The City Council approved the Proposed 2011 Budget at last Tuesday’s regular Council meeting.Â One canÂ view the entire document here.Â Those who do not revel in detail can find most of the highlights near the beginning of the document including theÂ introductory letter that summarizes the budget in text form.Â The following page,Â entitled “Where do my Property Taxes Go?” is a relatively new addition to the budget document.Â It is a representation of how General Fund-supported services would be priced ifÂ the City assigned a service fee to them.Â For example, Police protection, theÂ largest property-tax supported service, costs less than $20 per month for a single-family home owner with a property assessment of $150,000.Â Â Overall, non-utility services cost the “average” householdÂ less than $65 per month.Â In other words,Â East Grand ForksÂ residents receive public safety, streets, parks, recreation programs, a pool,Â a library, and a senior center, among other services, for less than they pay for basic cable.
This blogÂ will likelyÂ add manyÂ posts about the 2011 Budget asÂ the CouncilÂ moves through the process.Â The Council will hear department presentations on the budget each Wednesday in October.Â And, the final budget will be adopted in December.Â
For now, mostÂ have heard littleÂ about the budget except the notion that taxes are going up 10 percent.Â There is much to that story.Â Here is a four-part summary of the budget.Â
- Expenditures are flat for the third year in a row.
- The total levy increase is not the same as the tax rate increase
- The City’s share is less than half of a property owners total tax bill
- The preliminary levy is not necessarily the same as the final levy
Expenditures are flat for the third year in a row
First, proposed expenditures are essentially flat for the third year in a row.Â And expenses have been trimmed significantly from years prior.Â So, how can taxes go up?Â In short, it is a result of that Local Government Aid (LGA) thing that has garnered much media attention lately.Â The City has lost over $1.1 million since December 2008Â due to state reductions.Â And,Â the City stands to lose another $600,000 next year ifÂ nothing changes.Â So, property tax increasesÂ are necessary simply to hold steady on city services.
The total levy increase is not the same as the tax rate increase
Further, the 10 percent increase refers to the City’sÂ total levy.Â This is where property tax system starts to get complex.Â The total levy is simply the number that represents the total tax revenue collected.Â It does not take into account changes in overall City valuation.Â For example, last year the total levy increased five percent.Â But, City valuation also increased five percent.Â So, the effective tax rate for most residents was flat.Â If a property did not see a major change in assessed value, the overall tax bill stayed the same or may have even decreased.Â In fact, the City’sÂ tax rateÂ has declined each year since 2006 despite continued cuts to LGA.Â This year, if valuation increases two percent,Â a 10 percent total levyÂ increaseÂ an effective tax rate increase of approximately 7.8 percent after credits.Â
The City’s share is less than half of a property owners total tax bill
The City’s share of the total property tax bill is less than half of the total property tax bill.Â Other jurisdictions, including the county and the school district,Â also haveÂ property tax levies.Â Therefore, an individual property tax bill could see a change that is far different than the oft-quoted 10 percent depending upon the final budgets of those taxing jurisdictions. Currently, Polk County, which relies far less on state aid than the City, is contemplating a total levy increase of about 1.7 percent.
The preliminary levy is not necessarily the same as the final levy
Finally, the preliminary levy adopted by the City Council is just that – preliminary.Â By state law, the City must set the preliminary levy on or before September 15.Â After that date, the Council can reduce the levy, but it cannot increase the levy.Â Â Therefore, the 10 percent total levy is a starting point rather than an ending point.Â For the record, the same $150,000 property owner would pay approximately $5 more per month if the total levy increased 10 percent in 2011.
Where do we go from here?
The current budget contains a budget surplus of approximately of over $165,000.Â This is approximately the amount that City stands to loseÂ in the currentÂ Fiscal Year 2010 as a result ofÂ further, unbudgeted LGA unallotments that the Governor approved and the Legislature ratified in March.Â And, budget flexibility may be needed going into the 2011 Fiscal Year because no one can predict with any accuracy what will happen with a new Governor and a new Legislature in St. Paul.
The city budget is a complex mix of diverse revenue calculations and spending decisions.Â The City’s interest is to maintain City services at levels its citizens expectÂ while keeping the tax burden as low as possible, especially as state revenues continue to decline.Â The preliminary figures canÂ sound intimdating without deeper context.Â Â
As mentioned, this topic will get much attention over the next several months.Â Meanwhile,Â one can viewÂ a neat little video produced by Ramsey County, Minnesota, that attempts to explain the myriad the factors that can influence property tax rates.