Temps affect taxes

Minot’s city sales tax collections are down from levels of the past two years, prompting city officials to keep an eye on the potential need for budget changes. However, at least some in Minot’s construction community attribute the lower collections to the weather and suggest that a turnaround is coming.

Sales tax collections are off considerably from last year, although that’s not unexpected. Cindy Hemphill, finance director, said because of the amount of flood rebuilding that influenced sales last year, the city didn’t anticipate that amount of tax revenue this year. Instead, the city budgeted for a 2 percent increase over 2011.

For the first quarter of this year, from January through March, collections are down 36 percent from 2012 and 12.5 percent from 2011. Collections for each of the two 1 percent sales taxes were $2.1 million for the first three months of this year, and $2.4 million for the first three months of 2011.

“We will continue to watch it. There’s still plenty of time if we need to reduce some of the projects,” Hemphill said.

Construction activity can be a major driver in sales tax revenue and serves as an indicator of growth and activity. In that respect, there are positive signs that sales tax revenues could improve.

Mitch Kraft, president of the Minot Association of Builders, believes the lower tax collections are a product of a cold winter and absence of spring. The mild winter of 2011-2012 allowed a lot of work to continue, and contractors were hard at it at this time last year. Only a handful of commercial projects that got going last fall were able to produce work this winter, Kraft said. That’s created a situation where he expects a boom in activity once the weather changes.

“It will be like somebody turned on a light switch and everybody is just going crazy,” he said.

Building permit values through March of this year total nearly $66.7 million. That compares to a record $83 million for the same period in 2012 and $26.4 million in 2011.

Curt Schaefer, manager of Minot Lumber and Hardware, said indications are that Minot will have another busy construction season. With the economy perking up in some parts of the country, fewer out-of-state contractors may come back, but there should be some influx of workers that will help boost sales around Minot, he said. He also sees a correlation between the delayed construction season and the city’s lower sales taxes and looks for both to improve.

“We certainly would have hoped we would have been going pretty strong already,” he said. “The weather is definitely holding things up. We traditionally don’t have a very long building season as it is. The further we go, the more it’s going to compress things.”

The drop in sales tax revenue so far hasn’t been a critical concern for the city. Hemphill said that the city often will build up adequate money in its sales tax accounts to pay for a project before proceeding with that project. The share of sales tax deposited in the MAGIC Fund also isn’t designated for spending until it is in the account. So lower tax collections results in money accumulating more slowly into the accounts, which won’t mean budget cutbacks but could affect the timing of some projects.

The $168 million city budget also includes $3.3 million in sales tax collections that are paying for city services normally paid through property taxes. The city is collecting about $13 million in property taxes.

Minot’s first penny of tax is split with 50 percent for capital improvements, 40 percent for economic development and 10 percent for property-tax relief. The second penny is divided among infrastructure, 40 percent, and community facilities and property-tax relief, each 30 percent.

Meanwhile, state sales tax collections are running about the same for the first two months of this year as in 2012. They are about 48 percent ahead of the first two months of 2011, according to figures from the North Dakota Office of Management and Budget.