City Council Meeting Date: January 20, 2026
To: Mayor and City Council
From: Ben Martig, City Administrator
Brenda Angelstad, Finance Director
David Bennett, Public Works Director/City Engineer
Natalie Draper, Library Director
Title
Consider Resolution Supporting the Authority to Impose a Local Sales Tax to Fund Specific Capital Improvements Providing Regional Benefit, to Establish the Duration of the Tax and the Revenue to be Raised by the Tax, and to Authorize the City to Issue Bonds Supported by the Sales Tax Revenue.
Body
Action Requested:
The Northfield City Council approves the attached Resolution Supporting the Authority to Impose a Local Sales Tax to Fund Specific Capital Improvements Providing Regional Benefit, to Establish the Duration of the Tax and the Revenue to be Raised by the Tax, and to Authorize the City to Issue Bonds Supported by the Sales Tax Revenue.
Summary Report:
The City Council has expressed interest in exploring alternative revenue sources in conjunction with the current Strategic Plan. One alternative revenue source that may be used for certain capital projects is local sales tax. The State of Minnesota allows for local governments specifically request to implement up to a .5% sales and use tax for items for capital building projects Detailed description of up to five capital projects to be funded with the tax. A capital project includes:
- A single building or structure, including associated infrastructure needed to safely access or use the building or structure;
- Improvements within a single park or named recreation area;
- A contiguous trail.
A 0.5% local sales tax would generate approximately $18.5 million over 20 years, 40% of which would be paid by individuals visiting Northfield, alleviating $4.5 million of capital costs from local taxpayers. That revenue would support funding of $11.4 million net for projects assuming debt would be used for the projects. The revenue would cover both annual principal and interest payments.
The moratorium on local sales taxes expired on May 31, 2025, and cities may submit requests to the legislature during the 2026 legislative session. Cities need to follow strict rules and procedures to obtain legislative authority for the creation of a local sales tax. Cities seeking local sales tax authority must file requests with legislators on the House and Senate Taxes committees by January 31, 2026. The legislative authorization would still require voter approval by majority vote and additional authorization from the City Council after legislative approval.
The city must submit a resolution proposing the local sales tax, details on the projects that will be funded by the tax, and documentation on regional significance. Cities may request legislative authority to impose a local sales tax to fund up to five capital projects of “regional significance” (Minn. Stat. § 297A.99).
Up to five projects can be identified for local option sales tax. Three projects of significant regional impact have been identified as priorities for local option sales tax funding and are detailed in the attached resolution: the library’s site renewal plans for safety, accessibility, and sustainability, and necessary improvements to the Northfield Community Resource Center, as well as safety and accessibility improvements to expand access to and enjoyments of Northfield’s riverfront parks for all ages and abilities.
To impose a general local sales and use tax, you must receive authorization through the Minnesota Legislature. To receive this authorization, you must complete the following steps:
1. Pass a resolution that includes:
• Proposed tax rate
• Detailed description of up to five capital projects to be funded with the tax. A capital project includes:
o A single building or structure, including associated infrastructure needed to safely access or use the building or structure
o Improvements within a single park or named recreation area
o A contiguous trail
• Documentation of how each project will provide an economic benefit to residents, businesses, and visitors from outside the jurisdiction
• Amount of revenue to be raised for each project and the estimated time needed to raise funds
• Total amount of revenue to be raised for all projects
• Estimated length of time the tax will be in effect if all proposed projects are approved
§ Each project must have a separate question for approval.
§ Voters must approve by a majority vote.
The legislative resolution does require some specificity of improvements within each project. However, it will not require detailed specifics on the projects. However, any voter proposed referendum should be more specific. So, for the projects, and in particular the Riverfront projects, staff would work with Council to explore a process between approval and June to refine the project scoping to have a more refined budget sources and uses for the projects proposed.
Alternative Options:
The City Council had discussion regarding potential other projects but staff did not hear consensus support. Staff heard that the 3rd Street Parking Structure had merit but at this concept phase requires further exploration and not project ready worthy. There was questions about possible funding of police station parking lot that is in the CIP for $95,000 in 2027 tentatively planned. That is a very small project relative to the typical sales tax capital projects requested and that it is also expected to be difficult on its own to qualify as regionally significant. Therefore, staff did not include that project in the options either.
Financial Impacts:
A 0.5% local sales tax would generate approximately $18.5 million over 20 years, 40% of which would be paid by individuals visiting Northfield, alleviating $4.5 million of capital costs from local taxpayers. That revenue would support funding of $11.4 million net for projects assuming debt would be used for the projects. The revenue would cover both annual principal and interest payments. The total annual revenue is estimated to be between $800,000 - $1,000,000 per year over the 20-year term.
If all steps in the required process is approved and a local sales and use tax is implemented, the Minnesota Department of Revenue manages the collection and distribution of revenue to the City Finance Department.
Tentative Timelines:
• Submit the approved resolution and supporting documents to the senate and house tax committee chairs by January 31 requesting authorization to impose a local option sales tax.
• February 17th - Start of MN Legislative Session
• May 18th - End of MN Legislative Session (constitutional deadline there are provisions for early completion or extended special session)
• June 2nd - Once legislative approval is given, Council revise and reaffirm a resolution. The resolution must be passed at least 90 days before a general election.
o Pass a referendum to impose the tax:
§ Hold a vote at a general election within two years of legislative approval (In this case, this would be November 2026).
• September 18, 2026 - General Election Early Voting & Mail-in Voting Start
• October 16, 2026 - Direct Ballot Early Voting Starts
• November 3rd -General Election Day
• November/December 2026 - If approved by voters, City Council pass ordinance imposing the tax.
• By January 31, 2026 - Staff file a certificate of approval and a copy of the ordinance with the Minnesota Secretary of State.
• After filing with Minnesota Secretary of State, staff notification in writing to the Minnesota Department of Revenue to start a new local tax.
• Q1 2027 - Special Tax Effective Date
• 2027 - Project Schedule to Be Determined