Public Safety Sales Tax
City of West Fargo voters approved a one--half cent sales tax increase to provide funding for the police and fire departments. The sales tax went into effect July 1, 2023.
These departments are seeing a rise in financial need that outpaces the current property tax levels due to:
- West Fargo’s increasing population;
- Growing school district;
- Expanding visitor appeal;
- Rise in mental and behavioral health issues; and
- Aging population.
To address gaps in operations that are risking minimum standard of service, both departments must make serious investments in the next five years.
Over the next five years
- Police department needs to increase by $2.9 million, to a total budget of $12.6 million, by 2026 to invest in the needed personnel and equipment. This includes sworn officers, vehicles, equipment, support staff, body-worn cameras and an incident command vehicle. The fire department’s current $3.35 million budget needs to increase by $3.45 million, to a total budget of $6.8 million, by 2026 to invest in the needed personnel and equipment. This includes firefighters, a ladder truck, an engine truck, and a headquarters that includes the first station located north of Interstate 94 staffed round the clock.
Currently, police and fire department expenses come from the general fund through property taxes. Using sales tax to support police and fire services is a viable solution because everyone who could potentially use these services, not just property owners, contributes to it. When you consider that only 37% of the arrests made from January 2020 through April 2022 were West Fargo residents, it is important that the departments’ funding includes revenue that comes from more than just property owners.
A sales tax funding mechanism also helps to relieve financial pressure in multiple areas. First, it helps decrease the share of the general fund that the police and fire departments need. On average, the public safety departments combined account for about 80% of the general fund budget, leaving just 20% for the remaining 11 department funds.
Second, a police and fire sales tax will help the City keep the capital infrastructure sales tax fund more targeted. Currently, capital improvements from every department are covered in this budget. This includes items such as buildings, fire trucks, specialty gear and squad cars. For example, funding for the new $18.5 million fire department 24/7 staffed station and headquarters will come from this fund. However, this fund also covers financial support for street, water and sewer construction projects that offset the use of special assessments. By shifting police and fire capital improvements to the police and fire sales tax, more funds will be available in the capital infrastructure sales tax fund to lessen property owner’s special assessments and local share of cost for upcoming construction projects.
The City Commission previously determined to place a proposed half-cent increase to fund public safety on the November 2022 general election. The proposed ballot language is based upon the requirements of the West Fargo Home Rule Charter, which requires approval of two questions in order to increase the sales and use tax. The first question is whether to amend the Home Rule Charter to provide authority for the City impose up to a two and one-half percent sales tax. The second question is a whether to approve the proposed amendments to the sales tax ordinance to increase the sales by one half of a percent. In order to approve the sales tax, a “yes” vote is required on both questions.
The draft sales tax ordinance amendment is a simple amendment increasing the sales and use tax by one-half of a percent. The ordinance provides that one-half cent1 of the updated sales and use tax (now 20%)2 can be utilized for police and fire services, equipment and building.
The impact of relying on property taxes could potentially add 15.02 mills of property tax funding for police and fire departments over the next four years. Using 2022 numbers, property taxes would increase by $270 for police and fire alone on a $400,000 house between 2022 and 2026. This also does not offer an alternate source of funding for police and fire capital improvements and will continue to force these improvements to compete for dollars with other infrastructure projects.
The impact of a one-half cent sales tax adds $3,675,000 in revenue in the first full year to help decrease requests for property tax funding from police and fire departments. By 2026, the revenue increases to $4,254,272, helping to further decrease the police and fire departments’ reliance on property taxes as a source of funding. This also offers an alternate source of funding for police and fire capital improvements to help decrease competition for capital improvement sales tax dollars that are earmarked for infrastructure and improvements.
This increase will have a minimal impact to purchases within the City of West Fargo. A Costco bill with $150 of taxable items would see City sales tax revenue increases from $2.50 to $3.13, an increase of 63 cents. A trailer purchased for $7,500 would see an increase of City sales tax from $150.00 to $187.50, an increase of $37.50.
1North Dakota counties and cities which impose and levy a sales and use tax must enter into an agreement with the State of North Dakota, whereby the North Dakota Office of State Tax Commissioner collects locally imposed sales and use taxes and remits the revenue each and every month to the local jurisdiction, after deducting an administrative fee based upon the number of sales tax permits in the jurisdiction imposing the sales and use tax.
2Because the proposed sales and use tax ordinance increases the sales tax to two and one-half cents, 20% of the sales and use tax revenue generated by the City would be equal to 20% of the total.