Growing jobs, wealth and tax revenues: the Grand Forks Growth Fund.

• Author: Schmisek, John M.
• Position: Grand Forks, North Dakota - Award for Excellence

Underwritten by a strong citizens' vote in favor of allocating part of the local sales tax to economic development, this growth fund has a successful four-year track record of creating jobs, generating new payrolls and encouraging capital investment.

Editor's note: Each year the Government Finance Officers Association bestows its prestigious Award for Excellence to recognize outstanding contributions in the field of government finance. The awards stress practical, documented work that offers leadership to the profession and promotes improved public finance. This article describes the 1994 winning entry in the policies and procedures subcategory of the financial management category.

A need to spur primary-sector job creation in Grand Forks, North Dakota, in the mid-1980s led to the creation of the Grand Forks Growth Fund. Like many communities in rural America, growth had somewhat stagnated in the late 1970s and early 1980s. The response of Grand Forks city officials was to take a proactive stance to generate funds that could be used for grants or loans for private-sector development.

The City of Grand Forks is located on the eastern border of North Dakota in the rich Red River Valley, one of the most fertile agricultural areas in the world. Grand Forks is home to the University of North Dakota, which has a student body of approximately 12,000. Also adding to the economic base is the Grand Forks Air Force Base with a population of more than 12,000. Although the population of Grand Forks is approximately 50,000, more than 220,000 persons use Grand Forks as their regional shopping center. Many of these consumers come from neighboring Canada.

This population and service area had given Grand Forks a very stable economy in the past; but in the early 1980s, growth in industry was more sluggish than the city wanted. In 1986, the city's financial personnel and the governing body started looking into actions that could be taken to increase the growth in the creation of primary-sector jobs. They soon realized that an existing tool could furnish a funding source to provide seed money to businesses wishing to expand or relocate in Grand Forks: the 1 percent local sales tax that had been adopted in 1984 by a vote of the citizens of the community. The sales tax was, at that time, generating far more in revenue than had been anticipated at its adoption.

The sales tax was approved on the condition that its revenue be tied to one use: the payment of $11.5 million in debt for expansion of the city's water treatment plant; hence revenues from this source would not be available for other uses without further action. Another obstacle was the fact that the sales tax had a sunset clause tied to the completion of the payment of the debt for the plant.

For the city to use these funds for economic development purposes would require another vote. Although the vote in 1984 favored the tax issue by 57 percent, this support was not as strong as officials had hoped. Passage was based on the fact that a federal mandate requiring improved water treatment would increase water rates at least 100 percent and, in some cases, as much as 300 percent. Thus, in 1984 there was a powerful incentive for a yes vote on the 1 percent local sales tax dedicated to debt service for upgrading the water treatment facilities.

A new allocation of the sales tax was proposed and scheduled for a referendum in September 1987. Realizing that the property taxpayer would need an incentive to reapprove the sales tax, and especially to remove the sunset clause, city leaders promoted a "something for everyone" idea: the sales tax revenues would be allocated for property tax relief, infrastructure and economic development. Many people in the community devoted their time, energy and ideas to this citywide campaign, and the proposal passed by a four-to-one margin. This vote made possible the creation of the Grand Forks Growth Fund to be used for economic development.

The Growth Fund has proven successful in creating jobs, generating new payroll and encouraging capital investments. New businesses have opened, local businesses have expanded, and established businesses...