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Voters may be asked to extend Fargo's flood sales tax

FARGO -- Voters here may be asked to vote again on the city's flood-control sales tax, this time to extend it until the flood diversion project is done, said Mayor Tim Mahoney.He and other Diversion Authority officials expect 2016 to be a milesto...

The stadium lights at Jack Williams Field in Fargo poke through the swollen Red River during the 2009 flood. David Samson / The Forum

FARGO - Voters here may be asked to vote again on the city's flood-control sales tax, this time to extend it until the flood diversion project is done, said Mayor Tim Mahoney.

He and other Diversion Authority officials expect 2016 to be a milestone year for the project, which would include nailing down details such as a proposal to fund a part of it privately. The private financing plan is called a public-private partnership, or P3.

"When you do the P3, you have to figure out how you're going to finance it, they have to have assurances," the mayor told The Forum Editorial Board this week. "So we would like to know the cost to see what we have to finance it for. And if you extended the sales tax, it wouldn't increase your taxes. It would keep it the same."

Mahoney said the city may find it needs to extend the half-cent sales tax 10 to 15 years or when the project is paid off, whichever is sooner, but won't have specifics until a new cost estimate comes out later this year.

Cass County Auditor Mike Montplaisir said extending the city and county sales taxes has been a what-if discussion for some time within the Diversion Authority - he serves on the finance committee and Mahoney is a board member - but the County Commission and City Commission haven't formally weighed in.


The city's flood-control sales tax began Jan. 1, 2010, and will expire Dec. 31, 2029. The county's half-cent sales tax dedicated to the diversion project began April 1, 2011, and expires March 31, 2031.

So far, the county has collected $70 million, Montplaisir saied. City finance staff weren't able to immediately provide a total Thursday, but a review of city financial reports suggests the city has collected $67.4 million.

The Diversion Authority, funded by both governments and the state, has spent $167.8 million on the project since it started in 2011.

The project includes a dam, to be built by the U.S. Army Corps of Engineers, and a diversion channel, which could be built by local governments with P3 funding. Diversion Authority officials have repeatedly stressed that the diversion will protect Fargo, West Fargo and Moorhead from major flooding and keep 20,000 additional properties from seeing a spike in flood insurance.

New cost estimate pending

Earlier in 2015, Montplaisir said revenue projections show the city and county should be able to pay $725 million in bonds, which includes local governments' $450 million share and a portion of the state's $450 million share that lawmakers had not committed.

On Thursday, Montplaisir said the projections have not changed, though he noted that they are conservative in assuming 4 percent annual growth. Last year, revenue from the city's flood-control sales tax grew 7.4 percent and the county's diversion sales tax revenue grew 5.9 percent.

The local share could also be conservative because it was determined in 2011 when the cost of the diversion project, including the diversion channel and dam, was estimated at $1.8 billion. It also banks on Minnesota pitching in $100 million.


The new cost estimate will reflect inflation in the construction industry and P3 savings. Cost shares will also be discussed, since Minnesota lawmakers have not committed to paying their state's share.

P3 proponents say private funding would offer savings through efficiency. Public works projects can see costs soar when contractors have to schedule work piecemeal to match available federal funding, which can vary with the political winds in Washington. Having one corporation or group of corporations fund and build would allow work to proceed in a more efficient manner, P3 proponents say.

Extension would avoid specials

Underlying any discussion about a sales tax extension is the special assessment district approved in 2015, a controversial step that allows the Diversion Authority to levy $725 million in property taxes to help pay off the flood control project.

Special assessment districts, which are often used to pay for street work and other public improvements, typically require the approval of affected property owners. Each dollar of property equals one vote, giving those most affected the most say.

But the diversion's massive special assessment district would have failed by a slim margin in a public vote in March, had property owners held all the votes. Only 48 percent voted in favor of it. But the assessment district was approved because the Fargo and Cass County governments would be on the hook for $427 million if it is used. That gave the city and county 427 million of the 725 million possible votes, more than half. Commissioners in Fargo and Cass County voted to support the assessment district.

Diversion officials have often said the assessment district was established only to guarantee a loan for the lowest interest rate possible, with repayment actually being done with sales taxes. That is, they would not levy any specials as long as there is enough sales tax available.

Mahoney said he prefers extending the sales tax over special assessments because it won't increase taxes for homeowners.

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