As federal and state funding dwindles for local government, there is a tendency to replace it with local taxes that often travel the least path of resistance to government coffers.
That means cities are increasingly looking to their local sales taxes to fund everything from recreation centers to infrastructure. Mankato and North Mankato are facing such decisions in their upcoming budget discussions, and we would urge them to move carefully and cautiously when tapping sales taxes.
As the Mankato-North Mankato Metropolitan Statistical Area becomes a growing regional center, local sales tax revenues have been growing.
Those taxes are paid by anyone who shops in the two cities. It’s a number increasingly paid by people who don’t live here but benefit from the local services on everything from sewer service to street plowing so they can go shopping.
Sales taxes, in that way, are taxation without representation. Those who pay these taxes from out of town have little say on how Mankato and North Mankato use those taxes.
Of course, they’re choosing this arrangement and for the most part living with it.
But governments should be aware. Sales taxes can be volatile and impacted by a slowing economy.
The economy in turn is subject to the ups and downs of local employment in manufacturing and retail trade, the volatile construction industry and, more importantly, farming and agriculture.
For a long time the outlook for the Mankato regional economy has been strong, but there are now clouds building on the horizon. Farmers in general are having a tough time; demand for soybeans, for example, has been declining precipitously as U.S. tariffs have pushed China to go to other sellers, permanently, in some cases.
That is a structural development not seen in recent years.
Trump administration tariffs also are affecting manufacturing. A recent U.S. trade report shows imports were down precipitously in August as tariffs finally kicked in.
Again, this is an unfamiliar structural barrier. Auto parts, vehicles and construction materials have all been affected.
Even retail trade has been facing structural changes with the growth of Amazon and other mail-order companies, leaving onetime large shopping malls ghosts of their former selves.
So an overreliance on sales taxes to fund government seems fraught with risk.
The biggest risks come from attempting to fund things that need a permanent funding stream with sales tax revenue that may not be so permanent. Recreation centers that need ongoing maintenance and operation will eventually have to find other revenue streams when the sales tax funding dries up.
North Mankato’s contemplation of funding a $30 million recreation center with sales taxes and property taxes seems particularly onerous.
The city of Mankato relied on sales taxes for operation of its civic center and found itself short when it had to make major repairs to the infrastructure.
While sales taxes still fund some of the civic center, the city has wisely set up contingency funds to set aside for future maintenance.
On the other hand, sales taxes may be appropriate for improving amenities with one-time funding as the city did with Franklin Rogers Park/ISG Field and Tourtellotte Pool.
Mankato is considering an expansion of its sales tax also for possible funding of a news splash pad, a new grandstand at ISG Field, a homeless shelter, a recreation center, upgrades to Riverfront Park and a new bridge at Sibley Park.
The demands would compete for about $25 million over the next few years with bonds sold by 2031 with the sales tax ending in 2038.
Splashpads, the bridge, Riverfront Park upgrades and a grandstand could make it on one-time funding, but the recreation center and homeless shelter would need another funding stream.
The Mankato-North Mankato region is fortunate to have established local sales taxes as a funding mechanism, but such streams don’t last forever and can be depleted quickly should the expenses grow at a greater rate than growth of increasingly risky sales tax revenues.