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Home My WebLink About08 08 11 2012 Prelim Budget 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL WORK S ESSION AGENDA REPORT MEETING DATE: AUGUST 15, 2011 PREPARED BY: JERILYN ERICKSON, FINANCE DIRECTOR PRESENTER: JERILYN ERICKSON TOPIC : 2012 PRELIMINARY BUDGET & TAX LEVY; BENCHMARKS DISCUSSION: Introduction The Truth in Taxation statutes require that each “taxing authority” adopt a preliminary budget and certify a preliminary tax levy for payable 201 2 property taxes to the County Department of Tax ation on or before September 15, 20 11 . The preliminary tax levy is significant in the fact that it establishes the maximum that the City can levy against properties in 2012. The Council will consider the final tax levy in December at which time the levy can be either reduced or maintained at the amount established in September. The Council will not be able to increase the tax levy. The purpose of today’s workshop is to discuss and receive direction on the following: 1) Preliminary 2012 Budget 2) Benchmarks The following meetings/ work sessions are currently scheduled to discuss and adopt 2011 property tax levies and budgets. The work sessions could change if the Council determines that additional meetings are needed. 09/06/2011 CC Meeting – Adopt Prel iminary 2012 Budgets & Property Tax Levy 11/01/2011 CC Work s ession – Discuss Final 2012 Budget & Tax Levy 12/06/2011 CC Meeting – Truth in Taxation Hearing to discuss 2012 Budget & Tax Levy 12/20/2011 CC Meeting – Truth in Taxation Hearing Continuation (if needed) Adopt Final 2011 Budget & Property Tax Levy History On April 18, 2011, s taff presented multi - year financial projections to the Council for the General Fund and other tax - supported funds. These projections reflected current commitments as represented by the 2011 - 2015 Capital Improvement Program (CIP), curre nt and future debt service obligations, assumptions about non - tax revenues, capital needs, and inflationary pressures on personnel costs (wages and benefits) and current expenditures. Two and one half new staff positions were proposed (Accountant, police supervisor and an additional .5 Economic Development), as well. These multi - year projections demonstrate the pressures on the property tax to provide the resources (staff, equipment, etc.) for the City to deliver the current level of services and expand i t in specific areas . During June and July, 2011, Staff presented the draft 2012 - 2016 CIP which included two new components: Technology Plan and Facilities Management Plan. The impact of these updated and new plans on the debt balance, tax levy, fund bal ance reserves and utility rates were a part of the Council and Staff discussion. The Council will consider the adoption of the 2012 - 2016 CIP at the council meeting later this evening. Current Department managers have been preparing their 2012 budget r equests over the pas t month. They have included capital expenditures that are part of the 2012 - 2016 CIP . Staff has prepared the following documents to assist in the budget discussion: Budget Overview This reflects preliminary figures for the 2012 budget for the following funds:  General Fund  Debt Service Funds – includes all debt  Revolving Equipment Fund  Water Fund  Sewer Fund  Water Quality Fund  Transit Fund The second page shows tax levy and budgetary comparisons from the 2011 adopted budget to the preliminary 2012 figures. Summary Revenue and Expenditure Reports Summary reports are provided for each of the funds noted above. Significant changes are as follows: General Fund Revenues  Eliminated reduction of negative MVHC Aid revenue per tax chan ges adopted in the 2011 special legislative session .  Increased State road and bridge aid (based on 2011 amount received), grant revenue for sirens, franchise fees and interest earnings;  Reduced Township fire agreement revenues, Tower/ Communication Site le ase revenues (Clear Wire terminated the Crest Avenue agreement);  Use of Fund Balance reserves for funding the $150k transfer to the Facilities Management Fund. General Fund Expenditures  Addition of full - time Accountant, Police Supervisor and Economic Development Director (1/2 of funding for ED Director was included in the 2011 budget);  Established “Natural Resources” department by moving costs previously accounted for in the Parks Department budget; Page 2  Other personnel costs moved to reflect the impact of the 2011 Staff Reorganization;  Agreements for all three bargaining units expire on 12/31/11. Personnel costs reflect an estimated COLA and steps for represented and non - represented groups, anticipated changes for insurances, etc. Debt Service Funds  A hig h rate of special assessment prepayments and sufficient fund balance reserves allow a reduction in the 2012 debt service tax levies.  Reflects payments for all types of debt including special assessment bonds, tax increment bonds, revenue bo nds and market r eferendum bonds; Revolving Equipment Fund  $10,000 increase in tax levy per 2012 - 2016 CIP;  Reflects equipment replacements and refurbishments identified in the 2012 - 2016 CIP. Water Fund, Sewer Fund, & Water Quality Fund  Operating revenues reflect anticipa ted rate changes per Council discussion of the 2012 - 2016 CIP;  The 2011 Water Fund revenue budget included 100% of CFAC and penalty revenues budgeted  WQ Fund includes grant revenue for water quality initiatives;  Personnel costs reflect adjustments as noted above including changes due to the 2011 Staff Reorganization; Transit Fund  Increased revenues from bus fares;  Significant reduction in transit aid based on the Met Council’s current interpretation of the 2011 special session legislation;  Personnel costs r eflect adjustments as noted above.  Increased operating costs;  No capital projects planned. Staff is in the process of completing a street degradation study. This study would provide a basis for appropriating funds for our street maintenance and reconstru ction programs. The Council may want to consider including an additional $50k in the general tax levy to provide flexibility in funding any additional street maintenance costs in 2012. Staff will provide an estimated completion date for the degradation s tudy. Page 3 Property tax levy The table below provides some explanation regarding the estimated change in the property tax levy: Description $$ Impact on Levy (Change from 2011) Personnel 304,071 Current Exp ( 44,796) Capital 43,024 Debt Service 54,805 Transfers 150,000 Total Expenditure Change $ 507,104 Increased Non - Tax Revenues (31,472) Increased Use of GF Reserves * (84,017) Eliminate Negative Revenue for (258,524) MVHC Increase in GF Levy $ 133,091 Other Tax Supported Funds : Rev olving Equipment Fund Levy 10,000 Debt Service Funds (84,855) Net Increase in Levy $ 58,236 2011 Use of Reserves ($150,000) – 2011 Use ($65,983) = $84,017 Use of Fund Balance Reserves The preliminary budget reflects a planned use of fund balance reserves in most of the funds for purposes of funding debt service payments, capital replacement, and capital improvements. The General Fund includes a $150,000 use of reserves for funding a transfer t o the Facilities Management Fund. The Co uncil will be considering the establishment of the Facilities Management Fund based on the Facilities Management Plan in the 2012 - 2016 CIP later this evening. Impact of Tax Levy on Tax Rates The Market Value Homestead Credit program was eliminated per tax changes adopted in the 2011 special legislative session. In place of the MVHC, homeowners will receive an exclusion of a portion of the market value of their house from property taxes. For homes valued at less than $76,000, the exclusion is equal to 40% of the home’s market value. For homes valued between $76,000 and $413,800, the exclusion is $30,400 minus 9% of the value over $76,000. The following table reflects the impact of four scenarios on the tax rates using the preliminary 2012 market values a nd tax capacities (per the new tax changes) :  Zero change in total tax levy  Maintain same tax rates for tax capacity - based levies and market value - based levies  Levy increased by the amount of tax generated by new construction  Levy adjusted by the amount preliminarily requested with the 2012 budget Page 4 IMPACT OF 2012 PROPERTY TAX LEVIES based on preliminary estimated tax capacities and market values for 2012 Preliminary Final Zero Change Maintain Same New Construction* Budget 2011 in Levy Tax Rates $ 32,613,900 08/15/2011 TC Levy $ 8,220,809 $ 8,220,809 $ 7,805,099 $ 8,320,966 $ 8,255,885 Fiscal Disparities $ 787,953 $ 787,953 $ 787,953 $ 787,953 $ 787,953 TC Levy $ 9,008,762 $ 9,008,762 $ 8,593,052 $ 9,108,919 $ 9,043,838 TC Value $ 26,768,943 $ 25,415,292 $ 25,415,292 $ 25,415,292 $ 25,415,292 TC Rate 30.7102% 32.3459% 30.7102% 32.7400% 32.4839% MV Levy $ 1,105,362 $ 1,105,362 $ 1,089,391 $ 1,119,226 $ 1,128,522 MV Value $ 2,600,331,100 $ 2,562,758,800 $ 2,562,758,800 $ 2,562,758,800 $ 2,562,758,800 MV Rate 0.04251% 0.04313% 0.04251% 0.04367% 0.04404% Changes: TC Levy $ - $ (415,710) $ 100,157 $ 35,076 MV Levy $ - $ (15,971) $ 13,864 $ 23,160 Total $ - $ (431,681) $ 114,021 $ 58,236 *Calculation of additional levy from new construction growth: $32,613,900 x 1% x 30.710% (2011 TC Rate) = $ 100,157 $32,613,900 x .04251% (2011 MV Rate) = $ 13,864 The impact of the new market value exclusion is evident in column 3 “zero change in levy” in which the levy remains the same but the tax base is reduced and , as a result, the tax rate rises. Although the homestead exclusion is computed in a mathematically similar manner to the repealed MVHC, the new system will shift tax es among properties within the community. Conclusion Staff is seeking direction on the preliminary 2011 budgets and property tax levies in order to prepare the resolutions for September 6, 2011. Department managers have compiled some benchmarks that will be helpful in monitoring service levels, etc . This information will be included in the presentation during the workshop. Staff will be seeking feedback from the Council on the se and any other recommended benchmarks. Page 5