Spearfish votes to lift restrictions on second penny sales tax

Spearfish City Council has decided to lift the self-imposed restrictions on what second penny sales tax funds can be used for in order to help supplement the general fund for 2021. Pioneer photo by Alex Portal

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SPEARFISH — City officials voted Monday, to approve an ordinance which will lift restrictions on how second penny sales tax can be used in order to help supplement Spearfish’s general fund for 2021.

“Each year as you know, our costs exceeds our revenues,” City Administrator Mike Harmon said during Monday’s council meeting. “Last year we achieved a balanced budget by eliminating a couple positions, a couple FTEs (full-time employees) and then also further reducing budgets.”

Harmon said because of the projected loss of sales tax revenue due to COVID-19; in order to meet the budget needs for 2021, the city would need to look at either dipping into reserve funds, cutting services to residents, “Or we could repeal the self-imposed restrictions we have on our second penny sales tax,” he said.

Harmon explained that the first penny from all the sales tax collected by the city is put into the general fund (or 101 fund), which is the chief operating fund of the city and pays for the city’s administrative and maintenance services.

“We take the second penny and we put it in the capital improvement fund, or 201, to pay for streets and motor graders and squad cars and other large capital items,” he said.

The capital improvement fund is also used for special construction projects such as the Jackson Boulevard project and the Exit 8 Rec path project.

In 2003, the Spearfish adopted section 16-58 into the city’s ordinances, a state law, which states, “Any revenue received in excess of the amount received if the rate of tax is one (1) percent may be used only for the following purposes: capital improvement, land acquisition, the funding of public ambulances and medical emergency response vehicles, nonprofit hospitals with fifty (50) or fewer licensed beds, or nonprofit healthcare facilities with fifty (50) or fewer licensed beds, the transfer to the special 911 fund authorized by SDCL 34-45-12, the purchasing of firefighting vehicles and equipment, public safety vehicles and equipment, heavy equipment, debt retirement, the minor or major rehabilitation or reconstruction of streets, economic development purposes, and distribution to other political subdivisions of the state of South Dakota for an authorized public purpose under SDCL 6-5-5, including the operational costs thereof or for capital expenditures. These expenditures may be financed through a sale-leaseback agreement.”

That law was later repealed by the state, but the city decided to keep it, until now.

“This year as we look forward with the forecasted decrease in sales tax revenue, it’s looking pretty tough,” Harmon said.

Harmon proposed to council that the city repeals those restrictions, which would free up council to transfer funds from second penny into the general fund as needed. But Harmon was clear that council should be attentive to what the second penny funds are used for.

“In my view this wouldn’t be used to add positions or further increase salaries or do things of that nature,” he said. “It’s simply to continue what is a similar level of service without making significant cuts in our service.”

Councilman Marty Clark said it seemed a shame to just open up the city’s second penny fund without diving into the specifics of what it could mean for the city’s budget, but none the less moved to approve the proposal.

“When I was reading through this I visualize hours and hours and hours, hashing out all the different parts of this, and it seems kind of sad to, in one fell swoop, wipe it out,” Clark said. “With that said I would move to approve first reading of Ordinance 1317.”

The ordinance is scheduled to have its second reading at the next city council meeting on July 6.

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