City considers food and beverage tax to fund road repairs
The Madras Transportation Advisory Committee wants more information before it decides whether to recommend a 5% prepared food and beverage tax to the Madras City Council.
If the committee decides to move forward and the council agrees with its recommendation, the tax would come before voters in May.
The tax would be used to pay for road maintenance and repairs, with 5% of what's collected going back to the restaurant and store owners who would have to collect the tax.
At the committee's meeting Wednesday, Nov. 13, Public Works Director Jeff Hurd said it would take $14 million to fix all of the city's roads now.
The tax wouldn't raise that much, not even close. The city expects to raise between $300,000 and $350,000.
Road repairs are cheaper if you do more at the same time, Hurd said.
For example, chip sealing a 3-mile stretch of road all at once would cost $406,560. Chip sealing the same road in half-mile increments would cost $665,280.
Roads are funded primarily by gas taxes. The state collects the tax and keeps half. Of the other half, 30% goes to counties and 20% goes to cities. The city funds are distributed by population, not by the number of miles of roads, Hurd said. "We have over 40 miles and 6,300 people."
More than half of the city's franchise fees also fund roads.
"And that's kind of it," Hurd said, adding that every city in Oregon has the same problem. The state raised gas taxes, which helped, but it isn't enough to keep up with repairs.
The city can also leverage money to get matches from the state and federal government, as it did for the recent H Street work in west Madras. The cost was about $1 million, but the city's contribution was around one-third of the total.
The committee wants firmer numbers, which aren't easy for the city to get because restaurant and store profits are private. So the city has hired consultant EcoNorthwest to find out how many businesses would be affected and how much revenue the city could count on. Hurd expects those numbers within a week or so. That could affect the percentage the committee would recommend collecting.
Why a prepared food and beverage tax
The committee has been exploring options for nearly a year because the city has a $14 million backlog when it comes to road repair.
It settled on a prepared food and beverage tax for several reasons. First, it wanted to make sure people from out of town who use the roads help pay for them. The two options were a gas tax and a prepared food and beverage tax.
"And then they looked at basically how much of a burden would that be on people, and who would it affect the most," said city recorder and public information officer Lysa Vattimo.
It eventually rejected a gas tax because gas revenues are declining as fuel efficiency and electric vehicles become more common. In addition, a gas tax can adversely affect vulnerable people more, Vattimo said. Low-income people need to drive to work, and people also have to drive to medical appointments.
But eating out is optional.
That's the problem, according to some restaurant owners.
People can stop buying luxury items, said John Williams, owner of Dancing Bean. And he thinks some of them will, simply because Oregonians don't like taxes.
"That simple designation would make it a huge negative," he said.
Garry Boyd, who owns Great Earth along with his wife, Troy, said he understands the need to update the city's roads.
But he doesn't think taxing restaurants is the way to do it.
"I would definitely love to support trying to do something with the roads, but I don't think a small group in town should have to bear the burden," he said.
Hurd said the restaurants would not be bearing the burden; they would simply be collecting the tax and sending it on to the city. Hurd said it will take the support of restaurant owners to make the tax work.
"I want it done a different way," Boyd said.
He said road repairs are needed because of people on their way to Mount Bachelor.
"It's not people eating, it's people driving," he said, "and in my opinion, that's where this tax needs to come from."
Madras McDonald's owner Paul Rodby said that Madras is the first and last place drivers visit in Central Oregon.
"The last thing we want to be known for is that Madras is the only town in Central Oregon that taxes your food," said Rodby, who lives in Redmond.
He thinks the effects would reach other businesses, too.
If people can eat at the same restaurant in Redmond that they could in Madras and not be taxed, he thinks they'll choose to stop there instead.
That isn't to say Rodby is antitax. He agrees with several other restaurant owners that a gax tax would be preferable. He would even go further than that, advocating for a sales tax that could support all kinds of services, including roads.
Rodby was frustrated that there were no restaurant owners on the committee, and he thinks the tax would generate more revenue than is anticipated.
He said he talked with Joe Davis, owner of Black Bear Restaurant, and the two restaurants would contribute about $180,000 per year, nearly two-thirds of the total the committee is looking to raise.
"The committee hasn't done their homework," Rodby said.
Boyd and Williams said their employees will spend time explaining the proposed tax to customers.
Hurd recently visited Ashland to find out how its prepared food and beverage tax works. He went to Brothers Restaurant because it is one of the oldest in the city and talked with the floor manager.
She said the restaurant's point of sale system handles the tax and runs reports, so it's not much extra work.
Part of Madras's proposal would include helping restaurants update their point of sales systems with funds from the Madras Redevelopment Commission.
She said the tax didn't affect tips because people consistently tip a particular percentage. Tips are another concern for restaurant owners.
Hurd said the floor manager likes the tax, and it hasn't affected sales.
"Ashland's a destination," said Jennifer Dupont of Wild Winds Station.
"Why wouldn't (potential customers) go to Redmond?" Boyd said.
Mayor Richard Ladeby said people make the same argument about a gas tax, but it isn't true. If you need gas, you stop instead of going to the next town.
Boyd said that's exactly the point. Oregonians are used to paying tax on gas, but not on food.
How it would work
Restaurants have a couple of choices when they collect the tax, Hurd said. They can raise their prices to incorporate the tax as long as they post that the prices include the tax.
They can also add the tax at the point of sale, so that it shows up on the receipt.
Either way, the tax as it's now conceived would be 5% of any food or beverage "packaged for immediate consumption." That's 50 cents on a $10 purchase.
And if the proposal is approved by the City Council, voters would have a chance to weigh in on the May ballot.
The process from here
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