2011 Proposed Budget and Property Taxes

The City Council approved the Proposed 2011 Budget at last Tuesday’s regular Council meeting.  One can view the entire document here.  Those who do not revel in detail can find most of the highlights near the beginning of the document including the introductory letter that summarizes the budget in text form.  The following page, entitled “Where do my Property Taxes Go?” is a relatively new addition to the budget document.  It is a representation of how General Fund-supported services would be priced if the City assigned a service fee to them.  For example, Police protection, the largest property-tax supported service, costs less than $20 per month for a single-family home owner with a property assessment of $150,000.   Overall, non-utility services cost the “average” household less than $65 per month.  In other words, East Grand Forks residents receive public safety, streets, parks, recreation programs, a pool,  a library, and a senior center, among other services, for less than they pay for basic cable.

This blog will likely add many posts about the 2011 Budget as the Council moves through the process.  The Council will hear department presentations on the budget each Wednesday in October.  And, the final budget will be adopted in December. 

For now, most have heard little about the budget except the notion that taxes are going up 10 percent.  There is much to that story.  Here is a four-part summary of the budget. 

  1. Expenditures are flat for the third year in a row.
  2. The total levy increase is not the same as the tax rate increase
  3. The City’s share is less than half of a property owners total tax bill
  4. 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.  And expenses have been trimmed significantly from years prior.  So, how can taxes go up?  In short, it is a result of that Local Government Aid (LGA) thing that has garnered much media attention lately.  The City has lost over $1.1 million since December 2008 due to state reductions.  And, the City stands to lose another $600,000 next year if nothing changes.  So, property tax increases 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’s total levy.  This is where property tax system starts to get complex.  The total levy is simply the number that represents the total tax revenue collected.  It does not take into account changes in overall City valuation.  For example, last year the total levy increased five percent.  But, City valuation also increased five percent.  So, the effective tax rate for most residents was flat.  If a property did not see a major change in assessed value, the overall tax bill stayed the same or may have even decreased.  In fact, the City’s tax rate has declined each year since 2006 despite continued cuts to LGA.  This year, if valuation increases two percent, a 10 percent total levy increase an effective tax rate increase of approximately 7.8 percent after credits. 

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.  Other jurisdictions, including the county and the school district, also have property tax levies.  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.  By state law, the City must set the preliminary levy on or before September 15.  After that date, the Council can reduce the levy, but it cannot increase the levy.   Therefore, the 10 percent total levy is a starting point rather than an ending point.  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.  This is approximately the amount that City stands to lose in the current Fiscal Year 2010 as a result of further, unbudgeted LGA unallotments that the Governor approved and the Legislature ratified in March.  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.  The City’s interest is to maintain City services at levels its citizens expect while keeping the tax burden as low as possible, especially as state revenues continue to decline.  The preliminary figures can sound intimdating without deeper context.  

As mentioned, this topic will get much attention over the next several months.  Meanwhile, one can view a neat little video produced by Ramsey County, Minnesota, that attempts to explain the myriad the factors that can influence property tax rates.