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Published February 05 2012

Following the flood money: City, county differ in their approach to sales tax funds for flood protection

FARGO - Diverging priorities distinguish how Fargo and Cass County have used their sales tax revenues so far to fund permanent flood protection for the metro area:

Fargo spends now; Cass County saves for later.

That has sparked reason for concern among county officials who question Fargo’s judgment, especially when local funding for a $1.78 billion Red River diversion is at stake.

“They’re doing nothing that they can’t do, but every dollar that they spend that’s not diversion-related means a dollar less for diversion-related expenses,” said Cass County Commissioner Darrell Vanyo. “Somewhere Fargo will have to answer: ‘Where are you going to get the $200 million in matching dollars?’ ”

Fargo’s financial records show the city has already spent more than twice what it’s collected so far in flood protection sales taxes.

Meanwhile, Cass County leaders have so far saved half of their sales tax revenue, earmarking dollars first for diversion-related costs and planning to fund local projects only with any extra revenue.

The different spending habits of the city and the county have created some underlying conflict between the otherwise-amicable officials.

But there are also questions about whether the current half-cent sales taxes will be enough to pay for the nearly half-billion-dollar local share of the diversion.

Fargo and Cass County will each have to pay at least $220.5 million toward the project.

Fargo Mayor Dennis Walaker said “there’s no question” the city’s sales tax dollars have been spent wisely on the various flood protection projects within the city, and he maintains “there’s adequate funding” for Fargo’s share of the diversion project.

Fargo officials plan to ask city voters to extend another half-cent sales tax expiring this summer. And while the details aren’t set, city leaders have said the revenue could go to more than just flood protection.

Vanyo said an extra revenue stream to fund Fargo’s share of the diversion would be a promising sign.

But, “if it doesn’t get passed, then I have some deep concerns about what might happen,” he said.

Raising revenue

After the record flood of 2009, Fargo leaders pushed for a half-cent sales tax to help pay for permanent flood protection.

At that time, the Army Corps of Engineers’ feasibility study was barely under way, and a diversion channel was one of many options under review.

In the lead-up to the vote, Fargo leaders promoted the tax as a way to help fund the local share of whatever project the corps ultimately recommended.

“While there has yet to be a specific plan we can all dissect, one thing is clear: The costs will be there, and they will be substantial. As a city, we are left with only a few viable funding options for something this size,” reads a letter to the editor penned by Fargo Commissioners Tim Mahoney, Brad Wimmer, Mike Williams and Dave Piepkorn that was published in The Forum prior to the citywide vote.

Fargo leaders kept the ballot language fairly open, declaring the tax was to be for “Fargo permanent flood protection or flood risk mitigation,” which would also allow them to use the dollars for inner-city projects, as needed.

Voters passed the measure with nearly 91 percent of the vote. The city began collecting revenue in 2010.

The half-cent tax draws about $10 million a year and will expire in 2029, raising about $200 million over 20 years.

In 2010, Cass County officials proposed to voters another half-cent sales tax that would draw slightly more each year than Fargo’s tax.

Leaders said the dollars would help boost the local funding needed to pay for a metrowide flood protection project, by then deemed a North Dakota-side diversion of the Red River.

Cass County leaders offered a tax proposal that would fund “a Red River diversion project and other flood-control measures.”

Some, like Fargo commissioner Piepkorn, publicly opposed the measure for its vagueness, but the voters approved it with more than 64 percent of the vote.

Cass County’s tax took effect in April 2011 and generates about $11 million a year. About $220 million should be collected over the 20-year life of the tax.

Spending cents

As of Dec. 31, Fargo leaders had collected more than $20.5 million from the flood sales tax, but city finance data shows more than $52 million worth of projects have been allocated to be paid for by the tax revenue.

According to information obtained by The Forum through an open records request, only $2.9 million – or 5.5 percent – of the tax dollars have been designated to pay for diversion-related expenses.

That, specifically, has been for Fargo’s share of the corps’ multimillion-dollar feasibility study, which wrapped up last fall.

The rest of the expected tax revenue has been spent on more than $49 million worth of inner-city protection projects, including:

Even though the sales tax dollars are spent much faster than they’re collected, city officials maintain they’re on steady financial ground. State aid and other funding sources have also helped pay for flood protection costs.

Going into 2012, the city’s sales tax accounts showed a deficit of more than $8.3 million.

Fargo Finance Director Kent Costin said the debt will likely be resolved when the sales tax revenues flow in this year.

Other city accounts have helped front the cost for the flood projects, Costin said, and as the sales tax revenue comes in, the money will be used to pay back those accounts.

Fargo commissioners said they support how and why the dollars have been used so far.

“I think they’ve been used very efficiently and effectively,” Wimmer said. “We’ve just tried to get some of these critical corners of the river and these areas of homes protected.”

Piepkorn said the tax dollars used on city projects was “the best money we will ever spend, including the diversion.”

Fargo leaders said the project work within the city has been worthwhile progress – necessary steps, they say, while regional leaders navigate the cumbersome process of securing a Red River diversion.

Even without the diversion, Fargo officials would still need to build up citywide protection to 42.5 feet in order to remove property from the revised federal flood maps that are due out this year, Fargo Engineer Mark Bittner said.

“The question is, how long do you chance leaving the city unprotected?” Bittner said, “so when you’re going in, you have to take it to the highest level.”

Piepkorn said the Fargo projects will work in concert with – not in place of – the F-M diversion, which won’t be finished until 2021 at the earliest.

The diversion should help protect the metro to the new 500-year flood level, which is 46.7 feet on the Fargo gage.

“That’s literally beyond what we can do. We can’t build levees that high,” Piepkorn said.

Last year, Fargo engineers spent nearly $20 million to shore up protection in several vulnerable neighborhoods – including South River Road, Meadow Creek and Timberline – and along Drain 27, the Fargo Country Club and Lindenwood Park.

Fargo engineers have another $30 million worth of projects under development, specifically in the Oak Creek and Copperfield Court neighborhoods and along Rose Creek.

“Some will argue we’re attacking too many inner-city projects, and it all should’ve been laid aside for the diversion,” Wimmer said. “But I think we set it up so the dollars could be used toward flood-related projects for the city of Fargo.”

If Fargo were to go forward with all of the possible projects it could to fortify the city, Bittner said it could cost as much as $150 million over five years.

But whether that will be necessary depends upon the F-M diversion, he said.

“We’re taking it to the 42.5-foot level, but whether we can afford to do all that, and the diversion coming quickly, then that’s a simple answer,” Bittner said. “With the diversion project possibly slowing down, it’s not so simple.”

Diversion dollars

Since Cass County’s sales tax dollars started flowing last April, county leaders have collected more than $8.7 million.

As of Jan. 15, about $4.5 million of that has been spent on costs related to the Red River diversion project – including about $2.8 million in reimbursements to Fargo toward covering the local share of the corps’ feasibility study.

Because Cass County didn’t have its own revenue stream until last spring, Fargo shouldered the front end of the costs for the diversion study.

Moving forward, the county has $4.2 million in sales tax revenue left in the bank, where it will stay until needed, officials said.

Cass County Commission Chairman Scott Wagner said at least $10 million will be set aside each year to pay for the diversion.

Any additional dollars could help fund local flood-control projects throughout the county, he said.

“Our first commitment was to the diversion, but we knew we were going to raise anywhere from $1 to 2 million more per year that we could spend on supplemental projects,” Wagner said.

Last year, county officials received 34 requests from townships and cities seeking funding for their own flood protection measures, Vanyo said.

The cities of Mapleton, Argusville and Oxbow each asked for financial aid to build levees, he said, but officials wanted to wait to collect enough revenue before doling out any money for local projects.

“We’re now caught up; we’re paying back those expenses to Fargo,” Vanyo said. “We’re due to pull the trigger sometime this spring on our first appropriation for some of those funds outside the diversion.”

Differing opinions

Although generally in agreement, Fargo and Cass County leaders have butted heads on occasion over their conflicting uses of sales tax revenues.

Cass County leaders voiced frustration at a December meeting over Fargo’s continued spending on its inner-city projects.

Wagner, Vanyo and others on the Cass County Commission raised concerns about how rapidly Fargo was spending its sales tax revenue and whether there would be enough left to fund the local share of the diversion.

The discussion arose after Fargo asked the county to sign off on state appropriations allocated to help pay for Fargo’s city flood projects.

“We have an agreement that we’ll share in that cost,” Wagner recently told The Forum. “Inevitably, that’s their responsibility to bring those dollars forward. They’ve made a commitment, and I think, from the county’s perspective, there’s a full expectation that they’ll do that. How they do that is entirely up to them.”

Some Fargo leaders also feel a friction with the county, although they’ve been relatively less vocal about it.

Piepkorn voiced concerns over the city having to front the majority of costs for the diversion, and he was upset that Cass County leaders have questioned the city’s spending.

“They’re acting like we have to answer to them, so that bothers me,” Piepkorn said. “It doesn’t seem appropriate; we’re both separate entities.”

Some city and county officials acknowledge the underlying tension between their boards, while others describe it as more of a difference of opinion.

“We are pretty conservative and reserved; we make sure we have the dollar in hand and that it’s going to be spent on what we say it’s going to be spent on,” Vanyo said. “Fargo, with what’s been done here, they say: ‘Go ahead, spend the money for flood protection, that’s paramount, and we’ll worry about getting the money later.’ ”

Williams said what some might perceive as tension is “open discussion.”

“That’s how we come to consensus, and that’s necessary,” he said.

With the creation of the Diversion Authority last year, the process of funding the diversion has become more formalized among metro-area officials – which could streamline discussions going forward, Wagner said.

“One thing that has to keenly be in everyone’s mind is that you’re just trying to do right by the citizens of the county and the city,” Wagner said. “Inevitably, if you do have a difference of opinion or perspective, you have the mechanisms and the ability to work those types of things out.”


Readers can reach Forum reporter Kristen Daum at (701) 241-5541


Flood sales tax revenue and spending

Fargo

In June 2009, 91 percent of Fargo voters approved a half-cent sales tax to pay for flood protection. The tax was enacted Jan. 1, 2010. In addition to tax revenues, the city receives state and federal aid to pay for flood projects.

Revenue*

Total: $69.2 million

Expenditures*

Total: $77.5 million

Sales tax balance: minus $8.3 million

*through Dec. 31, 2011

Source: City of Fargo

Cass County

In November 2010, 64 percent of Cass County voters approved a half-cent sales tax to pay for flood protection. The tax was enacted in April 2011.

Revenue

Expenditures*

Total: $4.5 million

Sales tax balance: $4.2 million

*through Jan. 17, 2012

Source: Cass County