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HomeMy WebLinkAboutTruth in Taxation Hearing Minutes City of Prior Lake Truth in Taxation Hearing Minutes December 3,1997 6:00 P.M. 1. Call to Order: Mayor Andren called the meeting to order at 6:00 p.m. Present were: Mayor Andren, Councilmembers Kedrowski, Mader, and Schenck, City Manager Boyles, Assistant City Manager Woodson, Finance Director Teschner, City Engineer Ilkka, Police Chief O'Rourke, Lieutenant Schmidt, Building Official Hutchins, Public Works Supervisor Hartman, Parks and Recreation Director Hokeness, Planning Director Rye, Fire Chief Chromy, Engineer Evens. 2. Pledge of Allegiance: Mayor Andren led the Pledge of Allegiance and welcomed everyone to the meeting. She said the purpose of the meeting was to answer questions and solicit comments from the residents. She stated that by law, Council was not allowed to take action at this meeting and any action taken would be at the December 15th meeting. 3. Staff Presentation: · City Manager Boyles reviewed the purpose and process of the meeting. He reviewed the handouts and introduced consultants Steve Mattson and Gerry Eick. He reviewed the directive of the City Council, to provide a general fund budget with 0% tax increase excluding the Park and Library Referendum. He went over the revenues for the 1998 budget. 54% of the proposed budget revenue is from property taxes. Intergovernmental transfers provide 25%. They are funds provided by the State of Minnesota. There are also various charges for City services. Fines and forfeiture make up about 1 %. · City Manager Boyles briefly reviewed Prior Lake compared to state-wide averages. The bottom line is the $3,852,498 levy is changing to $4,587,732, for a total levy increase of $734,784. There is an increase of $676,480 in the budget. Equipment certificates used to be sold every 4 years, and thereafter would be repaid as part of debt service. This year an equipment revolving fund was established by Council resolution so the City no longer has to sell equipment certificates to purchase equipment. This provides the opportunity to replace equipment on an annual basis. The majority of the $510,454 increase i,J. the budget is from the Parks and Library Referendum. Another 3% is community growth, and 2% inflation. . Mayor Andren asked if there were any questions from the Councilmembers. . Councilmember Mader asked about the costs per household for City services. · Finance Director Teschner said the way the figures are derived is by taking the proportionate share of the operating budget for police and dividing it by the entire budget, and multiplying it by the representative share of the tax portion that is associated with the budget, which is $495. So this is only on a $127,000 home, but it is on an annual basis. . Councilmember Mader said so it is really what's reflected as an average contribution of tax dollars, but it is on an annual basis for that type of home, and doesn't include other funds that are used. · Finance Director Teschner said it was local government property tax dollars only. 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 553V2-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER . Councilmember Mader asked about the budget booklet section on historic comparisons, on page 34, expenditures, there is no total like there is for revenues. He said he figured out the expenditures from the 1996 Audit, and the increase for 1998 compared to 1996 as the last year for which there is an audited statement, the increase is 41 %. He asked how would that kind of increase in the operating budget be justified? . Finance Director Teschner said that was not the correct interpretation. He said the budgetary numbers did not go up 40%. . Councilmember Mader said this was the audited statement for 1996. It shows on page 8 expenditures under the general fund at 4.824 million dollars. It shows an excess of revenue of $720,000. He said he assumed that was the expenditure in the general fund. . Finance Director Teschner said one of the items was that there was no transit services in the budget in 1996. That is over $300,000 that is a new line item for 1997 and 1998 that does not appear in 1996 audit. Adding $500,000 for the debt is approaching the $1,000,000 difference. So the percentage increase is significant, but the transit levy included in 1997 is not in 1996. The City took over the levy from the Metropolitan Council, to elinlinate any transit tax increase to Prior Lake taxpayers. . Councilmember Mader said even if that was factored in, if the $300,000 was added to 1996, it still ends up at about 35% increase in two years. . Finance Director Teschner said it was not if the $1,000,000 was factored in for those two years. There was a 4.97% increase from 1997 to 1998 excluding the debt for the $510,000. The year before, if the $300,000 is taken out, and if you are looking from budget cycle to budget cycle, there is 10% difference from 1996 to 1998. That is what the City can control, excluding the debt accounts and the transit appropriation. . Councilmember Mader said his question was budgeting versus actuals. He said even if taking out transit and referendum, the percentages for the two year period were substantially higher than inflation. He said there is $800,000 difference, and if adding that to $4.8, that makes $5.6, as compared to $6.8. . Finance Director Teschner said he was not considering the $480,000 debt that has to be factored in. He said in the $4.9 million dollar line item for 1996, there should be another half million of debt in the debt service category that does not appear as a debt service line item, it appears as a transfer out. The reason it appears as a transfer out is when the City issues bonds, they have to set up a debt account to track individual bond issues, and for audit purposes, those are reflected in the audit report as transfers in-transfers out. The $488,000 has to be added as a transfer out. It has to do with the G.O. debt under the debt service budget. · Councilmember Mader asked if the $6.8 million for 1998 reflected debt transfers. · Finance Director Teschner said yes. He said the transfers under the 1998 budget are as debt service. The $854,895 figure in the audit report in 1998 will not show up as a line item, it will show up as a transfer in the audit report as it does in the 1996 page that shows $488,815, which was the debt in 1996. He said you can't use the $4,824,221 figure, you have to increase the actual figure for debt also. · Councilmember Mader said he was looking for an apples to apples comparison. · Finance Director Teschner said take $4,824,221 and add in $488,815, which is the budget amount to get the total expenditures for the year. It is reflected as a transfer because all debt service payments are transferred from the general fund to the individual debt operating accounts for G.O. debt, and part of the $823,623 or nearly 1/2 million, was the debt portion. That corresponds closely with the line item 2 for 1997. The difference between the debt figure and the $823,623 the additional transfers the Council appropriated to various funds at year end. He said from a year to year cycle it is a 4.9% actual increase in the operating budget from 1997 to 1998 and the year prior was slightly over 7%. . Councilmember Mader said that uses budget not actual. Finance Director Teschner said even using actual expenditures for debt, transit levy and actual debt must be considered or the comparison is overstated. The audit report is a detailed comparison between budget and actual. In the bound report, transfers were budgeted for 1996 at $488,815. In fact the actual transfers made were $823,000 because additional amounts were authorized by the Council to be transferred to other funds. So in order to make an apples to apples comparison, add those transfer items plus the transit and referendum debt as well that base figure to include all expenditures. . Councilmember Mader said he thought that meant you could take excess dollars and by transferring them can create what appears to be a higher expenditure level. . Finance Director Teschner said there never was $823,000 of expenditures that correlated to the budget, but there was $488,000 in debt service payment that are budgeted and reflected as a transfer. The additional difference between the $823,000 and $488,000 is the excess dollars generated in 1996 re- appropriated by the Council to other funds. He said take actual expenditures, including debt transfers add $300,000 transit and $500,000 park referendum debt to compare base year 1996 and base year 1998. . Councilmember Mader asked what is the projection for year end in terms of excess? . Finance Director Teschner said as of October 1, it was $175-200,000, but he did not have an accurate projection prepared at this time. . Mayor Andren asked if the public had questions. . John Bailey of 16252 Parkview Drive asked about the increase of the General Fund of 10.99%, what the impact was on the tax statement. He said he built a home and expected an increase in value and a tax increase of 70%. He said his tax bill nearly doubled and he thought the increase was due to the increased spending by the City. He said the increase due to spending was 47% over last year as opposed to the 11 % General Fund increase. He said he did not understand the difference. . Finance Director Teschner said the value base of his home went from $84,900 to $143,500, so his increase would be very close to that 70% in property taxes. He said if the valuation increase went up 70%, there would be 50-60% increase in property tax as well because of the valuation. The increase in valuation to increase in property taxes is not a valid comparison. One is a base for the other, but the percentage increases do not correlate because the of the classification of tax values used by the County and State to determine property taxes. Your increase is $398 to County, $339 to City, and substantial increase for the School District, because the value went up so dramatically. He said Mr. Bailey went from $1,430 to $2,762. . Steve Mattson of Juran and Moody said the first $72,000 in value is taxed at 1 %, and anything over is 2%, which means the value went from $84,000 to $143,500 which is taxed at double the valuation of 1996. The valuation was at a higher level, and that is the biggest factor in the tax increase. . Mayor Andren said ifMr. Bailey did not understand, Finance Director Teschner would meet with him regarding the issue. 3 · Larry Tanzer of 15504 Omega Trail said in looking at the tax bill, all of the other taxing entities' taxing has decreased, and the City of Prior Lake tax increase due to spending was up 20% and the net was up over 15%, and he had trouble justifying that. · Finance Director Teschner said because of the referendum, the taxes were to go up 14%, and the other 1 % is from commercial industrial transfer to residential. He said a lower value home should have increased 16.2%. Homes in upper range should have gone up 14%, and mid range up 15%. · Mr. Tanzer asked about the vehicle maintenance, and why if a garage was built, maintenance costs did not go down elsewhere? · City Manager Boyles went over the revolving equipment fund. · Mr. Tanzer asked then is the City going to have a net savings by doing this in the long run? · City Manager Boyles said the only way track it is by centralizing it. He said then they could find out what those activities cost the City. · Mr. Tanzer asked what the net increase would be after all of the reductions were taken. · Finance Director Teschner said there was no net reduction. He said much of the vehicle maintenance is in -house. There was no increase in the overall operating budget. · Kevin Bergstrom, 16030 Eagle Creek A venue, asked about the 8% budget increase as a result of debt service on the Park Referendum bond. How much is going to be offset by the City's 20 million dollar bank account? · Finance Director Teschner said the majority of the funds are dedicated. The interest anticipated to be earned from the referendum proceeds were part of the original budgeting for Park and Library improvement. The 8% is not purely bond interest, it is principal as well. There are 21 funds, and the interest income on the two million dollar General Fund reserve is programmed. All other moneys must stay in the various funds and cannot offset the impact of the property tax levy increase. · Mr. Bergstrom asked how much of the City's budget is offset by contributions from the Dakota Community? · Finance Director Teschner explained there was a two year contract that the Council approved, $255,000 for Police and Fire for 1998, and approximately $265,000 for 1999. · City Manager Boyles said there was a court order requiring the City to provide services without payment from the Community. · Mr. Bergstrom asked why the City spent less on public safety and more on parks and recreation than other cities? · City Manager Boyles said these were averages. · Gerry Eick of Abdo, Abdo, and Eick said that two of the most significant revenue sources in a City are the property taxes and money from intergovernmental revenue. Most of those come from the state in the form of aid, or homestead credit. Those amounts represent over 2/3 of the revenues to the general fund. · Mr. Arnoldi said his taxes went up $80 this year and he was a senior citizen and did not know how seniors could meet these taxes. He said the City should freeze taxes on seniors. 4 · Mayor Andren said the City did not have the authority to do that, it would be the state legislature. She said they were aware of the situation with seniors and those on fixed incomes. She said she would suggest the new Council formulate a senior citizen committee to talk to state legislators. The City is governed by statute, and it was the state that determined taxes. She said seniors should contact Senator Claire Robling and Representative Becky Kelso. · Mr. Eick said as it relates to the budget surplus, the 2 million is needed because the City starts with a checkbook in the beginning of the year, and the tax settlement from the County does not come until the first week in July. The City goes six months with no revenue. The tax levy is $0.54 per budget dollar. Without the cushion, if the City is unable to make payments, they are unable to borrow money, and the bond ratings would go down. · Mayor Andren asked how that would impact the taxpayers. · Mr. Eick said it could be as much as $10 per year for the average home. It wouldn't reduce taxes by much, but is a significant amount of money. The City should be very careful about cutting reserves, there are a lot of negative consequences. · Matt Prettyman of 3442 Sycamore Trail said with respect to surplus issues, he thought the City should tighten up. He mentioned the sand/salt building, and said it has more sand than it can hold. · Kevin Bergstrom approached the Council again. He asked about contracting out services such as payroll. · City Manager Boyles said they have done so in various areas such as ambulance service, joint powers agreements with other communities such as street sweeping, and consulting engineers. · Mr. Bergstrom asked how frequently the City's entire operating system reviewed for more efficient ways of doing business. He asked if the City has considered down-sizing. He said the City expands its staff at the expense of the taxpayers. · City Manager Boyles said senior employee buy-outs have not been considered. · Emmy Schneider of 16940 Elm Avenue SW said she did not know how the Council has perceived the budget. She said a preconceived idea about a 10% tax cut should be addressed. This may have come from a suggestion last year. She asked Finance Director Teschner if using a thousand dollar figure paid out in taxes to Scott County, what would the tax savings be to Prior Lake taxpayers. · Finance Director Teschner said if there was a 10% cut in City share of the property taxes as opposed to a 10% cut in property tax across the board, the City levy reduction would be $344,000. A typical home of$127,000, would realize a tax savings annually of$59 or $5 per month. · Ms. Schneider asked if a homeowner pays $1,000 in total property taxes to Scott County, does the City get $250? · Finance Director Teschner said yes. · Ms. Schneider said she wanted to know about the savings which would be realized by property tax payers with various property values. · Finance Director Teschner explained the annual impact of the levy reduction from $85,000 to $500,000 homes. 5 . Ms. Schneider said the benefit if there was a 10% City levy cut would only come to those homes above $175,000 in value; before that there was not much of a tax break. She wanted to know how a %10 City levy cut would affect the City. . Finance Director Teschner reviewed some potential cuts including loss of one Police officer, loss of a Police secretary, loss ofa zoning administrator, cutting economic development authority, and deferral of maintenance costs in Parks and Public works. He said there would be a significant impact across the board. The Council would have to decide which cuts should be made. . Ms. Schneider said it is necessary they know the benefits and losses. She said the Police Department and Fire Departments were vital to the citizens, and if there was a cut, they should not cut the health and welfare of the citizens. She was concerned with how bond rating would be affected, how future projects would be affected? . Finance Director Teschner said with respect to existing projects, those areas were untouchable. He said with respect to future bond rating, if the reserves are drawn down, that sends a message to the fmancial community with respect to the ratings. He said a one-year draw-down on the reserves would not result in a bond rating reduction, however then there would be a problem in 1999 with bouncing back to the prior tax level, and would have a roller coaster effect. If it became a trend, the fmancial community would take it as a signal. The reserves is a very important indication, and a weakening in the City's condition would result in downgrading of the City's bond rating. . Ms. Schneider asked about the $300,000 surplus from last year. . Finance Director Teschner said the Council had appropriated about $100,000 to the compensation fund for employees' vacations and sick leaves as recommended by the State Auditor. There was also $75,000 for satellite fire station land purchase, $75,000 for Lakefront Park improvements, and establish an equipment fund at $75,000-$100,000. The surplus was a combination of a 2% under- expenditure in the 1996 budget, and building permit activity 3-4% higher than originally projected. . Ms. Schneider asked if there was no new development, would the surplus end? . Finance Director Teschner said as far as development revenue, yes. Development Revenue is budgeted at $35,000. We have experienced $100,000-$150,000 per year. That would dry up leaving less surplus. . Ms. Schneider said the surplus is not caused by overtaxing. . Finance Director Teschner said no. It was a result of higher levels of revenues and lower expenditures than projected. . Ms. Schneider said some time ago the Council voted to have new development pay its own way, and she wanted to thank the Council for this approach. She said she hoped the new Council would continue to serve as well. . Tom Schneider of same address said he was a citizen of Prior Lake for 20 years and there has been tremendous growth. He said he was concerned about the surplus that exists in the State. He said he has compared taxes in Minnesota and Wisconsin. Taxes for County, School, and City in Wisconsin are higher than Minnesota. He said the City should be complemented on the job it has done. He has seen the streets and the schools improved and there still needs to be more improvements. He said the City should be fiscally responsible, but the City has done a good job through the years. He said what they need to do is take a look as citizens as to where they would want the surplus to go if they could decide. He said he does not think the City has overtaxed him. He asked if the City needs to cut services to the 6 .. ~. ..... citizens? Any cut in taxes would cut what he would receive in services. He said the City should continue to do a good job. MOTION BY SCHENCK SECOND BY MADER TO ADJOURN THE PUBLIC HEARING. Upon a vote, ayes by Andren, Kedrowski, Mader, and Schenck, the motion carried. . Mayor Andren explained that the Council by law was not allowed to take action on the Budget tonight. She said they would take action on December 15th. . Councilmember Mader said they should schedule it at a different time than 6:00 p.m. next year so that people can make the time. MOTION KEDROWSKI SECOND SCHENCK TO ADJOURN THE MEETING. Upon a vote, ayes by Andren, Kedrowski, Mader, Robbins, and Schenck. ~meeting adj~d at { J \. <U~ ' Citr MZ:: ~ Recording Secretary 7