Deep Analysis of the Fairness, Equity, and the Effects of Financial Agreements Between Koochiching County and the City of International Falls

Falls International Airport Commission

Agreement & Governance: The Falls International Airport is jointly owned by Koochiching County and the City of International Falls under a formal Joint Powers Agreement. An Airport Commission (with two City Council members, two County Commissioners, and one citizen member) governs the airport (Administration – International Falls Airport). The City serves as fiscal agent for the Commission.

Funding Structure: Operating and capital costs are funded by local City and County contributions, state/federal aviation grants, and airport user revenues (leases, fees, etc.). The Commission recommends an annual budget which is adopted within both the City and County budgets). In practice, the City and County each budget substantial matching contributions to cover the “local share” of costs not covered by grants or fees. For example, in 2015 the County paid $349,626 into the Airport Commission, and the City contributed a similar amount. Recent Commission projects (e.g. a runway reconstruction) have been largely grant-funded, significantly reducing the 2025 local funding need and allowing a $77,423 decrease in the City’s planned airport levy share. Local City/County bonds are occasionally issued to finance major improvements, with debt service shared equally by both governments.

City vs County Contributions: By long-standing agreement, City and County each assume roughly half of the airport’s local funding burden. In effect, City residents pay 100% of the City’s portion through city property taxes and also bear roughly half of the County’s portion through county taxes (since International Falls makes up about 24% of the County’s tax base. Overall, City taxpayers fund an estimated ~75% of local airport costs, whereas taxpayers outside the city fund about 25%. This means City residents pay a disproportionate share relative to county residents. Equity: Given that the airport serves the entire region (and even international travelers), the heavy reliance on City funds is arguably inequitable. City residents pay double – once via city taxes and again via county taxes – for a regional facility. Unless airport usage by city residents is far higher than by others, the funding is not strictly proportional to services received. Notably, both City and County officials are examining long-term funding models (via the consultant study in 2024) to ensure sustainable and fair contributions for airport operations.

Sources: Joint Powers Agreement & Commission description; 2015 Audit Note (County contribution) (Koochiching County Financial Statements and Management Letter – 12/31/15); City 2025 budget hearing (levy reduction from airport local share) (December 2, 2024 City Council Truth-in-Taxation Public Hearing and Input Minutes – City of International Falls, Minnesota).

International Falls Public Library

Agreement & Governance: The International Falls Public Library is a city-operated library that also serves residents countywide. It is part of the Arrowhead Regional Library System, a multi-county regional library network. By statute, overall library control lies with the Arrowhead Library Board, but a local Library Board of Trustees in International Falls oversees day-to-day operations and budgeting. There is no separate joint library board between the City and County; instead, the County supports the library through funding agreements. Koochiching County and the City have a long-standing understanding that the City provides library services to all County residents, and the County contributes an annual appropriation to help fund the library.

Funding Structure: The library’s budget is funded primarily by the City (through its library fund levy and city general revenues), with modest supplemental funding from Koochiching County and regional/state library aid. In 2024, for example, the County budgeted $27,284 for Arrowhead Regional Library system membership and $27,284 (annual total) specifically for the International Falls Public Library, plus a token $7,000 for the small Northome Library branch (). Thus, the County’s total direct support to the International Falls library was on the order of $27,000 for the year. By contrast, the City’s 2025 levy allocates 7.9% of all city property taxes to the Library fund – about $334,000 (7.9% of the $4.234 million levy) dedicated to library operations. The library also receives state library aid and Arrowhead system support (e.g. programming kits and interlibrary loan services), but these are relatively small in comparison to local tax support.

City vs County Contributions: City taxpayers provide the vast bulk of library funding. In 2015 the County’s contribution was $44,646 (similar to recent levels when adjusted for system vs local library split), whereas the City’s direct spending on the library is several hundred thousand dollars per year. City residents fund roughly >90% of library costs through their city taxes (and also indirectly pay a portion of the County’s contribution), while rural residents contribute only the County’s small appropriation. For example, in 2024 a County taxpayer outside the city paid only the equivalent of a few dollars per capita toward the library (via the ~$27k county-wide levy) versus a City taxpayer who paid on the order of $57 per capita (city population ~5,800) plus additional county tax share. Equity: This arrangement is imbalanced – County residents enjoy full library access but contribute a token amount. City officials have noted that International Falls property owners shoulder most library expenses for the benefit of all county residents . In effect, City residents heavily subsidize library services for the broader community. This may be viewed as unfair given that 46.8% of library users are non-local (visitors, Canadians, regional residents) according to a 2016 analysis () (). Any adjustment (e.g. a larger county contribution or a library taxing district) would make funding more proportional to usage, but as of the latest budgets the imbalance remains documented.

Sources: Arrowhead Library System note (county appropriation) (Koochiching County Financial Statements and Management Letter – 12/31/15); County Board 2024 minutes (library allocations) (); City 2025 levy breakdown (December 2, 2024 City Council Truth-in-Taxation Public Hearing and Input Minutes – City of International Falls, Minnesota).

North Koochiching Sanitary Sewer District (Wastewater Services)

Agreement & Governance: Sanitary sewer service in the International Falls area is managed through a partnership of city and county entities. The City of International Falls operates the wastewater treatment plant, but a North Koochiching Area Sanitary Sewer Board (created by special legislation) coordinates regional sewage collection and treatment. This board historically included representatives from the City of Int’l Falls, the now-defunct “South Int’l Falls” and “Papermakers” sewer districts (older adjacent service areas), and Koochiching County. In 2025, legislation reorganized the board: it now has equal representation from the City of International Falls and the East Koochiching Sanitary Sewer District, plus one at-large member. East Koochiching Sanitary Sewer District is the entity that serves areas outside city limits – including the City of Ranier and nearby unincorporated townships east of International Falls – by collecting their sewage and conveying it to the city’s treatment plant. The City and East Kooch District thus cooperate via the North Kooch Board’s joint powers agreement to provide one integrated sewer system for the region.

Funding Structure: Sewer service is funded by user fees charged to customers (residents and businesses) and by grant funds for capital projects. Each jurisdiction maintains its own sewer utility finances: International Falls bills city customers, and the East Koochiching District bills its rural/Ranier customers. Rates are structured to cover operational costs and required debt service. For example, Ranier’s sewer rates (which include treatment by Int’l Falls) are $26.53 per month for the first 2,000 gallons plus $2.61 per additional 1,000 gallons, similar in magnitude to city rates. Major capital improvements have been heavily grant-funded by state and federal programs. Notably, the Island View Sanitary Sewer Project (connecting hundreds of lakeshore properties in eastern Koochiching County to the system) was funded by a combination of state bonding and federal USDA grants, with relatively little local cost. As a result, the County did not need to levy general taxes for this sewer expansion; the East Kooch District financed its share via grants, loans, and assessments to benefited properties (HF 1058 as introduced – 94th Legislature (2025 – MN Revisor’s Office) (. The City’s treatment plant upgrades likewise received state aid. Ongoing operation and maintenance are paid from sewer fees, which are adjusted as needed to balance costs.

City vs County Contributions: Because the sewer system operates as an enterprise utility, there is no large direct city or county tax subsidy for sewer operations. Users “pay their own way” through fees, and each jurisdiction’s customers fund proportional costs. International Falls residents pay for the treatment plant and city pipes through their sewer bills, and rural/Ranier residents pay the East Kooch District, which in turn pays the city for treatment services. This means funding is fairly proportional to usage by design – for example, Ranier’s users pay the same per-gallon treatment charge as city users. The County’s role has been mainly to facilitate grants and coordinate governance rather than to contribute tax dollars. One area of imbalance in past years was capital representation – the City long felt under-represented on the North Kooch board despite city taxpayers having funded the original sewer plant decades ago. The 2025 board reorganization corrected this by giving the City and East Kooch District equal votes , aligning governance with each party’s stake. In terms of cost burden, city residents do indirectly support rural users to a small extent: the County secured grants (state bonding) that benefit the East Kooch system, and those state funds ultimately come from broader tax sources. But at the local level, cross-subsidization is minimal. Each area pays for its infrastructure via assessments or fees, and each pays its share of plant operating costs via the joint agreement. Equity: Overall, the sewer collaboration is structured to be fairly equitable. Unlike some other city–county services, the sewer district uses a fee-for-service model where those who use more (whether inside or outside the city) pay more. Both city and rural customers receive sewer services at equivalent rates, and costs are allocated by usage rather than general taxation.

Sources: Ranier City site (East Kooch sewer coverage and rates) (Sewer – Ranier, MN); 2025 legislative summary (board membership changes) (SF 563 – Bill Summary).

Koochiching Economic Development Authority (KEDA)

Agreement & Governance: The KEDA is a joint powers economic development authority serving all of Koochiching County. It was established in 2000 as a partnership between Koochiching County and its cities (International Falls as the largest city, plus smaller cities like Ranier, Littlefork, Northome, Big Falls) (Koochiching County Financial Statements and Management Letter – 12/31/15). By statute and joint powers agreement, the City of International Falls and Koochiching County are the primary members (each appointing two board directors), and each smaller city appoints one director. The KEDA board oversees countywide economic development initiatives – for example, business recruitment, enterprise zones (International Falls Foreign Trade Zone), and workforce/housing projects. Organizationally, KEDA is a discrete entity (technically a development authority) but it does not levy its own tax; it relies on funding contributions from the City and County.

Funding Structure: KEDA’s operating budget is funded by annual appropriations from International Falls and Koochiching County, supplemented at times by grants (e.g. IRRRB economic development grants or state/federal program funds for specific projects). The City and County generally contribute equal or near-equal amounts to fund KEDA’s staff and programs. In 2015, for example, Koochiching County contributed $50,000 to KEDA (then called the Koochiching Economic Development Partnership) . The City’s contribution that year was of a similar magnitude (approximately $50K, as indicated by KEDA’s total actual revenue of $96,259 in the 2015 county financial report) . In recent budgets, these contributions have modestly increased. While detailed 2024 figures weren’t publicly itemized in the city minutes, officials did note that “partnership agencies” saw funding reductions to hold down the levy. KEDA likely received on the order of $45,000–$55,000 from each the City and County in 2024, consistent with past practice (in 2005 the County gave $50K, for instance . KEDA also secures project-specific funding: for example, it manages a revolving loan fund and has access to Border Region enterprise zone credits and other incentives, but these are not direct taxpayer costs.

City vs County Contributions: International Falls and Koochiching County are essentially equal funding partners in KEDA. Each jurisdiction’s taxpayers thus pay half of KEDA’s local funding. However, because city residents also pay county taxes, City residents ultimately bear a greater share. A city property owner contributes via city tax levy (for the city’s KEDA appropriation) and via the county levy (for the county’s appropriation). Roughly, if each contributes $50K, the City-only taxpayer pays $50K divided among city residents, while a county taxpayer outside the city pays only their portion of the $50K county-wide levy. With the city roughly half the county population, an International Falls resident may pay about two-thirds to three-quarters of the total KEDA funding per capita when both levies are considered. Equity: In terms of services, KEDA’s efforts benefit the entire county (industrial park development, business retention and recruitment countywide), though many projects center on International Falls (e.g. the Cold Weather Testing Center at the Falls airport (About Us – KEDA – Koochiching Economic Development Authority) or downtown revitalization). The funding structure could be viewed as moderately imbalanced in that City taxpayers are funding KEDA twice, but the scale (tens of thousands) is small. Both City and County have maintained roughly equal contributions, indicating a shared commitment to economic development. Overall, KEDA’s funding split is more equitable than other services: both the urban and rural tax base invest similarly, and both reap potential benefits from growth initiatives (new jobs, tax base expansion). The slight overpayment by city residents (due to overlapping taxes) has not been a major point of contention compared to services like library or ambulance.

Sources: 2015 Audit (County $50K contribution to KEDA); KEDA joint powers description (Koochiching County Financial Statements and Management Letter – 12/31/15).

International Falls Ambulance Service (EMS)

Agreement & Coverage: The City of International Falls operates a full-time Ambulance/EMS service (International Falls Fire-Rescue/EMS) that serves the entire eastern half of Koochiching County. This includes the City of Int’l Falls, City of Ranier, surrounding unorganized townships, and even adjacent areas in St. Louis County (the service area extends to certain remote areas by mutual aid agreements) () (). Historically, this city-run ambulance became a 24/7 professional service about 15–20 years ago, replacing a patchwork of volunteer or part-time responders () (). There is no separate county ambulance department. Instead, the County and surrounding communities have relied on International Falls to provide EMS, and the County in turn has explored ways to share the financial burden. In 2022–2024, the County and City moved to establish an “International Falls Ambulance Special Taxing District” under Minn. Stat. §144F.01 () (). This district, if finalized, will be a joint powers agreement among the City of International Falls, the City of Ranier, Koochiching County (for unorganized areas), and a small portion of St. Louis County, with a governing advisory board (2 reps each from Int’l Falls, Ranier, Koochiching Co., etc.) () (). The purpose is to formalize cost-sharing for ambulance services across jurisdictions.

Funding Structure: Operating costs for the ambulance service are funded by a combination of user fees (ambulance bills to patients/insurers), City of International Falls general funds, and minor contributions from the County and other local governments. User fee revenue covers a significant portion (EMS billing can bring in hundreds of thousands annually), but it has not been sufficient to cover all costs of a full-time ALS ambulance crew and modern equipment. The city has been subsidizing the ambulance shortfall through its budget. By 2021, the City’s property tax levy increases were partly driven by rising EMS costs. The County’s traditional support was very limited: for years, Koochiching County simply reimbursed the City for specific services like inmate transports (e.g. ~$7,650 for jail patient transports) and provided a token $10,000 annual allocation to the Int’l Falls Ambulance Service. In addition, several townships and the City of Ranier have paid service fees into an Ambulance District fund, which the County acted as fiscal agent to pass through to the City. In 2015 that Ambulance District fund collected about $60,000 from rural areas and paid $56,835 of it to the City EMS . Recognizing the need for stable funding, the County Board in 2024 voted to pursue a new EMS taxing district that can levy taxes on the benefited area outside the city () (). This would effectively spread part of the ambulance expense onto rural property taxes (similar to existing small ambulance districts for Littlefork and Northome, where special levies of $119,495 and $7,954 are raised for those services ()). As of early 2025, the special district was in planning: a steering committee was appointed () and a draft joint powers agreement was being reviewed (), aiming to implement a levy in future budget cycles. In the interim 2024 budget, the County’s direct contribution was increased (they approved creating a “subordinate service district” to support the City ambulance () (), though exact dollar amounts in 2024 are not cited). The City’s EMS budget continues to rely on city levy and ambulance fees to break even.

City vs County Contributions: International Falls residents currently fund most ambulance costs. They pay through city taxes to cover the EMS budget shortfall (after billing revenues), and also through county taxes that have begun to address rural EMS funding. A citizen pointed out in 2022 that the City “went first class” in upgrading to a full-time ambulance, and now “it’s losing money and they want us [the County] to bail them out” () (). In raw numbers, the City’s support to EMS far exceeds the County’s: for example, the City’s EMS department expenses (wages, vehicles, etc.) are on the order of several hundred thousand dollars annually, whereas the County’s 2019 allocation was just $10,000 + inmate fees (and even with new tax district plans, the County’s share might rise to ~$100k range via a special levy). City taxpayers, again, effectively pay twice – their city taxes cover the majority of EMS net costs, and as county taxpayers they will also pay a share of any special EMS levy for areas outside the city. For instance, if a $120,000 rural EMS levy is implemented (comparable to Littlefork’s), city properties (which are included in the EMS district by statute ()) might still contribute part of that unless excluded. Equity: Under the status quo, funding was clearly inequitable – city residents subsidized EMS for the whole region. A rural resident outside Int’l Falls received full ambulance coverage with minimal or no direct tax contribution beyond paying their own userhttps://www.co.koochiching.mn.us/DocumentCenter/View/1534/Audit-Report–Koochiching-2017#:~:text=,The%20County fees if they ever needed an ambulance. This is changing: the creation of a multi-jurisdiction EMS district is specifically aimed at achieving fair funding () (). The plan is for all residents in the service area (city and rural) to contribute via a dedicated EMS tax or fee, proportionate to the cost of providing readiness and response. Once implemented, this should balance the burden so that the City is not unfairly carrying EMS costs alone. Until then, documented imbalances remain – the City’s 2022 budget cuts and 8% levy proposals were driven partly by ambulance expenses, illustrating how local taxpayers shouldered the load (December 6, 2021 City Council Truth-in-Taxation Public Hearing and Input Minutes – City of International Falls, Minnesota).

Sources: County Board minutes (public comments on ambulance funding) () (); Resolution on EMS special taxing district (); OSA report (county allocations to IFalls Ambulance) ([PDF] koochiching county international falls, minnesota year ended …); 2015 Ambulance District fund (rural collections) (Koochiching County Financial Statements and Management Letter – 12/31/15).

Fire Protection Services

Agreement & Coverage: The International Falls Fire Department (IFFD) provides fire suppression and rescue services within the city and, by contract, to some adjacent areas. While smaller communities in Koochiching (Littlefork, Big Falls, Northome) have their own volunteer fire departments, the immediate suburban fringe around International Falls (including Ranier and nearby unorganized townships) relies on the IFFD. To organize this, a Rural Fire Protection Agreement exists where the County collects contributions from those areas and passes them to the City. There is effectively a Rural Fire Service District (not a separate board, but an arrangement) for which Koochiching County acts as fiscal agent. The rural fire service area includes the same jurisdictions as the ambulance district (Ranier and certain nearby townships).

Funding Structure: The City’s fire department is a combined career fire/EMS department, so funding overlaps with EMS. Fire operations (firefighting, rescue, hazmat) are funded by the City’s general levy and state fire aid, supplemented by payments from the rural service agreements. The County Auditor’s office maintains a Rural Fire Service Agency Fund to collect the contracted fees from townships each year . In 2015, this fund collected about $60,276 from the participating rural areas and paid $56,835 of that to the City for providing fire coverage, leaving a small balance. This suggests the annual contract amount was roughly $57,000 in 2015. The City’s own fire budget that year was significantly higher (for full-time firefighters, equipment, etc.), meaning the City covered the remainder with city taxes. Current rural fire contracts are likely higher (in 2022, the County noted the Littlefork area’s separate fire service levy was $49,500, but Int’l Falls’ rural fire fee is not explicitly listed, presumably negotiated separately). State fire aid (from insurance premium taxes) also offsets part of the City’s cost – e.g. the City received $52,831.35 in state fire aid in 2024 designated for firefighter pensions/training.

City vs County Contributions: City taxpayers fund the core of the fire department, including stations, trucks, and full-time personnel, while rural areas pay a fee for coverage. The rural contributions are essentially a form of user fee based on property values or a flat contract – they are much smaller than what it would cost those areas to staff their own department. For perspective, International Falls’ fire/EMS budget (combined) runs in the millions, whereas rural townships together paid around $60K per year for fire protection. Thus, City residents subsidize the readiness and scale of the fire department that protects the region. A rural resident’s property tax does not directly include a fire levy (it’s handled via the contract fee paid by the township/county to the city). City residents, again, also pay county taxes that fund the coordination of the rural fire fund, but that administrative cost is negligible. Equity: The current setup provides rural communities with a high level of service at low cost, courtesy of International Falls. City leaders have noted that when areas just outside city limits need a “higher level of fire service,” they essentially get it through this arrangement rather than incorporating into the city (an annexation analysis once cited unmet rural fire needs would be solved by joining the city. Financially, this is somewhat inequitable to city taxpayers. However, the rural fire contracts do ensure those outside areas pay something. The imbalance is moderate – rural fees cover some variable costs (fuel, some labor) but arguably not full capital or personnel costs. City taxpayers still fund the lion’s share of having a professional fire department. Without these contracts, the City would either downsize its department or city taxpayers would pay even more per capita. In summary, International Falls residents carry a heavier fire protection burden per capita, effectively underwriting fire safety for their immediate neighbors. The rural contributions, while helpful, likely do not fully equalize the cost based on risk or usage, since major fires or frequent responses in those areas are handled without additional charges beyond the flat fee.

Sources: County audit notes (Rural Fire Service fund) (LAKE OF THE WOODS COUNTY) (Koochiching County Financial Statements and Management Letter – 12/31/15); MBA annexation document (need for higher fire service) ([PDF] koochiching county international falls, minnesota year ended …).

Policing and Sheriff’s Services

Agreement & Responsibilities: International Falls maintains a municipal police department (IFPD) for law enforcement inside city limits, while the Koochiching County Sheriff’s Office provides law enforcement in unincorporated areas and smaller towns. There isn’t a formal joint powers board for policing, but there is close coordination. The Sheriff’s Office operates the county jail and 911 dispatch center, which serve the whole county including the city. By law, the County must accept persons arrested by city police into the county jail, and the County provides centralized dispatch/911 at no direct charge to the city. There are mutual aid arrangements – city police and county deputies back each other up in emergencies, and a Management Agreement exists for certain shared functions (for instance, a 2022 agreement between the County and City for the Police Department to meet state BCA audit requirements using county systems) () (). Essentially, the City and County operate separate law enforcement agencies but share infrastructure (radio systems, jail, emergency management).

Funding Structure: Police services are funded separately by each jurisdiction. The IFPD’s budget (officer salaries, patrol operations) is paid entirely by City property taxes and local government aid. The Sheriff’s Office (patrol deputies, investigators, jail, dispatch) is funded by the County’s levy and state/federal aids. There is no direct cost-sharing of normal patrol duties – each government covers its own. However, certain costs are borne by the County for the City’s benefit: for example, 911 dispatching and jail incarceration costs for city arrests are paid out of the county budget, not billed to the city. In 2021 the County did not charge back any dispatch fees to cities (the cost was covered by state 911 fees and county levy). Also, court security and prosecution are largely county/state functions (the County Attorney prosecutes most city crimes under state law, again funded by county taxes). On the other hand, the City provides some specialized policing that benefits the wider area, such as maintaining a police K9 unit or participating in drug task forces, without seeking county reimbursement. Financially, there is no special joint fund for police, except possibly grants that involve both (e.g. a federal Stonegarden border security grant shared by Sheriff and IFPD). Each year the City and County budget for law enforcement separately. In 2022, Koochiching County’s Sheriff (and jail/dispatch) budget was in the millions (supported by the entire county tax base), and the City’s police budget was several hundred thousand supported by city taxes.

City vs County Contributions: City residents pay for both layers of law enforcement, while residents outside the city pay only for the Sheriff. A resident of International Falls contributes to the IFPD through city taxes and simultaneously pays county taxes that support the Sheriff’s Office and jail. A resident in a township pays only the county levy for the Sheriff and gets no bill for city police. This dual payment by city residents is somewhat mitigated by the fact that they receive more policing – IFPD provides quick local response within the city, which rural residents do not fund. But from a taxpayer viewpoint, the city resident’s total law enforcement tax burden is higher. For example, International Falls comprises about 24% of the county’s net tax capacity, so city taxpayers fund roughly a quarter of the Sheriff’s Office budget in addition to 100% of the police budget. A city household, therefore, might be paying twice for services: one set of officers (IFPD) dedicated to the city, and contributing to another set (Sheriff) that mostly patrols elsewhere. Equity: This situation is common in Minnesota and is generally accepted – city taxpayers understand they must fund their local police and also their share of county-wide services. It is not seen as an inequity per se because the Sheriff’s Office still provides necessary services to city residents (jail, dispatch, emergency response backup, and county-wide investigations). In fact, city police often call on the Sheriff for assistance with large incidents and vice versa, so both jurisdictions benefit from having both forces. Unlike the other examples, here the issue is overlap rather than subsidy. If anything, rural residents might point out they indirectly help fund the jail space and court costs for crimes that occur in the city as well, which balances the equation. Overall, while city residents pay more in total for law enforcement, they also receive more direct policing. The financial overlap (city paying for two agencies) is real, but the service levels differ, making direct per-capita cost comparisons difficult. No major funding disputes exist in this area; the City and County continue to operate under the standard division of duties provided by law, adjusting only minor agreements (like sharing radio towers or records systems) as needed for efficiency () ().

Sources: County board minutes (management agreement between Sheriff and City PD) () (); City truth-in-taxation hearing (city = 24.2% of county tax base) (December 2, 2024 City Council Truth-in-Taxation Public Hearing and Input Minutes – City of International Falls, Minnesota).

International Falls Local Sales Tax (1% City Sales and Use Tax)

Adoption and Allocation: In 2018, voters in International Falls approved a local option sales tax, and the Minnesota Legislature authorized the City to impose up to a 1% sales and use tax (effective October 1, 2019). The tax is explicitly dedicated to transportation and other public infrastructure projects in the city. According to the enabling law (Ordinance No. 31, 5th Series, as amended), all revenue must fund a predefined list of capital improvements – primarily street and utility infrastructure upgrades. The City’s informational materials list the uses: rebuilding streets, sidewalks, storm sewers, water and sewer lines, street lighting, and the City’s share of the 2020 Highway 53 reconstruction () (). By law, the sales tax cannot be used for general operating costs or shared services like the library or fire department (). It is essentially a capital projects fund. The tax will expire once $30 million is raised or after 30 years, whichever comes first, as set by statute. Each quarter, the Minnesota Department of Revenue collects the tax and remits it to the City for deposit into a dedicated fund ().

Allocation to Shared Services: The 1% city sales tax is not directly used to subsidize joint city–county services. Its allocation is infrastructure-focused: for example, recent sales tax proceeds have been earmarked for street reconstruction on projects like 2nd Avenue and sewer/storm drain improvements in the city. Indirectly, this helps shared services to the extent that better streets benefit county residents who drive on them, and improved water/sewer infrastructure can support regional facilities. But there is no evidence that sales tax revenue is being diverted to the airport, library, ambulance, or other joint ventures – by law it must fund the specific “transportation and public infrastructure projects” listed in the ordinance. The City’s 2023 capital plan shows sales tax dollars going into street and utility capital funds, not operating budgets. Thus, while the sales tax does boost the City’s ability to pay for infrastructure (potentially freeing some other city funds for services), it is legally segregated and not a direct source of funding for those shared services.

Geographic Applicability (56649 Zip Code Issue): The local sales tax applies only to sales “sourced within city limits”. In practice, this means any retail sale that occurs at a business located inside the City of International Falls must charge the extra 1% to customers. For online or mail-order purchases delivered to International Falls addresses, the tax applies if the delivery address is within the city. However, a quirk arises because the 56649 ZIP code covers areas beyond the city boundaries (including Ranier and some unincorporated county areas). The Minnesota Department of Revenue’s system uses precise geocodes for tax, but some online retailers rely on ZIP code. This led to reports of the sales tax being collected on online orders for 56649 addresses that are actually outside city limits . A resident of Ranier noted in 2021 that the Department of Revenue “collects it for all households making online purchases with 56649 zip codes,” effectively charging people outside the city in error. Legally, those purchases should be exempt, and such buyers are entitled to a refund or credit. In practice, if a business or marketplace platform misassigns the tax, the onus is on the purchaser or seller to correct it. The Department of Revenue’s guidance says retailers must register each location and collect tax only for sales into the city. Most large retailers have address databases to distinguish Ranier vs. Int’l Falls, but mistakes happen. No formal exemption beyond city limits exists – the only way to avoid the tax is to be outside the defined city boundary. If charged erroneously, a consumer can file for a sales tax refund with the state, or the seller can adjust the sale. Additionally, certain types of sales are exempt entirely: groceries, clothing, and vehicle sales that are exempt from state sales tax are also exempt from the local tax (). Also, sales to local governments or nonprofits with a state exemption certificate are exempt from the local tax. There are also transitional provisions (contracts signed before Oct 2019 were grandfathered to avoid the new tax).

Revenues and Use to Date: The combined sales tax rate in International Falls is now 8.375% (6.875% state + 0.5% county + 1.0% city) . This has generated substantial revenue – roughly estimated at $600,000 to $800,000 per year in a city of this size (exact figures are in city financial reports). These funds have been allocated to a Street/Infrastructure Improvement Fund and are being spent on eligible projects. For example, the City used sales tax proceeds as the local match on a $3 million street improvement program in 2020-2021 (instead of using general tax levy). Shared services have not been direct recipients of these funds. The City Council and public keep a close eye to ensure the money goes only to voter-approved uses () ().

Exemptions/Refunds: Aside from the product-based exemptions (food, clothing, etc.) which mirror the state sales tax exemptions (), the local sales tax law provides that local governments themselves do not pay the city sales tax on their purchases. So if Koochiching County or ISD #361 buys supplies in the city, they use a certificate to avoid the 1% tax. There is also a mechanism for transitional sales – for example, a lease or layaway sale entered into before the tax start date is not subject to the new tax. For the ZIP code issue, the “refund” would not be an automatic exemption but an error correction: a Ranier resident who was charged the tax can apply to the MN Dept. of Revenue for a refund of local tax paid erroneously outside the jurisdiction. The Department has GIS tools to correctly identify addresses, and businesses are encouraged to use the state-provided lookup to avoid zip-code errors. In summary, no general refunds or rebates of the Int’l Falls sales tax exist (aside from correcting mischarges). All collected revenue goes toward the authorized city infrastructure projects, and the tax will terminate once the $30 million cap is reached.

Sources: MN Dept. of Revenue notice (tax applies to sales “made into International Falls”) (International Falls Sales and Use Tax); City ordinance summary (projects funded) (Minnesota DOR Announces 1.0 Percent Sales and Use Tax for International Falls); City sales tax info sheet (infrastructure uses and exemptions) () (); City Council minutes (public comment on 56649 zip code issue) (December 6, 2021 City Council Truth-in-Taxation Public Hearing and Input Minutes – City of International Falls, Minnesota).