Everything you want to know about Cass County, Fargo sales tax extension on Nov. 8 ballot

FARGO - When city and county voters consider ballot measures on Nov. 8 to extend 1½ cents of existing sales taxes to pay for the flood diversion, it might seem like a referendum on the project.

But Cass County Auditor Mike Montplaisir, a member of the Diversion Authority's finance committee, said he expects that the project to channel Red River floodwaters around the metro area will march on regardless of the vote.

"We'll build the project and we'll finance it some way. This happens to be the best way that we can think of financing it," he said, because the alternative is using property taxes and special assessments.

The Diversion Authority, which includes among its members the city of Fargo and Cass County, can't easily back out of the project now, said its attorney John Shockley. In July, the authority signed an agreement with the U.S. Army Corps of Engineers to build the $2.2 billion flood-control project together. There is no provision for the authority and its members not having enough money. So barring a court decision against the project, it'll go forward.

Cass County voters showed support for the diversion when they approved a half-cent sales tax in 2010 to build the project. Fargo voters supported a half-cent sales tax in 2009 and another in 2012-both aimed at permanent flood protection. All expire after 20 years.

City and county leaders who issued those sales-tax ballot measures thought that would have been enough because the local share of the diversion was supposed to be smaller. They want to extend the taxes because the local share is now an estimated $1.1 billion. The federal government cut its share in half to $450 million. The state of Minnesota, expected to chip in $100 million at the time, is now unlikely to pay anything because of Gov. Mark Dayton's opposition to the project.

The state of North Dakota has pledged $570 million and there's been no sign that will change.

What will voters be voting on?

Fargo voters need to vote twice on sales tax extensions and the rest of Cass County will vote once.

The city sales taxes expire Dec. 31, 2029, and Dec. 31, 2032. The city measure will extend them both to Dec. 31, 2084, unless they raise enough money to pay off diversion debt earlier.

The county sales tax expires March 31, 2031, and the county measure will extend it to Dec. 31, 2084, unless, again, it raises enough money. Consultants have said the earliest they think the debt can be retired is 2054.

Based on what's known today, it's likely the sales taxes will end much earlier. Assuming current growth rates, Diversion Authority consultants project the taxes will raise $9.2 billion if they aren't rescinded early. The amount repaid, including interest, will total $3.3 billion if payments are stretched until 2084. A lot of that interest can be avoided with early repayment.

Why does the sales tax need to be extended to 2084?

The $9.2 billion is what consultants believe sales tax revenue will reach if it continues to grow at the current rate. But, to get good interest rates, sales tax revenue has to be based on existing revenue not projected revenue, according to Diversion Authority officials. 2084 is how long it'll take to repay diversion debt if revenue doesn't grow.

What other options are there to pay?

The Diversion Authority hasn't decided exactly how to pay for the project without a sales tax extension, but Montplaisir said he could envision using a combination of the existing sales taxes, special assessments and property taxes.

Consultants' projections show that the sales taxes will have raised around $724 million by 2029, the earliest sales-tax expiration date.

The special assessment district already in place could raise a maximum of $725 million. Two-thirds of that will be levied on local governments, such as the city of Fargo, which means those governments may have to raise property taxes. The remaining one-third will be levied on private properties, encumbering them for many years, which is why authority officials have long promised not to levy the specials if there's enough sales tax.

Together that's around $1.4 billion, which is more than the $1.1 billion local share but potentially less than the local share with interest. Property taxes could also fill the gap here.

Montplaisir said most likely the city and county would put the sales tax on the ballot again hoping voters will change their minds.

Delays caused by a new vote or work on a new funding plan would raise construction costs beyond $2.2 billion, according to the Diversion Authority.

Why does the Diversion Authority think sales tax extensions are the best way to pay?

Property taxes and special assessments concentrate the burden on property owners. While businesses can spread that cost to customers, homeowners can't easily do so, especially if they're on fixed incomes as many elderly people are. Many residents already complain about their property taxes and specials being too high, but few complain about sales taxes.

The sales taxes would spread the burden on many more people, such as Minnesota residents who won't otherwise pay.

The Diversion Authority said it's a fair way to fund infrastructure because Fargo-Moorhead is an economic hub that serves many people in the region and not just its residents.

What are some criticisms of the ballot measures?

There appears to be no organized opposition in Cass County to the ballot measures, but some individuals have voiced concerns about the high cost of the project and having the vote take place while the project is threatened with litigation.

The project is embroiled in one major lawsuit. The Richland-Wilkin Joint Powers Authority, upstream opponents of the project, is still suing the Diversion Authority though its case against the U.S. Army Corps of Engineers was dismissed. The group argues the diversion takes too much land out of the flood plain with the dam pushing flooding into upstream properties that haven't flooded before. The authority has said a dam farther south of Fargo-Moorhead is less costly and protects more buildings. It plans to compensate landowners.

Another lawsuit might be possible. Minnesota regulators, using similar arguments as diversion opponents, have denied the Diversion Authority a dam permit. Rep. Collin Peterson, D-Minn., a confidant of Minnesota Gov. Mark Dayton, has said Dayton will sue if the project goes ahead without a permit.

Terry Williams, project manager with the corps, said the agency is frequently sued because major flood control projects usually step on someone's toes. She said a federal agency is charged with such projects because it's in a better position to overcome obstacles compared to state and local agencies.

Why are the sales taxes being extended now instead of closer to their expiration dates?

All of the cost of constructing the diversion is expected to be incurred between now and 2024 when the Diversion Authority hopes to complete the project.

That's a short period of time to raise all of the necessary funds, which means the authority will have to convince two groups, Montplaisir said.

A consortium tasked with building the diversion channel will have to be convinced the authority has the ability to borrow enough by way of government bonds to complete the project.

Investors will have to be convinced the authority has a dedicated funding stream to pay off those bonds. The lower the risk of nonpayment, the lower the cost of borrowing.

What happens if the project costs even more?

Most of the sales taxes will go toward the diversion channel, which is the responsibility of the Diversion Authority. To lock in costs, the authority plans to award the contract to a single consortium sometime in the next year as part of the P3 funding process, also known as a Public Private Partnership.

Under such a contract, what the authority pays the consortium shouldn't change much barring major disasters or natural conditions such as excessive rain, said Martin Nicholson, program director and senior vice president for CH2M, an engineering consultancy involved in the diversion project.

Normally, a major flood control project that relies mostly on federal funding would have multiple phases involving multiple contractors based on congressional funding in any given fiscal year. The U.S. Army Corps of Engineers is responsible for the dam, an important component of the project, but it has said the diversion project is a top priority.

What happens if the diversion project can't proceed?

In theory, if a judge were to kill the diversion project, all three sales taxes could continue being collected into 2084, but the revenue is restricted to paying for flood protection of some kind. However, the ballot measures both specify that the city and county would rescind the taxes earlier upon full payment of diversion debts.

In the city charter, the given purpose of the 2009 sales tax is to protect the city from a 500-year flood, which is what the diversion project is designed to do. The given purpose of the 2012 sales tax is to pay for infrastructure, including flood protection. The diversion is not mentioned by name in the charter.

The ballot measure would extend the 2009 sales tax as is and change the 2012 sales tax so that starting on Jan. 1, 2034, the money can only be used for flood protection and not other infrastructure; city leaders wanted to show voters the sales tax will have a narrow focus. The measure also says the City Commission can rescind the sales tax after paying for the diversion.

In the county charter, the given purpose of the 2010 sales tax is to pay for the "Red River diversion" and other flood protection projects; commissioners say it's also used to protect other Cass County cities. The ballot measure would extend the sales tax as is, but the County Commission "shall" rescind the tax after paying for the diversion, a stronger directive than the city ballot measure.