By Saroj Jerath GRAND FORKS -- As Grand Forks Mayor Mike Brown says, "Grand Forks is a great place to live, learn, work, play and stay." It is a great community, and I applaud our community members for the "Speak Up for Your Library" discussion u...
By Saroj Jerath
GRAND FORKS -- As Grand Forks Mayor Mike Brown says, "Grand Forks is a great place to live, learn, work, play and stay."
It is a great community, and I applaud our community members for the "Speak Up for Your Library" discussion under way.
The topics that people are talking about include the role of libraries in general, the intended audiences within the region, the best location and the cost of building a new facility. I would like to take this opportunity to share some financial information related to potential costs and funding. I hope Herald readers will find this beneficial.
Estimating the cost of a public library building project can be difficult, but based on the studies done and communication provided by the Grand Forks Library Board, the current projections for a new library are estimated to be $18 million to $19 million.
At this time, the Grand Forks Library Board and community leaders are considering the construction of a new library to be funded by a sales tax. As funding sources go, sales tax is a viable option. Of course, adding a new sales tax will require an affirmative vote of the residents. It has been suggested this vote could take place in April 2011.
Two different sales tax rates have been suggested: ½ percent or 1 percent.
Our existing sales tax is 6¾ percent, which means that approval by the voters would increase the rate in place to either 7¼ percent or 7¾ percent for the time period adopted.
In all the discussions I've heard so far, it has been further suggested that the tax would end when the library construction is paid for. This is described as setting a "sunset" for the tax.
In one scenario, the city would bond (borrow) for the full project amount and secure that debt with the revenue from the adopted sales tax. Based on the estimated cost of $18 million to $19 million and according to our analysis of the historical data and current level of sales tax collections, the new library could be paid for in three years or less with a 1 percent sales tax and in six years or less with a ½ percent sales tax.
Our projections show that a 1 percent increase will bring in about $8.4 million and a ½ percent increase would bring in about $4.2 million.
In both cases and with a $19 million project, 12 months of collections may not be required in the final year.
Of course, how the debt instruments/securities will be sized and structured will depend on the market conditions at the time of issuance of the debt.
In addition, besides project costs, there will be bond issuance costs and interest expense of approximately $640,000 to $1.2 million depending on the term of the bonds.
Another funding scenario is not bonding, but opting to cash flow the project and save the financing costs.
As an example, for a $19 million project, one year of sales tax could be collected before construction begins. The second year of sales tax then would be collected during construction.
We could cash-flow the final construction costs until receipt of the remaining sales tax in the third year.
The estimated impact of an additional 1 percent sales tax on an average household with an income of $50,000 will be $130 per year. With a ½ percent sales tax, the impact will be $65 per year.
For those with a household income of $100,000, the impact of a 1 percent sales tax would be $238 and ½ percent would be $119 -- again, per year. These estimates are from the office of the State Tax Commissioner and do not reflect the sales tax exemption of natural gas.
I hope this information is helpful in the ongoing conversation and the efforts to engage the citizens of Grand Forks in a community conversation to "Speak Up for Your Library".
Jerath is director of finance and administrative services for the city of Grand Forks.