O’Fallon’s road system is its biggest asset, but to keep its infrastructure in good condition, the city will need to generate more revenue in the future.
At its Aug. 10 work session, the O’Fallon City Council heard a series of options on how the city can generate additional revenue to put toward road maintenance for its more than 700 lane miles. The suggestions included raising the city’s sales tax, increasing property tax revenues, imposing a use tax on internet purchases and collecting a street light fee.
“We’ve grown as a city and we’ve taken on a lot more miles; we’ve aged as a city and our streets have aged along with that, so there’s a need to repair and maintain those streets,” City Engineer Wade Montgomery said.
City staff have determined that the street and road improvement fund doesn’t have enough funds to maintain the roads to the level O’Fallon has laid out in its strategic plan. It has been estimated that an additional $20 million is needed to meet the city’s goals, meaning the city will need to bring in an additional $5 million annually over the next five years.
Finance Director Vicki Boschert joined Montgomery in providing four options that could generate more revenue to be used on roads. Levying an eighth-cent to half-cent capital improvement sales tax would generate an additional $1.5 million for every eighth-of-a-cent that the city’s sale tax rate is increased.
“A capital improvement sales tax is legally allowed to be used on any type of capital improvement items of the city. It would be recommended that we would try to dedicate this to the streets initiative program,” Boschert said.
Currently, O’Fallon levies a 2-percent local sales tax with 1 percent allocated as a general sales tax, another half-cent allocated for parks and stormwater mitigation and a final half-cent allocated for the street and road improvement fund. O’Fallon’s overall sales tax rate, combined with county and state sales tax rates, is 7.95 percent. Any increase in the O’Fallon sales tax rate would have to be approved by city voters.
Another proposed option was a 2-percent use tax on out-of-state internet purchases. Boschert said that as more purchases are made online, sales tax revenues will go down with potential use tax revenues increasing. “So, I foresee there being a trend in the future, as more and more things are being purchased online, that we’re going to see a decline in our sales tax at some point in time,” she said. Funds collected from a use tax would funnel into the general fund.
Boschert said Wentzville and St. Charles County have instituted a local use tax option, but that other area municipalities are discussing a countywide effort to put a use tax on the August 2018 ballot. The Missouri Municipal League has estimated that O’Fallon would collect $2.9 million per year from a use tax.
Also presented to the city council was a way to generate more property tax revenue to collect funds for streets. Boschert explained that the city’s general property tax rate cannot be arbitrarily increased; however, O’Fallon has reverted its rate back in past years and the city can “recapture” that reduction by holding a public hearing and approving an ordinance to adjust its rate.
“It would generate approximately $500,000 per year. We only do that on even years, so with 2018 being an even year, we would be able to do it next year,” Boschert said.
The last option discussed was a street light fee assessment. Currently, the city pays $1.2 million per year out of the street fund for street lights. A fee assessment would essentially shift that cost to the residents, Montgomery said. Under that scenario, O’Fallon would charge a monthly fee similar to other utilities; those funds would generate about $1 million dollars to put toward roads.
Imposing a use tax and street light fee and increasing property tax revenue would generate about $4.4 million a according to a scenario presented to the city council. The council didn’t make any decisions during the presentation, which was intended as an opportunity to simply present options available to boost road funding.