Rapid City’s finance office is directing city departments to delay nonessential purchases and hiring amid sagging sales tax collections and the unknown future of remote sales tax collections.
At the Legal and Finance meeting Wednesday, the city’s monthly report on sales tax collections — reports are typically acknowledged by committees and the Rapid City Council two to three months after collections — for May was discussed. It reported collections of $2,399,908, a 4.35 percent rise in collections compared with May 2017.
But, for the first five months of 2018, collections are at $10,605,561, a 0.92 percent increase compared with 2017. That’s a problem, city finance director Pauline Sumption said, given that the city typically projects collections to grow by around 2 percent each year.
“There’s a little bit of concern about where we’re going to end up at the end of the year for cash balance in the general fund,” Sumption said. “Sales tax is down and if we continue to spend what we’ve budgeted (for fiscal year 2018) and if we continue to bring in only what we have projected for revenue, we’ll actually be down. Reserves will be down by $2 million of what is needed.”
Sumption said she’d recently had discussions with city department directors and Mayor Steve Allender about delaying nonessential hires and purchases. When asked how the U.S. Supreme Court decision in June allowing states to collect sales tax from remote sellers would augment the city’s collections moving forward, Sumption had no answer.
“When will we see any kind of return?” she asked following a question from Alderman Jason Salamun. “That’s still up in the air.”
Sumption said the state Department of Revenue has given no indication of how much Rapid City could expect to collect from online retailers in the future other than a broad estimation that the state misses out on about $50 million annually. A 2017 U.S. Government Accountability Office report estimated South Dakota would have received between $33 million and $47 million in additional state and local sales taxes if all remote sales were taxed.
“We have so many unknowns on how the online sales tax collection is going to impact us, the closure of several retailers,” Salamun then commented. “At the same time we’re hoping for a great summer season ... but I think it’s something for us to keep our eye on.”
Later in the meeting, the committee recommended the approval of an agreement between the city and Perkins + Will, the architectural firm hired for the new civic center arena project. For $6,772,000, the fee represents about 6.25 percent of the total estimated construction cost, $110 million, and is included within the project’s total estimated budget of $130 million. The fee will be paid from the city’s Vision Fund.
The agreement also notes that the arena’s design is likely to include a single concourse “that would feed a one large single bowl with the premium level at the top of the bowl” and that the arena would contain “roughly 12,300 seats and (be) around 265,000 square feet.”
Prior to Rapid Citians decision to build the new arena on June 5, Perkins + Will did preliminary design work of the arena as the city sought accurate cost estimations for the project. The work was for less than $50,000, meaning the city was not required to go through a public bidding process. But, requests for proposals were sought and received in January and February before city officials sat down with representatives of Perkins + Will, among others, and decided on the Chicago-based architecture and design firm.
New contracts with the city’s construction-manager-at-risk and a contract detailing the general conditions of construction are currently being drafted and will also be brought before the council for consideration soon, city attorney Joel Landeen said at Wednesday’s meeting.
“Ultimately the decisions are all going to be staff and the council decisions,” Landeen said when asked how much input the city’s owner’s representative, Tegra Group, had on the contract.
Landeen noted that Tegra was being consulted regularly and the city was more dependent on them than, say, Sioux Falls, which has a larger city bureaucracy that can handle certain things Rapid City, due to its smaller staff, cannot.
“They have more experience in this which is why we retained them in the first place, so we don’t make mistakes that they can help us avoid,” he said. “I feel very comfortable where we’re at.”
Tegra does not have the legal authority to enter the city into any binding agreements, Landeen added.
As the city’s representative, Tegra will coordinate the project’s budget, schedule, architectural/designs and construction firms. A Minneapolis-based management company, Tegra has led the Denny Sanford Premier Center and Black Hills Energy Corporate headquarters building projects. In 22 years of project management, the company has never had a project go over budget, Allender has previously stated.
In other action, the committee:
• Recommended approval of the second reading of changes to the city’s current billboard laws as part of a settlement agreement between Rapid City and Epic Outdoor Advertising to end a 14-year-old lawsuit. The changes would increase the size of off-premise signs along Interstate 90 and remove the requirement that billboard companies obtain a conditional use permit prior to altering any pre-existing sign. Unrelated to the ordinance changes but also included within the city’s obligations as part of the settlement agreement, the city has ceased requiring billboard companies to run public service advertising for at least 12 minutes of every hour. Additionally, two new digital billboards to be constructed along I-90 at the new 672-square-foot, 40-foot-high limit — one along Dyess Avenue and another close to Deadwood Avenue — must be approved by city staff.