The Community Center investment plan will cost approximately $79.7 million. The city will primarily use a voter-approved one-half percent (0.5%) local option sales tax increase and property tax levy to fund the project.
Here’s a look at the primary sources of funding:
One-Half Percent Local Option Sales Tax Increase: In November 2024, Chanhassen residents will vote on a one-half percent (0.5%) local option sales and use tax which will generate $40 million in revenue for the Community Center project. Forty-five percent of the one-half percent (0.5%) sales tax will be paid by nonresidents, according to research by the University of Minnesota.
Property Tax Levy: The property tax increase will be phased in over time. The estimated property tax impact will be about $17 per month for a residential home valued at $600,000, averaged over 20 years.
Other Funding Sources: The remainder of the project funding includes but is not limited to the sale of the existing rec center, naming rights and sponsorships, and property taxes generated by the Avienda Development that will be dedicated to the repayment of the bonds on the Community Center Project.
Local Option Sales Tax
The Parks and Recreation Task Force explored funding options for building a new Recreation Center due to the limitations on expanding the current facility. One viable solution is the local option sales tax. The Minnesota legislature allows cities to increase sales tax by up to 0.5% for select infrastructure projects, pending state approval. This option is especially appealing for growing cities like Chanhassen, which attract non-residents for shopping, lodging, and activities. On November 5, 2024, Chanhassen residents will vote on a one-half percent (0.5%) sales tax increase to generate revenue for the Community Center project.
How will the sales tax impact me? The one-half percent (0.5%) local option sales and use tax amounts to a ½ cent for every $1 spent. For example, a $10 purchase will cost an additional 5 cents if the one-half percent (0.5%) local option sales and use tax is approved. Sales tax does NOT apply to groceries, clothing, gas, or automobile purchases.
Benefits of a Local Option Sales Tax: Ensuring both residents and nonresidents share in the cost to invest in the community center.
- Alternative Funding Source: The location option sales tax provides a way for cities to fund new developments without relying entirely on bonding or increasing property taxes. This allows cities to pursue necessary projects while minimizing the financial burden on residents.
- Historical Success: Over the past five years, local option sales taxes have been a valuable tool for cities and counties to fund significant public projects. In 2022, 14 cities had 21 ballot questions for local sales taxes, and 18 of these projects were approved by voters.
- Expiration Terms: The sales tax would expire in 20 years or sooner if the bonds for the project are paid off early. Any extension or redirection of the tax would require legislative approval and voter consent.
The University of Minnesota Research: As part of the application process, the city worked with the University of Minnesota to analyze the impact of adding a local option sales tax. The study found:
- Non-Resident Contributions: Approximately 45.1% of the taxable sales in Chanhassen come from non-residents. This means nearly half of the revenue generated by the local sales tax would come from visitors, reducing the financial burden on local residents.
- Resident Impact: The 2019 study shows the average cost of the one-half percent (0.5%) sales tax per Chanhassen resident would be approximately $35.55 per year. That’s about $2.96 per month.
- Revenue Estimates: If the local option sales tax had been in place in 2019, a one-half percent (0.5%) sales tax would have generated about $1.7 million. Chanhassen residents would have contributed around $934,000, while non-residents would have added approximately $766,000.
- Future Revenue: The projected revenue from the local option sales tax remains strong, offering a reliable source of funding for Chanhassen.
What about other cities?
Chanhassen’s proposed 0.5% local option sales tax aligns closely with regional standards, with neighboring towns maintaining local sales tax rates primarily at 0.5%, and a few as high as 1.25% and 1.5%.
Property Tax Levy
The property tax increase will be phased in over time. The estimated property tax impact will be about $17 per month for an average residential home valued at $600,000, averaged over 20 years.
AAA Bond Rating Affirmed On July 17, 2024, the City of Chanhassen’s bond rating agency, Standard & Poor’s (S&P), once again affirmed Chanhassen’s ‘AAA’ bond rating with a stable outlook, meaning they do not expect the rating to change in the next two years. ‘AAA’ is the highest bond rating available to a municipality. The bond rating was evaluated for the City’s issuance of bonds for the Civic Campus project. Sustaining the AAA bond rating results in lower interest rates for the city and tax savings for residents.