News Flash

Wright County News

Posted on: June 24, 2020

Despite COVID-19 Pandemic, County Local Option Sales Tax Doing Surprisingly Well

There was concern in the Wright County Highway Department that, due to COVID-19 issues, it would be losing much-needed funding support from the county’s half-cent Local Option Sales Tax (LOST), which is used by more than half of Minnesota’s 87 counties to help fund transportation projects (roads, bridges and trails). However, despite being below 2020 projections, Wright County hasn’t seen the loss in revenue that was expected.

Until 2017, Wright County was one of the few counties in Minnesota that didn’t have a Local Option Sales Tax or a wheelage tax – a fee charged on license plates and tabs which many counties use to raise funding for transportation projects. In all, 28 Minnesota counties have both a LOST and a wheelage tax.

Started in October 2017, the goal of the Wright County LOST was to raise $25 million in project funding through the tax over a five-year period. In the first two full years of the Wright County LOST, almost $16 million was collected – 50 percent more than projected.

In 2019, the county budgeted $6,775,000 for LOST revenue, but collected $8,304,394. As a result, Auditor/Treasurer Bob Hiivala estimated that the growth would continue, until COVID-19 hit. Despite not hitting that lofty projection in the first half of 2020, considering the changes that have taken place with so many businesses shut down for almost three months, the numbers aren’t as big a drop as was initially anticipated.

“Our 2020 budget for LOST revenue is $8.95 million,” Hiivala said. “For the first quarter we brought in $2.267 million, which was about $30,000 more than we had budgeted. So far in the first six months of the year, our total is $4,257,257. It’s about $200,000 under budget now, but still ahead of what we brought in at the halfway point of last year. We thought it was going to be a big drop off, but it wasn’t nearly as bad as we thought it was going to be.”

LOST funds are levy-neutral in that the money generated goes directly in the transportation projects fund, so whether it comes in above or below projections, it is the funding the county has available to complete local projects. LOST revenue can only be used for transportation purposes.

Wright County Highway Engineer Virgil Hawkins anticipated that there would be a significant drop in LOST revenue due to businesses like restaurants, bars, movie theatres and countless other small businesses being forced to shut their doors while the state’s Stay at Home protocol was in place. But, that hasn’t happened.

“We were very surprised,” Hawkins said. “We thought with so many businesses closed that people wouldn’t be spending money like they have in the past. But, the numbers don’t show that. The first quarter numbers were up almost $400,000 from the same time last year. Most of that came before COVID-19 forced a lot of businesses and schools to close, but the numbers have still held up well.”

While the $4.257 million generated by LOST is under the projection, despite three months of COVID-19 related closures, the figure is in excess of $100,000 more than was generated during the first half of 2019.

The only downside to the transportation funding in Wright County has come from the state gas tax. Last year, Wright County received $11.5 million in gas tax money from the state. Gas tax revenue has dropped significantly – approximately 15 percent, which translates to about $1.8 million for Wright County. Hawkins said that the gas tax money generated will likely remain below expectations for the rest of 2020 and possibly into 2021 as well, according to state estimates because fewer people are driving and fewer tourists are coming to the state.

However, the shortfall from the state has been largely offset by local road projects coming in under estimates due to the competitive bidding climate on construction projects.

“The best news we got was that our bids for some of our road projects came in lower than expected and that allowed us to keep money in the project fund that we thought we were going to spend on those projects,” Hawkins said. “That will help make up for the shortfall in the gas tax money and if the LOST funding takes a downturn.”

With the state slowly re-opening and trying to return to a sense of normalcy, it is expected that more people will start going to the businesses that were closed in the early stages of COVID-19. That should be good news for Wright County residents because the expectation is that LOST revenue will climb as more people get out to patronize those businesses that were forced to shut down and, despite setting the bar high for projected LOST revenue, there is a good chance the county will reach that projection by the end of the year.

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