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Recommendations 2. Evaluation Criteria A. Regional Nature of Projects The department recommends that regional benefit per se not be an explicit crite- rion. Rather, the objectives of such a criterion could be obtained by designing better criteria pertaining to the types of projects that are eligible for local sales tax funding and by requiring those surrounding communities that will pay a large share of the sales tax to participate in the referendum. The topics of "regionality" and "regional benefit" were discussed extensively during the public meetings. While many participants supported having a regional benefit criterion, the wide difference in what "region" means to different people also became apparent. For example, one city defined its region as a five-state area. Another city stated that since it was considered a regional center, anything it did with sales tax revenue that benefited the city, by definition also benefited the region. These comments, while possibly extreme, point out the difficulty of using regional benefit as criteria. Any definition of region will end up being too inclusive for some and too limiting for others. Communities surrounding a taxing jurisdiction will often have conflict- ingviews about the benefit to their community from a project in another city. Since a significant At the heart of the "regionality" issue is the desire for the benefit from a local sales portion of local sales tax to have broad impact. Since a significant portion of local sales taxes are exported taxes are exported to communities surround- to communities surrounding the taxing jurisdiction, there should be some benefit ing the taxing jurisdic- to those communities. The difficulties inherent in defining "region" and "regional tion, there should be benefit" raise the question of whether a regional criterion per se is the best way to some benefit to those accomplish that objective. communities. The department therefore recommends that "regional benefit" per se not be an explicit criterion. Rather, the objectives of such a criterion could be obtained by designing better criteria pertaining to the types of projects that are eligible for local sales tax funding, and by requiring that the surrounding communities, whose citizens will pay a large share of the sales tax, participate in the referendum. These concepts will be discussed in more detail below. B. Capital Projects The department recommends that a criterion for approval of local sales tax author- ityshould be that funds be used for extraordinary capital projects. This would prevent communities from using local sales tax revenue to replace general fund revenue (property tax revenue) normally used to fund ordinary capital projects. Although there was some discussion of using a local sales tax for general revenue purposes, most of those who commented during the public hearings supported a requirement that the sales tax be used for extraordinary capital projects. The department also recommends that this be a criterion for approval of local sales tax authority. As mentioned earlier, it is the policy of this state that the property tax be the mainstay of local government finances. Without criteria regarding the use to which sales tax revenue may be put, it would be too easy for communities to supplant property tax revenue with sales tax revenue. The effect of this, should the practice become widespread, would be to undermine the current property tax, local government aids and the fiscal disparities system. Without limits, local government aid calculations would need to reflect the additional revenue raising capacity, thus Zo