(THE MED CITY BEAT) - The Rochester City Council is reviewing a proposal that would increase the local sales tax rate by 0.25 percent in order to cover some of the city's costs related to the Destination Medical Center initiative.

City Administrator Steve Kvenvold first made the request to the council in late February, according to an internal memo recently obtained by the Med City Beat. He said the 0.25 percent increase is the "only viable option" to provide enough revenue to cover the city's contribution to DMC.

"It is my opinion that [city council] should not vote to approve the DMCC plan without voting to implement the revenue source sufficient to implement the plan's objectives," Kvenvold said in the memo.

As part of the 2013 legislation, the city is required to put $128 million toward the total public contribution of $585 million. The majority of the funding for the initiative comes from the Mayo Clinic, which will invest about $3.5 billion in its Rochester campus over the next two decades.

DMC investments (billions)

A 0.25 percent increase would bump the sales tax in Rochester up to 7.875 percent. Here's a breakdown of what local consumers are already paying (total: 7.625 percent):

Minnesota sales tax: 6.875 percent
Rochester sales tax (passed in 2012): 0.5 percent
Olmsted County transit tax: 0.25 percent

The increase would generate about $5 million in annual revenue, Kvenvold said. About half of the money would come from out-of-town consumers.

The council also has the option of simply extending 0.5 percent tax without an increase. However, only a fraction of the $139.5 million in expected revenue is specifically designated for projects in the DMC development plan.

revenue from city's 0.5 percent sales tax:

Graphic: The Med City Beat / Data: City of Rochester

The city council expects to discuss the proposal at a meeting ahead of the second DMC public input session on March 23. City Council President Randy Staver told the Med City Beat on Thursday that no decision has been made, but "mounting evidence" seems to support the increase.

“I think there are some folks who will understand the need for a possible new revenue stream and be supportive. Similarly, I fully expect that there will be some folks adamantly opposed. I respect all viewpoints and understand there will be differences of opinion. I never take increase in taxes or fees lightly so I will be looking forward to the discussion.”

— Randy Staver

In addition to the sales tax options, the DMC legislation grants the city the authority to use five other funding mechanisms to cover its share of spending:

Increase its lodging tax
Impose a food and beverage tax
Impose an admissions and entertainment tax
Exercise expanded tax abatement authority
Exercise expanded TIF authority

Rep. Kim Norton (DFL-Rochester), an original sponsor of the landmark legislation, is pushing a bill in the Minnesota House that would allow the city to count administrative and planning expenses toward its total contribution.

Fees associated with the Economic Development Agency and the Destination Medical Center Corporation are projected to be $21 million over the next five years, according to a report last month by the Post-Bulletin.

Senators Carla Nelson and David Senjem, both Republicans from Rochester, are sponsoring a companion bill in the Minnesota Senate.